Oracle forever alters the enterprise application landscape

By Jim Zimmermann 21 Dec 2004 | Bitpipe Analyst Views

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Eighteen months after a surprise hostile takeover bid for PeopleSoft, Oracle finally successfully reached a definitive agreement to acquire the Pleasanton, California-based enterprise applications software vendor. During that year-and-a-half, PeopleSoft fought off each advance of Oracle in a battle that, according to IT Analysis.com, featured 'courtroom drama, poison pills, personal enmity and, recently, the departure of PeopleSoft's CEO Craig Conway.'

Although no one yet knows what the final straw was that broke the back of PeopleSoft's resistance, several factors definitely led to the conclusion of a deal:

• Oracle's final offer of $26.50 per share was 65 percent above their initial offer of $16 per share.
• PeopleSoft's shareholders thought it was a good deal for them. Just a few weeks ago, more than 60 percent of PeopleSoft's shareholders agreed to tender their shares to Oracle at the $24/share level. When the share price was increased another 10 percent, the momentum among the shareholders was probably unstoppable.

Oracle and PeopleSoft expect to have the deal finalized by the end of this month and, according to Oracle's President Charles Phillips, the combined company plans to 'hit the ground running in January.' By now, most of the analyst firms have weighed in with their first round of post-acquisition views. The analysts are concerned about a number of issues:

• How well will Oracle be able to complete the process of merging the two firms into one well-oiled organzation?
  • Bruce Richardson of AMR Research was quoted in an InfoWorld.com article as saying, 'It will take a while to digest this acquisition. It's like a python swallowing a school bus. It will be especially hard if they decide to support all three product lines.'
  • In a separate research brief, AMR states, ' One hurdle for Oracle is to complete the absorption and integration of a huge acquisition without too much confusion, which could impair customer relationships or kill its momentum in the marketplace. '
• Will Oracle be able to retain the PeopleSoft employees that it needs to execute in PeopleSoft's markets?
  • Michael Dominy, an analyst with Yankee Group, stated in an InformationWeek.com article, 'Oracle needs to be sure and retain the people with expertise in those markets.' He added, 'It's not yet clear that it will know how to do so. Efforts to retain PeopleSoft employees and the company's customer base may have been hurt by Oracle executives' comments about its plans for PeopleSoft in the early days of the takeover attempt.'
  • Meta Group analyst David Yockelson was quoted as saying, 'One of the biggest risks for Oracle is whether it will be able to retain enough of the right people.'
• Will Oracle's competitors take advantage of the confusion and lure away PeopleSoft and Oracle customers?
  • Most analysts agree that SAP and Microsoft in particular will attempt to benefit from the acquisition. According to AMR's Richardson in the InfoWorld.com article, ' In the coming year, SAP has the opportunity to reap the high-end and Microsoft can go after the SMBs (small and medium-sized businesses) while Oracle is distracted (with the details of the merger). SAP (celebrated) yesterday. And Microsoft is also going to love this. Clearly, if you are a customer looking to do a first-time purchase, you don't want to worry about where Oracle is going to go with its products. It's a huge distraction.'
  • According to Robert Frances Group (RFG), the attack on PeopleSoft's customers has already begun. RFG reports, 'Just two days after Oracle and PeopleSoft announced their agreement to merge, Microsoft Corp. issued its first formal proposal to PeopleSoft customers. According to published reports, Microsoft VP Bill Veghte sent a letter to PeopleSoft users urging them to migrate their AS/400-, mainframe-, and Unix-based PeopleSoft applications to alternatives running atop its Windows Server System. Moreover, Veghte urged those users already running PeopleSoft applications on Windows to consider investing in additional Microsoft technologies such as .Net. Veghte is also encouraging all PeopleSoft customers to consider shifting to Microsoft's own ERP applications or those of Microsoft's partners such as SAP AG.'
• Will Oracle continue to support PeopleSoft's (and JD Edwards') product lines?
  • Reportedly, Oracle is committing to supporting these products for 10 years, but not without significant changes. The upgrade to PeopleSoft 8 will continue unchanged, but according to IT Analysis.com, PeopleSoft 9 'will run on Oracle's technology infrastructure to allow customers to benefit from one single underlying platform.' IT Analysis.com also states, 'Oracle needs to provide clear guidance of its intentions with its products and positioning earlier rather than later if it is to avoid customer churn and the risk of losing prized resources.'
  • AMR Research reports, 'Oracle senior executives were adamant that they would provide long-term support and substantial enhancements to the PeopleSoft products. They also publicly stated that they had no intention of selling off the portion of PeopleSoft that was formerly J.D. Edwards. In the announcement of the merger agreement, Oracle said it will develop PeopleSoft9 and J.D. Edwards6 products in the future.'
  • Gartner is telling its clients they should 'expect only modest enhancements,' and 'Oracle will invest most of its resources in its own E-Business Suite. Enterprises considering year-end deals or upgrades to PeopleSoft products should continue to do so if revised future product expectations match requirements. Do not let merger-related discounts tempt you to buy products you have not evaluated thoroughly. Gartner believes PeopleSoft's development plan around IBM WebSphere will likely not occur.'
  • ARC Advisory Group also provided guidance on PeopleSoft's products, focusing its attention on the PeopleSoft World products that run on the AS/400. According to ARC, 'In announcing the acquisition of PeopleSoft, Oracle makes no mention of the future fate of PeopleSoft World customers, all of whom run in the IBM AS/400 environment. ARC can only assume that this group will be quickly sold off to another. Expect bids from SSA-Global and Infor (formerly Agilisys) and maybe even from a European-based ERP supplier who wishes to grow their presence in North America.' Gartner also cautioned EnterpriseOne customers to 'not commit to significant projects until Oracle reveals its long-term strategy for the EnterpriseOne product line.'

All-in-all, most analysts agree that if the acquisition is handled well by Oracle and PeopleSoft, the combined company could become a much more effective competitor to SAP in the global enterprise applications market.

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