1. Event Summary
2. Market Impact
3. User Recommendations

Event Summary

On January 30, PeopleSoft Inc. (NASDAQ: PSFT), one of the largest business applications providers, announced record financial results for the quarter ended December 31, 2000. Total revenue of $498 million was the highest reported in company history, and was up 34% over $372 million in the same quarter of 1999 (See Figure 1). The company touted strong market demand for PeopleSoft 8, its Internet-based application suite, for the stellar showing, citing 1,000 new orders in four months since the product launch. Fourth quarter license revenue grew up 73% to $165 million, up from $95 million in the same quarter of 1999. Including non-recurring items, fourth quarter net income rose to $44 million, compared with a loss of $5.6 million, in the same quarter of 1999. For the year, PeopleSoft revenue peaked $1.7 billion, up 22% from the $1.4 billion in revenue for 1999. License revenue increased 46% to $496 million from $340 million in 1999, while service revenue rose 5% in 2000 to $1.18 billion from $1.06 billion in 1999 (See Figure 2).

Figure 1.

Figure 2.

"In 2001 enterprises are widely adopting internet technology to improve business operations," said President and CEO Craig Conway. "PeopleSoft 8 is the only pure internet eBusiness suite on the market. With more than 1,000 orders for PeopleSoft 8 in less than four months, market acceptance has been very strong. Our Q4 financial results not only show the strong market demand for our eBusiness applications, they also demonstrate PeopleSoft's focus on growth and profit for our shareholders."

PeopleSoft cited significant wins against its competitors in the fourth quarter in all product lines and across all geographies. The company alleged that 31 of its 50 largest deals in the quarter were direct wins against SAP or Oracle. During the fourth quarter, PeopleSoft further solidified its position as an e-business applications leader. The following are the major highlights that were announced or occurred since PeopleSoft's last earnings release:

• PeopleSoft announced PeopleSoft 8 CRM, an Internet-based suite of CRM applications that is currently scheduled for release in mid-2001.
  
  
• IBM selected PeopleSoft Human Resource Management Systems (HRMS) as its preferred worldwide solution.
  
  
• PeopleSoft launched PeopleSoft 8 Accelerated Enterprise, a turnkey solution including eBusiness applications, services, training and financing for mid-size enterprises (for more information, see PeopleSoft Joins The Hunt For SMEs).
  
  
• PeopleSoft Consulting delivered the PeopleSoft Upgrade Roadmap - a suite of packaged services designed to accelerate the adoption of PeopleSoft 8

Market Impact

The war of words aside, the fact remains that PeopleSoft has regained the status of a formidable applications competitor. The 22% growth was more than twice the estimated overall ERP market growth in 2000. Add returning to strong profits and improved international market penetration and brand recognition, and one should conclude that 2000 was a year of PeopleSoft's content. These impressive results coincide with the final phase of integrating acquired Vantive CRM product within its flagship PeopleSoft 8 product suite and with the winding down of its ambitious and over two years long R&D endeavors. Look for possibly even a stronger bottom-line in the future if the company continues to succeed in attracting new deals.

However, to put things in the right perspective, one should bear in mind that PeopleSoft's license revenue in 2000 was still 25% less than the corresponding revenue in 1998 (See Figure 2), back when the company was only a mere ERP player. Therefore, one should not be too overly impressed with the magnitude of quarterly comparative improvements. Nevertheless, the figures show the company is gaining turnaround momentum and is going in the right direction. PeopleSoft will be a fierce contender in a number of industries. While this may not be the case in complex manufacturing, the company certainly can compete in traditional service industries with its HR, financial, and recently added CRM and e-business modules, like Healthcare, Utilities, Higher Education, and Financial Services.

While PeopleSoft has attempted a new tack of addressing manufacturers' needs by focusing its manufacturing solutions on the following five industries: Consumer Packaged Goods (CPG), High-Tech, Wholesale-Distribution, Utilities, and Communications, its competitive position is not going to improve dramatically very soon. To that end, expect more aggressive PeopleSoft's moves both on the acquisition and joint ventures fronts in order to provide a strong solution for manufacturing. It is quite likely the company will pursue acquiring an ERP vendor with a market capitalization value less than $100 million and with a product offering and strong client base that would bolster PeopleSoft's competitive position. The very likely acquisition candidate could be QAD (for more information, see QAD's Costly eTransition Continues).

Another impediment to PeopleSoft's immediate success may be the market's generally low awareness of the Internet-only architecture advantages. At this stage, users mainly require the look and feel of the Internet and, therefore, other Web-enabled products may not be seriously disadvantaged while competing against PeopleSoft 8. Moreover, PeopleSoft's decision to offer only an Internet browser look-and-feel interface has, in some instances, initially met the power-user resistance. While the HTML-like interfaces are perfect for casual and task-specific users with minimum training requirements, power-users may still prefer the functionality and drill-around capability of Windows-like user interfaces (drop-down menus, etc.). Some power-users cite the awkwardness of conducting more complex transactions only via hyperlinks, jumping to and fro among a number of screens, which defeats the purpose of simplicity. In that regard, the Web-enabled user interfaces of its competitors (e.g., Oracle, SAP, J.D. Edwards, Lawson Software, etc.) that either still contain many Windows features or offer different interfaces for casual and power users, may be the better approach at this stage.

The company's biggest challenge, however, lies in further increasing the marketing awareness, promoting its new image, products, and the Internet architecture as well as in crisp sales execution. The success of the PeopleSoft 8 release may be difficult for the company to manage in the near future. Peoplesoft needs to keep the ball rolling by providing efficient and knowledgeable sales and services teams that can articulate the vision and provide the expected value to customers. Therefore, while PeopleSoft should continue to focus on delivering its products on time, it should also ensure stringent training of its sales and customer support forces, and should preemptively address any potential dissatisfaction on the part of early adopters.

User Recommendations

Only time will tell how the market will take the new PeopleSoft message. More important will be how well Peoplesoft's sales and service force can demonstrate the benefits of pure Internet architecture-based products to the prospect or customer. Due diligence should always be paid to satisfying your unique requirements as derived from your unique e-business strategy. While selecting a strategic software partner is a challenging and risky undertaking, the positive news is there are more companies competing for your dollars. Nonetheless, the depth, breadth and innovativeness of PeopleSoft's offerings for the above-mentioned industries are attractive at first sight and deserve due attention.

More comprehensive recommendations for both current and potential PeopleSoft users can be found in PeopleSoft 8 Launched - Anything to Write Home About?