The Oracle/PeopleSoft Reality Check

Reality Check

With industry consolidation, we naturally see apprehension on the part of end user companies. The merger between Oracle and PeopleSoft, which was finalized in December after much drama (see part one), will be no exception. PeopleSoft, and especially former J.D Edwards users are likely discomforted, in part because of Oracle's harsh comments about PeopleSoft products. While Oracle's stance has since changed, impressions will still linger, and Oracle will have to deliver on its public relations promises. Just as end users are abuzz, so too are vendors who see consolidation as an opportunity to replace existing systems with their products. This brings us to a key question: for both users and vendors, what do the efforts by these "replacement vendors" mean?

While there might have been many poignant and well-articulated user reactions to Oracle's barbs against PeopleSoft, it is very difficult to justify replacing a mission-critical enterprise system because negatives perception of the new owner. Oracle is a large software vendor with vast experience in supporting customers and developing applications. Customers have long been a part of Oracle's development process, through user groups and customer advisory boards (just to name a few channels). Certainly, the vendor would not have invested time and money in customer advisory boards to only begrudge customers. Therefore, if Oracle can deliver on its ambitious maintenance and enhancement promises, it should keep a vast majority of PeopleSoft customers. In other words, a major exodus of customers, however unlikely, will only come from Oracle's own negligence or arrogance.

In any case, the increased availability of replacement options are a good thing for customers, and should at least provide some assurance that Oracle will keeps its promise and sharpen its customer service strategy, largely due to increased pressure on Oracle (and any other vendor, for that matter). If one is to rate the ruses of competitors to woo disenchanted customers, SAP's offer to provide long-term maintenance and support for other vendor's customers is unprecedented, and very unlike the traditional, unadventurous SAP. Thus SAP's enticing offer should be considered, if and when necessary. However, SAP's historic low key commitment to the IBM iSeries platform suggests its offer may not be the most appropriate for those 2,000 or so J.D. Edwards customers who have shown the most unrest. SAP's acquisition of TomorrowNow will hardly make a dent in SAP's top line of about $10 billion (USD), but every little bit helps in today's competitive market, where even the giants can fall hard. Moreover, TomorrowNow's one hundred or so customers also include some high-profile ones like Lockheed Martin, who, in the long term, are likely to become standardized SAP shops, rather than Oracle shops. In the past TomorrowNow has been quite PeopleSoft- and North American-focused; however, it recently signed Yazaki Europe Ltd., who is a J.D. Edwards licensee, and an SAP Safe Passage customer. Yazaki's J.D. Edwards financial, distribution and manufacturing applications will be supported in eight countries across Europe during their eventual migration to mySAP ERP.

This is Part Four of an eight-part note.

Part One detailed the event.

Part Two presented the competitive response of SAP and Microsoft.

Part Three detailed how competition involves infrastructure.

Part Five will look at what Oracle gains.

Part Six will cover Oracle's acquisition history.

Part Seven is the SAP factor.

Part Eight will discuss challenges and make recommendations.

Maintenance and Support Alternatives

Thus, one area that may ruffle Oracle's feathers are the competitions' alternatives to its lucrative annual maintenance and support contracts. Some third party support firms, staffed with former PeopleSoft and J.D. Edwards employees, are lining up to take coveted annual maintenance fees away from Oracle. For instance, Klee Associates, like TomorrowNow, also offers annual maintenance and support at a price that is significantly less than what former PeopleSoft used to offer. These companies might feast on enterprises that have badly fallen behind on upgrades, and have skipped several subsequent releases, or whose ERP instances are no longer actively sold. The competition may also be able to scoop up many former J.D. Edwards customers who have not had pleasant experiences with provider's friendly acquisition by PeopleSoft, and are now very concerned with Oracle's hostile acquisition of PeopleSoft.

Thus, as long as PeopleSoft's maintenance revenue stream is one of the drivers that justified Oracle's sweet, final offer, Oracle will probably not sit still and watch these customers depart. Consequently, Oracle recently warned SAP to tread carefully on Oracle's intellectual property, and one should not be terribly surprised by some sort of legal action against these firms, on whatever legal basis Oracle's attorneys can come up with.

Legal threats aside, Lawson may also have a shot at some disgruntled customers in healthcare, retail, government, education, banking and insurance, and other services markets running on the IBM technologies. Some estimate there are about 6,000 potential targets, equitably divided between PeopleSoft Enterprise, J.D. Edwards OneWorld, and J.D. Edwards World customers within Lawson's markets. Maybe these companies can easily pick and choose to migrate to a particular application, such as enterprise performance management, distribution, financials, human resources, procurement, retail operations, and service process optimization. Similarly, this also holds for true for Deltek, which focuses on the architecture, engineering, and construction (A/E/C), IT systems integration, professional services, and government contracting markets. For QAD, this will be the case in manufacturing verticals.

Unfortunately, Microsoft does not have real wherewithal at this stage, since there are significant functionality and scalability gaps between the PeopleSoft and MBS offerings. For example, except for Axapta, no other products offer true multinational and multi-site functionality. The ability to plan and manage multiple separate inventory and production facilities on the same system instance is lacking. This is a non-starter for many PeopleSoft global customers running on the top-of-the-range PeopleSoft Enterprise product.

New Accounts and the Big Few

Of course the Big Few, which are vendors with over $1 billion (USD) in revenue and at least 20,000 clients, will continue to sell new accounts, particularly to unpenetrated or emerging markets. In Asia-Pacific, East and Central Europe, Africa, and South America, new accounts will represent significant license growth. This infusion of "fresh blood" is also important for the future health of these companies, driving them to innovate and replace natural installed-base attrition. To that end, one might acknowledge Oracle's rationale to acquire its archrival, as Oracle has had protracted, sagging, applications license revenues that have been "riding the coattails" of database and platform revenues (see Stalled Oracle Fumbling For A Jump-Start Kit). Given the merger's outcome and Oracle's Project Fusion, which is modularized, open industry standards, architecture (see part one), PeopleSoft customers should get some closure and have a better idea where they now stand. Additionally, Oracle applications customers should also be assured of the vendor's commitment to the market.

With this deal, Oracle becomes a formidable applications player, so that only it and SAP emerge as the two dominant, isolated players, and both will now be the "usual suspects" on most customers' selection shortlists. Conversely, had the deal fallen through, it is possible that Oracle would have abandoned the applications market, given that Oracle's CEO has often stated that only the top two places in any market mattered, and everyone else will become marginalized in the long term. Interestingly, the CEO was not allow in this sentiment, as it was also voiced by some pundits and Wall Street investors.

This concludes Part Four of an eight-part note.

Part One detailed thee.

Part Two presented the competitive response of SAP and Microsoft.

Part Three detailed how competition involves infrastructure.

Part Five will look at what Oracle gains.

Part Six will cover Oracle's acquisition history.

Part Seven is the SAP factor.

Part Eight will discuss challenges and make recommendations.

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