Enterprise application upheaval

Last week saw upheaval in the business software market, with billion dollar deals flying thick and fast, and more than a little confusion over who was going to buy who, and why.

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By  Mark Sutton Published  June 7, 2003

Last week saw upheaval in the business software market, with billion dollar deals flying thick and fast, and more than a little confusion over who was going to buy who, and why.

At the start of the week, PeopleSoft announced a bid for JD Edwards, in a deal that would have given PeopleSoft a much needed toe-hold in the mid-market, and access to JD Edwards' customer base. It would also have made PeopleSoft the second largest enterprise application vendor in the world after SAP.

Naturally this did not go down too well with Oracle, which would have been bumped into the number three slot—Oracle subsequently then launched a hostile bid for PeopleSoft, going direct to shareholders. At the same time Baan was bought by an investment group, that will merge the one-time ERP leader with SSA Global Technologies.

While Oracle CEO Larry Ellison says that he had been in talks on a possible merger with PeopleSoft, the move smacks of a spoiler designed to derail the JD Edwards deal, and to make sure that Oracle stays on top. It is difficult to see where Oracle gains a great deal of value from the deal.

There is considerable overlap between Oracle and PeopleSoft products, and Ellison has said that the deal will not result in the development of new PeopleSoft products, rather the functionality of the PeopleSoft line will be incorporated into Oracle products, with PeopleSoft customers encouraged to migrate to Oracle.

This strategy is possibly a gamble, and may leave PeopleSoft customers looking elsewhere for their future needs. Craig Conway, CEO of PeopleSoft has attacked Ellison for what he calls ‘atrocious behaviour’, and it is possible that Oracle could alienate PeopleSoft customers with its actions.

Ellison is also risking a relatively low offer on PeopleSoft shares, at only a small margin over their current trading price. This, however is more indicative of the state of the enterprise applications market than tight-fistedness by Ellison.

PeopleSoft was specifically going after JD Edwards to give it mid-market reach; and while Oracle already has a mid-market play with its E-Business Suite Special Edition, the high end of the market is over-served and the mid-market looks much more attractive and there are plenty of smaller ISVs in the space ready for acquisition.

Ellison seems to be betting that PeopleSoft shareholders will have more confidence in a bigger, better Oracle than in a still independent PeopleSoft. The technology will give Oracle a better offering to fight off Microsoft, as the vendor looks more and more towards enterprise level applications, but with Ellison it is hard to tell whether the move is really being made to build a stronger Oracle or just to hit PeopleSoft for trying to usurp Oracle.

What is certain is that the deal creates confusion for customers and partners alike. Consolidation in the enterprise applications market is inevitable, but the upheaval from this proposed deal could ultimately lead to many customers looking elsewhere to guarantee continuity for their applications.

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