PeopleSoft's acceptance of an Oracle takeover finally ends 18 months of uncertainty for both companies' customers, but opens new challenges for the victor. As Oracle embarks on one of the software industry's largest acquisitions in history, it needs to prove it can chew what it has bitten off.
"Oracle has to win us over," said PeopleSoft customer Andrew Albarelle, principal executive officer at Denver-based staffing company Remy, which runs PeopleSoft's financial software suite. "I have not seen a clear message from them."
Albarelle said he had planned to wait until late December, the end of PeopleSoft's financial quarter, to license several additional modules. Now, he'll hold off on that purchase and evaluate Remy's options for maintaining its ERP (enterprise resource planning) system. Albarelle said he'll consider building applications in-house as new functionality is needed, and look at third party maintenance providers.
Oracle has offered reassurances about its intention to support PeopleSoft customers, but it is an open question how well they'll live up to expectations, said John Webster, the PeopleSoft programs director for Dakota State University's Center for Remote Enterprise System Hosting (CRESH).
"There's a whole lot of uncertainty out there," Webster said. "Will they hold true to their word? Prior to the sale, (promising support) is a marketing tool. Now it's an expense."
Webster's program, which trains students to support PeopleSoft deployments at other educational institutions, is in the process of starting up a commercial PeopleSoft services firm, CRESH. Over the past few months, Webster has received queries from PeopleSoft customers exploring their options for outside maintenance of their applications. Webster sees the Oracle acquisition changing, but not destroying, CRESH's business.
"We can look for new opportunities," he said. "The customers still believe in the software."
Meta Group software research director David Yockelson doesn't expect any immediate changes for PeopleSoft customers, but he sees the deal reshaping the direction of the software industry. While Oracle says buying PeopleSoft will help it compete with enterprise applications leader SAP, Yockelson sees the company's new opportunity to expand its infrastructure market share as more compelling.
"This was never about the applications assets," he said. "Owning the applications does not immediately launch Oracle to the level of a competitor with SAP."
What it does do is give Oracle the chance to sell its database, application server and other infrastructure software into PeopleSoft's customer base, to run beneath PeopleSoft's applications. Oracle already owns a chunk of that market, but so does IBM Corp., which had tight ties to PeopleSoft and J.D. Edwards (which PeopleSoft bought last year).
IBM and PeopleSoft reached a middleware alliance agreement in September that then-PeopleSoft Chief Executive Officer (CEO) Craig Conway called the most significant applications partnership in both companies' history. Conway said PeopleSoft and IBM would invest US$1 billion over the next five years in joint development and sales activities.
Less than two weeks later, Conway was out of a job, as PeopleSoft's board replaced him as CEO with PeopleSoft founder David Duffield. IBM representatives did not return calls Monday for comment on the fate of the company's PeopleSoft alliance.
Several analysts cited IBM as the company most harmed by an Oracle-PeopleSoft merger. "Their biggest applications partner is now their biggest competitor," said analyst Josh Greenbaum, of Enterprise Applications Consulting in Berkeley, California.
Greenbaum said having a large applications rival may actually help SAP, which spent the last year growing its U.S. business by winning bids against the distracted PeopleSoft and Oracle. Companies often do their best when facing a fierce competitor, he said.
SAP spokesman Bill Wohl said his company agrees with the analysts that it benefited from the PeopleSoft-Oracle wrangling -- and it expects to continue doing so.
"We've said through this entire period that SAP sees itself as well-positioned to compete regardless of the outcome. The era of uncertainty is far from over. Oracle has a long period of integration ahead, and that's not going to be easy," Wohl said. "We look like a very safe harbor in a very stormy sea."
Oracle's stock (ORCL) closed at US$14.63, up 10 percent on Monday on the Nasdaq exchange, but the company will need to convince Wall Street that its PeopleSoft takeover is worth the US$10.3 billion it had to pay to close the deal.
"There's definitely a risk it doesn't pay off," said Meta Group's Yockelson. "It's not a bad move, but it's a fairly expensive one."
One financial analyst was blunt: "I think this will be a fairly big disaster. I'm just waiting to see where the stock settles to decide when to recommend a sell," said Jeff Embersits, who runs Shareholder Value Management in San Francisco. "Oracle decided for some reason not to back off, and they paid an exorbitant price. No one has ever tried an integration like this, and Oracle has no track record of acquisitions."
Still, for at least some customers, finally reaching the end of one of the industry's most bitter tug-of-wars is a relief. "We finally have a stake in the ground and can start making decisions," said CRESH's Webster.
And, as much as Oracle celebrates taking down one rival and bulking up for battle with another, the company was in some ways backed into growing by acquisition. Enterprise software makers, particularly applications developers, since the post-bubble economic collapse have struggled with longer sales cycles and a market more cautious about buying their expensive wares.
"This was also a defensive move," Yockelson said. "Oracle is not going to speedily win business from IBM or Microsoft by sitting still. Now, it has a chance to control its own destiny."