Author: Yogi Schulz
The friendly acquisition of J.D. Edwards by PeopleSoft on 2 June 2003 triggered Oracle’s hostile takeover offer for PeopleSoft. Oracle’s Chairman, the ever-combative Larry Ellison, and PeopleSoft’s CEO Craig Conway have ratcheted up the temperature with inflammatory personal attacks. Since the Oracle offer, lawsuits, counter suits, accusations and rebuttals have been flying back and forth in full-page ads and in blistering press releases.
The stakes are high for all the combatants. If Oracle succeeds in grabbing PeopleSoft, Oracle wipes out a key rival and becomes a major competitive threat to German software giant SAP. SAP continues to dominate the multibillion-dollar business applications software market. If PeopleSoft defeats the Oracle takeover offer and completes its merger with smaller software rival J.D. Edwards, PeopleSoft supplants Oracle as the No. 2 player in that software market. In case there’s any doubt, Larry hates to be No. 3 in anything.
What are the implications of the PeopleSoft/J.D. Edwards/Oracle shootout for our businesses; especially if we’re customers of one or more of these software vendors or of SAP already?
Principally, this turmoil creates costs for customers who will be forced to migrate from software that suddenly has no future.
PeopleSoft Customers
If Oracle prevails in acquiring PeopleSoft, PeopleSoft customers will have the option to migrate to Oracle software. Not many will find this prospect appealing because they chose PeopleSoft over Oracle in years gone by.
The PeopleSoft acquisition will enable Oracle to achieve its growth ambitions only if PeopleSoft customers remain with either PeopleSoft software or Oracle software. To soothe PeopleSoft customers, who are unsettled by this takeover turmoil, Oracle has stated that it will support PeopleSoft software and not force customers to migrate to the Oracle E-Business suite for as long as 10 years. {To Oracle’s credit, this period is longer than has ever been offered to customers in previous takeover situations.}
If Oracle fails to acquire PeopleSoft, PeopleSoft customers will still have access to the newly acquired J.D. Edwards’ manufacturing and distribution applications.
It remains to be seen if the takeover battle wounds PeopleSoft’s prospects for the long term.
J.D. Edwards Customers
J.D. Edwards customers will benefit from being acquired by either PeopleSoft or Oracle because they will have access to more software options.
However, it’s still conceivable that J.D. Edwards will remain an independent company after the dust settles. For example, Oracle initially indicated it wanted only PeopleSoft and would seek to block the PeopleSoft acquisition of J.D. Edwards. Despite this outcome, it’s likely that J.D. Edwards will merge with another player in the application software market as the vendors continue to consolidate.
Oracle Customers
For existing Oracle customers, the benefits of a PeopleSoft acquisition are not clear. Oracle management is distracted from their needs by the demands of the takeover battle and the pressure to keep PeopleSoft customers happy with a migration path to Oracle software that will be appealing
In the longer term, the PeopleSoft acquisition is likely to benefit both PeopleSoft and Oracle customers as the combined customer base provides the revenue needed to fund the R&D investment that will produce improved software. “As far as the technology’s future, PeopleSoft customers will have 5,000 to 6,000 [Oracle E-Business suite] developers work on their next generation of products. That’s simply something they wouldn’t have had on this other road,” Ellison said.
SAP Customers
The unexpected winner in the turmoil and uncertainty the takeover battle is generating may be SAP and its customers. Michel Brisson, the President of SAP Canada, says that “SAP can already point to examples where customers have selected SAP because of turmoil on the takeover front.”
Brisson believes that current and prospective customers appreciate the high level of R&D investment SAP is making that its competitors can not match.
Disgruntled and annoyed PeopleSoft, J.D. Edwards and Oracle customers should be easy pickings for SAP salespeople.
Conclusions
Current and prospective customers are taking a wait and see attitude toward PeopleSoft, J.D. Edwards and Oracle. That will hurt the sales and net income of all three organizations for the next few quarters.
Most customers remember the cost and pain associated with implementing business application software vividly. They will avoid a migration to another vendor if at all possible. Everyone will be better served if the combatants could find a way to turn down the inflammatory rhetoric, conclude the mergers and return to improving products for their customers.
