Oracle Corp.'s newfound control of PeopleSoft won't result in vast improvements to the E-Business Suite, according to analysts, but it could result in long-term benefits for users of both application suites.
The approval of the $10.3 billion merger this week makes Oracle the second largest application software vendor in the world. But its 18-month-long battle for PeopleSoft has triggered sagging sales of the E-Business Suite and prompted criticism from some Oracle users that the company has ignored complexity issues associated with their product.
Oracle's newly purchased assets aren't necessarily technical in nature, said Joshua Greenbaum, principal consultant at Berkeley, Calif.-based Enterprise Applications Consulting.
"I don't expect a tremendous amount of the PeopleSoft functionality to end up in the Oracle E-Business Suite," Greenbaum said. "Oracle didn't buy PeopleSoft for its technology, they wanted its customer base. There is an economy of scale and synergy in having a large customer base as a software vendor.
"Oracle customers will benefit very much, because finalizing the merger lets Oracle get back to focusing its efforts on its applications business."
Oracle won't attempt to completely combine the PeopleSoft human resources and financial apps with their Oracle counterparts, said Oracle president Charles E. Phillips Jr. in a conference call Tuesday. Instead, Oracle developers will work to complete a final upgrade to the PeopleSoft and J.D. Edwards & Co. software and then focus solely on producing more functionality in the E-Business Suite.
"Over time we'll take some of the features we see in the PeopleSoft line and move it to the Oracle product line," Phillips said. "We do have some overlap in many of our product areas."
Phillips said he will be working with PeopleSoft executives immediately to ensure a smooth transition and he expects to have a new organization in place for the combined companies by Dec. 30.
Consolidation in the enterprise software industry is natural, Phillips said, because there is not enough business to go around. Instead of completely combining software suites, Oracle will focus on PeopleSoft partnerships and keep its customer base to ensure that Oracle's applications business remains strong, Phillips said.
To maintain a strong product line and make any inroads with ERP software leader SAP, Oracle must determine a way to convert its newfound customer base to Oracle products, according to analysts. Combining the software may not be the most prudent for Oracle.
"The long-term benefit will be from having a larger development staff and ultimately larger numbers thrown at a variety of problems," said David Yockelson, senior vice president and research analyst at Stamford Conn.-based Meta Group. "The way PeopleSoft is architected, it wouldn't be impossible, but I don't see Oracle making a decision that says there is a big piece that we do that is inferior, let's swap it out."
PeopleSoft's human resources and financial software is non-strategic, meaning that the software doesn't usually result in immediate revenues to users. Combining the technology into the E-Business Suite may result in an improved product, but it may not make the product more attractive to new customers, Greenbaum said.
"There's a lot of questions about how much Oracle would stand to gain functionally from bringing in PeopleSoft's non-strategic set of products," Greenbaum said
The merger may be a win for Oracle if PeopleSoft and decide to outsource their HR management systems, said Philip Fersht, director of the business applications and commerce group at Boston-based Yankee Group.
"The prospect of having to spend $5 million on IBM or a server transformation may drive CIOs[chief information officers] to think its time to get someone else to take care of this problem," Fersht said. "A lot of companies getting added benefits from outsourcing HR management systems, and Oracle could benefit by licensing through its outsourcing channels."