Oracle Needs PeopleSoft To Survive

The debate over whether Oracle will prevail in its attempt to acquire PeopleSoft is over. Mario Monti, the European Union’s competition commissioner, is expected to approve the merger before October 31. Mr. Monti has been approached by SAP and Emerson Electric, who both spoke in favor of the merger. With the European Union on board, Oracle has the legal momentum to make this merger happen.

The debate between supporters and detractors of each company is no longer important. What we should be talking about is what is forcing consolidation in the software industry. Oracle has been struggling to capture customers for its enterprise applications while at the same time selling applications innovative enough to deliver financial returns. That truth has just come to light in this latest quarter.

Getting beyond the petty rivalries surrounding this acquisition is critical to seeing the truth: Oracle needs PeopleSoft to survive.

Oracle at a Crossroads

Oracle is at a crossroads in its non-core businesses, and acquiring PeopleSoft brings much-needed expertise in areas where Oracle today is weak.

If you are anti-Oracle, at least give them credit for a great hire in Chuck Phillips, now the company’s president, and for recognizing that its grip on enterprise software was slipping. Like any weakness, that one has finally come to light, maybe years after Oracle’s leaders first saw it coming.

Oracle’s leaders may have said they wanted to be the industry consolidators, but in fact IBM and Microsoft were perfecting their own database technologies and stealing sales from Oracle’s core business. Oracle the consolidator runs the risk of being Oracle the consolidated if it doesn’t broaden its application footprint and deliver on the promises it has made as a suite vendor. Many of the components of Oracle suite applications only partially meet a need — and some are a generation or two behind their best-of-breed competitors.

The Enterprise Landscape

When Oracle does complete the acquisition, here’s a quick tour of what the enterprise software landscape will look like:

  • ERP vendors with strong credibility and cash will win. Those vendors that have continued to deliver applications on time and with working integration strategies will emerge as the big winners as users flock to stable organizations. SAP stands to benefit significantly — all those PeopleSoft and JD Edwards customers will want stability more than ever.
  • License revenue on ERP software will continue to drop. The U.S. Department of Justice failed to block the merger on anti-trust grounds but did a fantastic job of researching and reporting pricing that was up to 80 percent off list from Oracle to key customers.
  • Oracle will take PeopleSoft’s best and leave the rest. PeopleSoft’s expertise in Human Resource Management Software is an application base Oracle can readily expand beyond the ten years of service and support it has committed to. PeopleSoft CRM is clearly ahead of Oracle CRM, and there will be the chance for Oracle to leapfrog nearly a product generation in this area. PeopleSoft Mid-Size and Small Enterprise Solutions include over 7,400 customers, and this is the area where Oracle struggles the most right now with its E-Business Special Edition One. PeopleSoft’s configurator, based on Calico technology acquired three years ago, and the JD Edwards configurator, will be officially discontinued, leaving those customers the choice of Oracle’s Configurator or going best-of-breed.
  • Unlocking indirect channels will be key to the SMB market. Oracle’s many experiments in the small and medium-business market have given the vendor a growing knowledge base, but clearly Microsoft’s strength in indirect channels will be formidable, especially in the database arena.
  • Winning the PeopleSoft hostile take-over will drive trust in Oracle to new lows. A recent survey of Oracle customers completed in August 2004 by Techtel, a market research firm based in Emeryville, California, states that one out of every four Oracle customers has a negative opinion of the vendor. Certainly Oracle has the ability to overcome these weaknesses, but the ten years after the acquisition will be telling. Counting how many PeopleSoft customers are left will be a telling metric of just how solid the promised support really was.
  • Bottom Line: Oracle must play the consolidator now or risk being the one consolidated out of the markets it helped create. They have no choice but to make the PeopleSoft acquisition work to survive long-term against IBM and Microsoft, as both of these much larger competitors start making significant inroads into the core database business.

    Louis Columbus, a CRM Buyer columnist, is a former senior analyst with AMR Research and is founder of LWC Research, a firm specializing in CRM, sell-side e-commerce, sales and product configuration and guided selling.

    Leave a Comment

    Please sign in to post or reply to a comment. New users create a free account.

    CRM Buyer Channels