Application servers go mainstream: A look at HP's latest buy –

NEWS ANALYSIS -- Hewlett-Packard's purchase of J2EE and XML specialist Bluestone Software may mark a turning point, both for the computer systems giant and for the application server industry that Bluestone helped spawn. HP bought Bluestone last week for over $450 million in stock, at about the same time Bluestone announced that it had lost $9.7 million on revenues of $11.6 million for the quarter ended Sept 30.

The purchase is notable. With one quick move, HP steps off the sidelines and joins the J2EE battle now led by Sun and IBM. This too is the first major software acquisition for a company that some say has truly entered the "Carly Age," named for Carly Fiorina, a CEO who is still new to a lot of people.

Last week's deal comes about two years after Sun Microsystems' purchases of NetDynamics and the Netscape Kiva server business (the latter bought by Sun in concert with AOL). In today's app server business, only a handful of application server makers are still independent, and these are increasingly focusing on services, not servers.

The HP-Bluestone deal is in some ways an admission that the application server decision is crucial, and that many IT managers will buy in to the application server only as part of a larger hardware systems purchase. Of course, database leaders Microsoft and Oracle have somewhat different takes on this issue.

All of this is not to say that the merits of Bluestone's software portfolio lie solely in an application server context. The company expanded on its initial Java application server (itself an expansion upon advanced software tools rooted in the long- past 4GL milieu) to embrace XML, wireless, and e-commerce features, all of which are quite needed today. But it is worth noting that the need to constantly develop software that has a place on the latest software must-have checklist (and, let's not forget, Bluestone also embraced Enterprise Java Beans before many others), in fact, is just one of many reasons why Bluestone's business was so expensive, and perhaps untenable in the end. Nevertheless, all these technology gems should be welcome additions in an HP software arsenal that has in many way been eclipsed in the recent years by Java-wielding Sun Microsystems.

For Hewlett-Packard, home of OpenView, HP-UX, and not much else in the way of notable software these days, Bluestone is an important new tool. HP's little known but highly innovative Change Engine workflow dispatcher, in fact, is built upon Bluestone technology. Customers have been looking to HP for more, admits Bill Russell, HP's vice president, who discussed the infant deal with at InternetWorld in NYC shortly after its announcement.

"Software is the place we need to be. This is our first acquisition in software, and we are not finished yet," said Russell.

P. Kevin Kilroy, Bluestone's chairman and CEO, said that competition for the company in recent years had increasingly boiled down to IBM's WebSphere and Sun-AOL's iPlanet server offerings. His customers had concern, he acknowledged, about Bluestone's relatively small size. Kilroy asked rhetorically: "Who has better stature than HP?"

Said Kilroy: "Bluestone has had leading technology but the question, as a small independent company, was, 'How do we compete with IBM and Sun?'"

Deals like this take a while to be realized, cautions industry viewer Tony Baer, principal of Demand Strategies in New York. "The big question," he said, "is whether HP will put Bluestone in the driver's seat of the company's middleware strategy."

Right now, it appears HP will do just that, said Baer, but he adds that the new partners will next have to follow through.

For Bluestone customers, this is likely good news, according to Baer. "Bluestone has always been a small company with big technology," he said.

As this was the week of Internet World, there was other, though less jarring, news from Bluestone. At the show Bluestone announced the general availability of its Java Transaction Service. As well, the company said it is bundling Progress Software's Sonic MQ Java Messaging Service with its flagship Total-e-Server Release 7.2.

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