It’s hard to imagine a stormier series of events in the life of a start-up than those undergone by Business Layers last week. It began with a spate of rumors that BMC Software (NYSE:BMC) was in advanced negotiations to acquire the company for $80-100 million. Then there were real protracted negotiations to close an OEM agreement with Netegrity (Nasdaq:NETE), and finally the company announced that its eProvision Software would support SAP’s (NYSE; LSE:SAP; XETRA:SAPG) NetWeaver.
Good company karma might explain this uncommon convergence of events, but even if the spiritual hypothesis is disproved, the plethora of events is evidence that something is happening at Business Layers - even if exactly what is still unclear.
A few months ago, IBM (NYSE:IBM) acquired US start-up Access360, one of Business Layers’ main competitors, for an estimated $140 million. Both companies develop identity management software that enforces access policy for an enterprise’s applications and information systems. In other words, it ensures that employees can go only where permitted and do only what is allowed.
The acquisition of Access360 can be understood in the context of the growing interest in identity management, tipped as a hot topic. Business Layers generated a buzz in the field when it coined the word “eProvisioning”, which refers more to monitoring and enforcement policies than identity management.
Before the acquisition of Access360, the identity management field was fighting for its own identity. Since the acquisition, there has been little question. Overnight, Business Layers became a natural acquisition target for IBM’s competitors, hence the recent rumors.
“We are in a hot market,” says Business Layers cofounder, president and CEO Izhar Shay. “Major companies are always interested in us. It may come to fruition in the form of collaboration with a particular company, non-competition with several other companies, OEM agreements, or acquisition. Several major companies have talked with us about these things, which is probably why BMC came up. We already cooperate with them and we jointly won some significant customers, which may be why someone assumed an acquisition was on the cards. Someone added two and two to make eight.”
Time to market is still valid
Shay’s comments conform with an official statement IBM was quick to rush out following the announcement that Netegrity signed an agreement with Business Layers last week. IBM stated, “Netegrity has talked about adding this functionality through acquisition, internal development, and finally an OEM deal. Netegrity's move is yet another proof point that the industry is looking for an integrated approach to identity management.”
Besides IBM, enterprise software analysts have also been speaking favorably about an integrated concept. Business Layers’ new partner is therefore doing good business selling identity management software for Internet environments, and can now offer similar software at the application level.
Shay claims there is strong synergy between the two companies’ products. He also expects a substantial increase in Business Layers’ sales. “Netegrity has 660 customers who now become our target audience,” he says. “We are a small company with 30 customers. The agreement is a huge lever for us.”
To return to the topic of BMC for a moment, it selected one of Netegrity’s main competitors, a promising US start-up called Oblix, to be its partner to form a relationship similar to the Netegrity-Business Layers one. Such deals are a tranquilizer for small companies in the field like Business Layers, following earlier assessments that the entry of software giants into their field would block their sales channels. Even in saner times, time to market - the mantra forgotten by the dot.coms - is still a valid criterion.
The acquisition of Access360 is also a positive indicator for the future of other companies in the field. The company valuation for the deal was also flattering. “If the reported figure is true, then Access360 was sold at a multiple of 10, which is an excellent value for a private company,” says Shay. “If we wanted to sell the company, we’d obviously want to do so ASAP, while the market still remembers these multiples, but the matter is irrelevant for now. We want to build an independent company, and we’re considering an IPO, even though the window is closed and will stay shut for a long time.”
The acquisition isn’t only good news for Business Layers. It must now compete directly with IBM - something a start-up would rather avoid in hard times like these. Shay, nevertheless, stubbornly looks at the positive side. “IBM has taken one of our competitors off the market, and it will take them time to return. This is an opportunity for us to win market share.”
Shay admits that Business Layers will face a challenge when IBM returns to the market with a solution developed by its new acquisition integrated with its own relevant products. IBM earlier launched an unsuccessful Tivoli product line, by the way. Shay’s optimism is based on an assumption that customers will buy best-of-breed products, rather than the packages offered by IBM.
Business Layers is trying to hedge its bets by developing an alternative concept, as implied by its announcement last week that its eProvision Software will support SAP’s NetWeaver, its next-generation infrastructure platform. Goldman Sachs explicitly stated in a report following NetWeaver’s launch that eProvision “is intended to help SAP strengthen its position as a supplier of software packages against its competitors’ best-of-breed perspective.”
A year outside the circle
SAP intends for NetWeaver to improve its position in the emerging web services market. One of NetWeaver’s key features is the support it offers for web services and other software products developed on the basis of IBM’s WebSphere and Microsoft’s (Nasdaq:MSFT) Dot.net environments. In effect, SAP wants to position itself as a neutral broker.
By supporting NetWeaver, Business Layers hopes to position itself as the leading provider of identity management solutions for SAP users. Its announcement came out almost simultaneously with NetWeaver’s official launch. Business Layers and IBM were the first companies to unveil support products for NetWeaver. This fact in itself hints at collaboration by the parties that goes beyond the usual cooperation in such middleware cases.
“We worked with SAP teams for a year to enter NetWeaver’s circle, to learn where it was going and what we had to do. The timing was coordinated,” confirms Shay. He adds, however, that there isn’t a wider agreement between the companies at this time. “We are obviously not the most important supplier for SAP. They don’t sell our software, and there isn’t a strategic relationship as far as SAP is concerned. Nonetheless, our intentions are quite serious in this matter.”
Business Layers’ effort to develop a business relationship with SAP is also seen in its new product, scheduled for launching by the end of March. “Our new product is aimed at SAP’s customers. It will help allocate and authorize access for SAP’s applications space,” says Shay. “It’s an entire world that requires access authorization and monitoring rights at the right time and place.”
Open access as nightmare
The web services market in general is a source of hope for Business Layers. “If it catches on and the world becomes based on web services as we predict, eProvisioning must become an integral part of it,” declares Shay. “The idea is that an enterprise grants both internal and external decentralized access to its applications. This is an administrative nightmare. There is a financial aspect beyond the security aspect - an enterprise that allows access to its applications through web services has to pay for the transaction.
“In five years, solutions will be needed to manage access authorization to these applications - i.e. whether to permit access and how much to charge for it. It’s tailored for us. That is why we’re working with the standards committee. If web services take hold, it will be the market’s gift to us.”
Business Layers announced in December that it was joining the Liberty Alliance Project, an industry body formed to develop open specifications for network identity, that will ultimately help to enable individuals and businesses conduct transactions while protecting the privacy and security of vital identity information. The Liberty Alliance Project is headed by Sun Microsystems (Nasdaq:SUNW) as an alternative to Microsoft’s Passport authentication service. Shay denies Business Layers was joining the camp. “Our position is that we support the Liberty Alliance Project. Some members joined just to get back at Microsoft, while others were motivated by self-interest. We belong to the latter group. We also work with Microsoft, though more at the functional, rather than the standards, level."
Published by Globes [online] - www.globes.co.il - on January 22, 2003