Oracle VS Peoplesoft

Oracle may have won the court battle and acquired its California-based rival, but the challenge of securing PeopleSoft’s customers remains.

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By  Angela Prasad Published  December 30, 2004

|~||~||~|After 18 months of courtroom drama and the ousting of PeopleSoft CEO Craig Conway and the return of its co-founder Dave Duffield, the battle between Oracle and PeopleSoft has finally come to end.

PeopleSoft has surrendered and Oracle has signed a definitive merger agreement to acquire its rival for approximately US$10.3 billion. The transaction has been approved by the boards of directors of both companies and is expected to close this month. After investigating the takeover bid and its potential impact on the market, the European Union’s competition commissioner Mario Monti, has also given the deal the light to go ahead, as have regulators in the US.

“Oracle has signed an agreement to acquire PeopleSoft. This merger gives Oracle even more scale and momentum,” says Oracle CEO Larry Ellison. “The acquisition will work because we will have more customers, which will increase our ability to invest more in applications development and support. We intend to enhance PeopleSoft 8 and develop a PeopleSoft 9 and enhance a JD Edwards 5 and develop a JD Edwards 6. We plan to immediately extend and improve support for existing JD Edwards and PeopleSoft customers worldwide,” he adds.

George Battle, chairman of PeopleSoft’s transaction committee, believes Oracle’s offer of US$26.50 per share provides good value for his company’s stockholders. “PeopleSoft is a strong and vibrant company and this has been a long, emotional struggle, and our employees have consistently performed well under the most challenging of circumstances,” he adds.

While Ellison remains upbeat and portrays a rosy picture of the hostile takeover, his organisation remains silent on restructuring, product overlaps, job redundancies and the impact the merger will have on the two vendor’s global operations, including those in the Middle East. Prior to the takeover, PeopleSoft had 12,750 customers in 150 countries.

Reuters reported during Oracle’s US antitrust trial over the summer that analysts who evaluated the implications of a merger estimated in court testimony that between 6000 and 10,000 PeopleSoft employees could be laid-off. However, the vendor does say that it intends to treat the PeopleSoft product line like any other Oracle product. It plans to prepare certified configurations and build the necessary infrastructure to host those products.

On the other hand, Oracle will not actively market PeopleSoft products so as to avoid confusion in the market place. The vendor will put development resources into building a single product that incorporates the best features from both company’s offerings.

Oracle believes that by focusing on one product vision, it will be able to provide higher levels of innovation and lowers prices because it will eliminate duplication that diverts focus and resources from customers. As for the former JD Edwards product line, Oracle says given the limited information PeopleSoft management has shared publicly regarding its plans for the products, it is unable to provide a detailed product roadmap.

Also in doubt is how PeopleSoft’s US$1 billion bundling venture with IBM will play out. Under the terms of the contract announced prior to Oracle’s successful bid, Big Blue and PeopleSoft had decided to spend US$1 billion over the next five years in order to bundle WebSphere middleware into future shipments of PeopleSoft products.

Neither PeopleSoft nor IBM was able to shed any light on the future of the deal. By acquiring PeopleSoft, Oracle believes it will be better able to compete with SAP. However, the integration of the two software titans is not going to be easy.

Aside from the impact the recent mudslinging will have on the customers and partners of both the vendors, the deal underscores a sluggish global software industry that has few high-growth prospects. Oracle is aware of this challenge and plans to dedicate significant resources to ensure that customers experience no disruption during this period.

Yet despite Oracle’s upbeat view on expected customer feedback, other ERP vendors believe the deal will present opportunities for them, especially in markets such as the Middle East. For example, Exact Software believes it can take advantage of likely customer confusion.

“There is a lot of opportunity for ERP vendors in the Middle East. The demand will continue to be strong for ERP solutions across the region, as companies look to streamline their operations and reduce costs as small-to-medium sized (SMBs) continue to grow,” says Nizar Badwan, general manager, Exact Software Middle East.

Research firm IDC says the acquisition will have a notable impact in the Middle East software market, specifically in the enterprise resource management (ERP) and customer relationship management (CRM) environments. SAP, Oracle and PeopleSoft, which are considered the market leaders in the region, have captured approximately 66% of the regional market over the years, while the remaining 33% comprises more than 30 small players.

“This announcement is in line with IDC’s prediction of continued consolidation in this highly fragmented market. We believe the move will further solidify Oracle’s position in the MENA market, which together with PeopleSoft closely followed SAP,” says Heini Booysen, programme manager, software & consulting practice at IDC MENA.

“Furthermore, Oracle will now be able to further penetrate industry sectors where PeopleSoft historically had an advantage. For example, the vendor will now be able to target midmarket customers in construction, engineering, consumer products and food and beverage,” he adds.

However, not everyone agrees that the deal will have a significant impact in the Middle East. For example, Oracle customer the Al Ghurair Group believes Oracle customers will escape unscathed. “We have to be aware of the fact that this was a hostile acquisition… and in the end Oracle won. Basically, there is going to be a single management [team] and that will be Oracle’s. I think Oracle’s long-term vision on apps will be imposed, but this is not to say that PeopleSoft customers are going to be adversely impacted,” says Hatem Al-Sibai, CIO of Al Ghurair Group.

“Most firms, when they acquire aother, offer customers excellent alternatives. They want them to stay on their applications and other services. I’m sure Oracle will do that.”
Al-Sibai is correct. The takeover is not really about buying software, but about acquiring PeopleSoft’s users. It is unlikely that Oracle is going to risk losing them having come this far.

Past evidence suggests Oracle will keep hold of them, as it managed to retain the majority of RDB’s customers when it bought the database company from Digital Equipment. At the time, Oracle listened to RDB’s users. It plans to do the same with PeopleSoft’s and has already promised to support them and launch PeopleSoft 9 in 2005.

While Oracle customers will see the development of the E-business Suite apps continue on the current schedule, they will also see the incorporation of PeopleSoft product capabilities, as well as a larger combined R&D budget.
As for the product upgrades and services, Oracle says the most significant architectural upgrade, akin to what PeopleSoft customers experienced while moving from PeopleSoft version 7 to version 8, would be to an Oracle infrastructure — a single database with a single data schema built on Oracle.

The next-generation E-Business suite product will be a superset that incorporates the features of the PeopleSoft products customers find valuable. There will be no charges to PeopleSoft customers for the next-generation product superset as a module-for-module exchange as long as the customers are current on maintenance. This will be included as part of the value delivered for the customer’s maintenance fees.

Al-Sibai says the smoothness of the transition will depend on what happens over the next few months and what information Oracle releases to the existing PeopleSoft customers. If Oracle manages to address the concerns of PeopleSoft customers then the impact will be minimal. “I really think that Oracle will address the issues and will offer assurances to PeopleSoft customers. If Oracle does not address these concerns then certainly there will be an impact.”

Although Oracle in the Middle East was unwilling to comment on the deal at the time of going to press, the signs are that it will work out are positive. Then again, as Oracle is still short of SAP’s market share and the ERP market does not have the growth rates it used to, they have to be.

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