William T. Coleman III is a man of many opinions, whether the subject is the economy, electricity, or how to run a good software company. A veteran Silicon Valley executive, Coleman worked for a company that lost to Microsoft in the early '80s, failed at starting his own company in the mid-'80s, and settled into a senior role at Sun Microsystems for a decade before starting his own company six years ago. He has seen the good and the bad that the tech sector has to offer.
Now the chief executive officer and co-founder of BEA Systems, one of the few young software companies still doing well, Coleman finds himself, at 53, the toast of the town. BEA, which makes software to run big e-business systems, is growing as fast as any software company ever has. It's profitable and edging toward $1 billion in revenues. The company is also managing to hold off giant competitors like IBM, Oracle, and Sun Microsystems.
Coleman recently sat down with BusinessWeek Correspondent Jim Kerstetter and spoke on a wide range of topics. Here are edited excerpts of their conversation:
Q: Is California, particularly Silicon Valley, bearing the brunt of the country's economic problems?
A: I think if California is hit harder, it will be very, very temporary. I think there's a big shakeout going on now. But I personally think we'll see job growth in the Valley, not job destruction.... There are lots of companies still hiring. Like us, for example.
Q: But what about the problems at Cisco? That can't bode well for the rest of the Valley.
A: The very big companies -- Sun and Cisco -- are going through a temporary problem, which is an oversupply problem. But [their] markets are still growing. They may contract a little bit now, but they'll be alright eventually.
Q: And the little guys?
A: There are a lot of teeny little companies that haven't yet proven to be of any value to customers. Almost all the business-to-business companies are there.
Q: So who's really in trouble?
A: The only industries that have a systemic problem that are going to take a few years to come back are semiconductors and PCs. I think PCs aren't a growth industry anymore, and I think it will decline in this decade. And I think that will nip semiconductors.
Q: It looks like it's even getting ugly in the software world, isn't it?
A: I've been saying since the end of December that we were going to see a debacle in enterprise software in the end of the first quarter, because most enterprise software companies mortgage their future by getting people to sign up for bigger and bigger deals. Most customers push that to the end of the quarter. And they give them a bigger discount to buy future revenue now.
In slow times, all companies that do that hit the wall. Oracle, about every six to eight quarters, hits the wall. The last time was in October, 1998. It's almost impossible in the enterprise software business to not have that model.
Q: But you don't?
A: We made that change two years ago. We took a hit, we let our revenues dip down for a time so they could come back up and be much steadier and much more predictable when they do.
Q: What about Ariba? They're not looking too healthy right now.
A: A lot these guys were in markets that were buying for the future for their businesses. So lots of companies went out and said "I've got to build these trading exchanges," and went out and bought a lot of Ariba software.... What's happened is these trading exchanges haven't yet proven to be economically viable. So not only can't Ariba sell ahead, but they have customers that have bought who haven't justified that investment and don't even see if they are going to be able to. So a lot of this is a shakeout of what is the real value creation in the New Economy.
Q: When will the shakeout finish?
A: The dot-com shakeout isn't done until the B2B shakeout happens. None of these trading exchanges has proven viable. In the next few years, the money to be made is not getting your paper clips 10% cheaper. The money to be made is to be able to do, dynamically, with off-the-shelf software over the Net, what Walmart spent billions of dollars to do to get competitive advantage by controlling its suppliers' inventories.
They took it to the point that they could dynamically make each manager of a store buy even off the local company to adapt to what people are buying. So they made that into a competitive weapon. But we haven't done that yet. The Commerce Ones and Aribas have shown a potential there. But they haven't done it yet.
Q: Let's shift gears. What about the electricity crisis in California? Will it impact BEA?
A: Not really. We've always restricted our headcount here. And most of our development is outside of California. Cisco has more than 50% of their employees in Silicon Valley. Sun has some 30%. We've restricted our headquarters count to 18%.
Q: Why?
A: When I ran software development at Sun, what we found is we could never get software development outside the Bay area because we didn't start it out there. You can't transfer software developers.... So we started seeding our development in different areas, so we have hubs in Boston, Colorado, Dallas, and of course we have a Bay area hub.
Q: Did California blow it when it deregulated electricity?
A: I firmly believe the energy crisis is going to last for many years because it's about a supply problem. We basically tried to suspend the laws of supply and demand back in 1996.... We should have allowed the price of energy to float to begin with. Price would have gone up. Not as high as it would have gone up now. And then demand would have done the same thing it did in the telephone industry and the airline industry. Eventually, we would have overcapacity, and the price would come back down.
Copyright 2001, Bloomberg L.P.
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