By Tim Landgrave
After PeopleSoft announced its intention to acquire JD Edwards (JDE) in early June, it looked like it was on track to become a dominant provider of ERP solutions, second only to SAP. Although many investors and analysts questioned whether PeopleSoft could swallow JDE without disrupting service to its customers, the acquisition at least had some interesting synergy. But then it got really interesting. Rather than watch his chief rival move ahead of him in the ERP space, Oracle CEO Larry Ellison decided that it was better to become number one.
Oracle made a $5.1 billion offer to buy PeopleSoft. By combining Oracle, PeopleSoft, and JDE, the resulting ERP powerhouse potentially becomes the largest ERP vendor in the world, surpassing market leader SAP. As I'll discuss, not everyone believes that Oracle's motives are in the best interests of either the combined company or PeopleSoft.
It's all about Larry
If you ask Craig Conway, PeopleSoft's CEO, the only motivation for this move is to disrupt the JDE acquisition, not to add shareholder value for their combined shareholders or customer value for their combined customers. In fact, in a statement, Conway called it "atrociously bad behavior from a company with a history of atrociously bad behavior.” Conway sees Ellison's offer as both an attempt to derail the JDE acquisition and as a validation of the strategy itself. Given Ellison's ego, Conway's assessment of his motives is probably right on track. But is Larry really looking out for customers—and for which customers?
The top five ERP players in the current market are SAP, Oracle, PeopleSoft, Baan, and JDE. Another 20 or so major mid- and upper-market players include Lawson, Cincom Systems, and even Microsoft, with its acquisition of Great Plains and Navision. For large corporations making accounting systems decisions, the top five still account for most new sales and implementations. With Baan's questionable financial state, a combination of SAP's top three remaining competitors would make this a two-horse race. Perhaps it's more accurate to call it a race between a horse and a pack of mules.
While SAP has been honing its products and message for years, the new combined “OracleSoft” will have multiple solutions on multiple platforms (including UNIX, Linux, AS/400, and Windows NT running both Oracle and SQL Server databases) with no real synergy between them. In addition, since Oracle would burn most of its cash reserves finalizing the acquisition, OracleSoft would begin its new life by trying to cut products and people to make the venture cash flow positive and not strain other Oracle product lines (in a way, the new OracleSoft takes the “People” out of PeopleSoft). So customers end up with not only fewer choices, but also potentially less support or discontinuation of their product to support the new company.
The biggest disservice would be to PeopleSoft customers. Over the last few years, Conway has built a company that steadily wins business from Oracle with a superior product, focused marketing, and top-notch technical support. PeopleSoft made a huge bet expanding from its human resources roots into the ERP space. The strategy to do this with database and platform independence using Internet standards has put it in an enviable position in the marketplace. Although JDE customers would benefit from PeopleSoft's technology expertise and PeopleSoft customers would benefit from JDE's strong manufacturing product suite, I don't see how anyone wins with the resulting OracleSoft entity.
Rather than focusing on growing and improving the Oracle database product suite, the company funds Internet Terminals (although that venture, New Internet Computing Co., quietly closed down this month), Financial Systems, and anything else that Larry can think of that will allow him to beat Bill Gates. The last guy who was this focused on another executive rather than minding his own store was Phillipe Kahn. Don't remember him? That's because he drove Borland into the ground trying to compete with Microsoft in the Office market.
While Oracle consistently loses performance benchmarks and lacks a compelling development toolset, both IBM and Microsoft are driving the nascent Web Services market with their integrated WebSphere and .NET Framework toolkits, respectively. And guess whose databases operate the best on these platforms. If you guessed DB2 on WebSphere and SQL Server on .NET, you get a prize. As IBM continues its enterprise WebSphere push and Oracle continues to be distracted by deals like OracleSoft, it won't be too long before the legacy Oracle databases are replaced with DB2 on multiprocessor Linux boxes and 64-bit versions of SQL Server running on Windows Server 2003 DataCenter edition and Itanium hardware from HP, Unisys, and others.
The best possible outcome
I believe the best possible outcome for ERP customers—and therefore most CIOs—will be for Oracle to withdraw its bid or for PeopleSoft shareholders to vote down the acquisition. If PeopleSoft shareholders are patient, they'll overtake Oracle's ERP position in the next three to five years anyway. And they'll probably get more value out of waiting than going down with the OracleSoft ship. And if you're an existing Oracle Financials customer, perhaps you should take a strong look at PeopleSoft—just to see what Larry's so afraid of. The rest of the market will hold its collective breath and just hope that Larry's really bluffing.