Analysts: Microsoft Should Pass On Rescuing PeopleSoft

 
 
By Lisa Vaas  |  Posted 2004-10-04 Email Print this article Print
 
 
 
 
 
 
 

Despite the rumors, there are good reasons to pass on PeopleSoft, say analysts. Besides, Microsoft's record on buyouts in the enterprise software arena is mixed.

Microsoft Corp. CEO Steve Ballmer on Monday told the Financial Times newspaper that the company has no intention of stepping in as a white knight to acquire PeopleSoft Inc. and save it from Oracle Corp.s clutches. Thats not surprising, analysts said, running down a list of points that could sour Microsoft on such a deal: that PeopleSoft is a strong IBM partner; that it has lower market share than the enterprise management software company—SAP AG—that Microsoft did in fact consider acquiring; and that its acquisition cost is high when compared with its earnings. "SAP has greater market share and considerably higher licensing revenues," said Chris Alliegro, an analyst at Directions on Microsoft, of Kirkland, Wash. "If you look at PeopleSoft from a relative evaluation standpoint, it has an $8 billion acquisition cap, which is high to pay, comparable to its earnings."
Ballmer told the newspaper that Microsoft is focused on small and medium companies. If the companys attention were to shift to the enterprise market, Ballmer said, it would be to acquire SAP, not PeopleSoft. "I know SAP, and theyre no SAP," Ballmer said of PeopleSoft.
Click here to read about new features of NetWeaver integration that SAP will plug at its TechEd conference in San Diego this week. Alliegro, for one, interpreted Ballmers remarks not so much as a comparison between SAP and PeopleSoft as potential acquisition targets but rather as a signal that Microsoft is in a consolidation mode rather than a buying mode. "Its more of a focus thing," Alliegro said. "Its more important now to figure out how to consolidate the array of business management products [Microsoft has] now, capture market share in the small and medium business markets … and not spend energy and focus on some hellishly-complex acquisition like SAP or PeopleSoft."
As it is, analysts said Microsoft has suffered some indigestion as its tried to fold two recently acquired business management companies—Great Plains Software Inc. and Navision A/S—into its product mix and channel. Thats evident in the fact that the company rarely talks about "Project Green" anymore, Alliegro said. Project Green was the Redmond, Wash., companys attempt to deliver all its business applications on one code base built on the Microsoft Business Framework and .Net framework. "Even a relatively small asset like Hotmail, it took years and years to fold that into the company," Alliegro said. "Just the logistics of getting the companies, operations and human resources merged undoubtedly contributes to that." Rob Helms, another analyst at Directions on Microsoft, said that Microsoft has had difficulty combining Great Plains channel with the standard Microsoft channel. "Great Plains had a tremendously loyal channel—probably the most important asset Microsoft picked up," Helms said. "The company had early stumbles bringing Great Plains products into the Microsoft channel and, conversely, in using the Great Plains channel to sell Microsoft products. Thats still playing out, but initially it was quite difficult." Beyond the difficulties of absorbing either a small acquisition like Great Plains or a large one like PeopleSoft or SAP, Helms saw a Microsoft acquisition of PeopleSoft as being unlikely because its such a strong IBM partner. That was evidenced most recently in the $1 billion middleware deal with IBM announced at PeopleSofts recent user conference, for example. "SAP, in contrast, has become more and more a Microsoft partner," Helms said. "The majority of its new installations are on Microsofts platform," as in the SQL Server relational database platform, he said. "I dont think theres a technical dimension" to Ballmers unfavorable comparison of PeopleSoft and SAP," Helms said. "Its just that PeopleSoft has been much more WebSphere-friendly than the other big ERP [enterprise resource planning] players out there. Im guessing thats the No. 1 issue: not necessarily whether PeopleSofts technology is better than SAPs, but what platform theyve tended to run it on." At this point, its not clear that ERP would be the smartest acquisition for Microsoft anyway. It might make more sense to acquire a solid security services player, Helms said, such as Symantec Corp., to fill in for Microsofts traditional weak spot in that area. "[Microsoft would benefit from acquiring] a company that has a software business that complements Microsoft but knows how to run the service side of the business, which has always been an Achilles heel for Microsoft," he said. Microsoft declined to comment for this interview. "We do not comment on rumors or speculation regarding any possible investment or acquisitions," a spokesman said in an e-mail exchange. "We can say that, as has been the case in the past, we expect much of our focus on acquisitions to trend towards small to medium-sized companies. Though we will continue to be open to the possibility of larger investments and/or acquisitions, when they make sense, as weve done recently with Great Plains and Navision." Check out eWEEK.coms Database Center at http://database.eweek.com for the latest database news, reviews and analysis.

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Lisa Vaas is News Editor/Operations for eWEEK.com and also serves as editor of the Database topic center. Since 1995, she has also been a Webcast news show anchorperson and a reporter covering the IT industry. She has focused on customer relationship management technology, IT salaries and careers, effects of the H1-B visa on the technology workforce, wireless technology, security, and, most recently, databases and the technologies that touch upon them. Her articles have appeared in eWEEK's print edition, on eWEEK.com, and in the startup IT magazine PC Connection. Prior to becoming a journalist, Vaas experienced an array of eye-opening careers, including driving a cab in Boston, photographing cranky babies in shopping malls, selling cameras, typography and computer training. She stopped a hair short of finishing an M.A. in English at the University of Massachusetts in Boston. She earned a B.S. in Communications from Emerson College. She runs two open-mic reading series in Boston and currently keeps bees in her home in Mashpee, Mass.
 
 
 
 
 
 
 

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