Conway Overplays IBM Deal

By John Pallatto  |  Posted 2004-10-04 Print this article Print

Besides the millions of dollars PeopleSoft has had to spend fending off Oracle, the company has seen its sales and revenue drop as customers stand aloof from making major new purchases until they find out whether the Oracle bid will succeed.

It is significant that Conways firing came barely a week after PeopleSofts annual user conference in San Francisco. Conway may very well have sealed his fate at that conference.

It could very well have been because Conway exaggerated the significance of a software-development alliance with IBM, estimating that the two companies would spend a total of $1 billion to integrate PeopleSoft applications with IBMs WebSphere middleware. It was Conway who voiced the $1 billion estimate. That figure wasnt specifically confirmed or endorsed by IBM executives.

They tried to stress that such an estimate did not represent cash investments by either company, but mainly the commitment of developer resources to integrate PeopleSoft applications with WebSphere. Whether the total expenditure would eventually amount to anything near $1 billion over the life of the alliance, IBM officials wouldnt say.

They didnt deny that the alliance was big deal, but they also tried to prompt analysts to keep it in perspective: IBM has alliances with hundreds of companies, including PeopleSoft arch-rival SAP AG.

Click here to read the entire interview with Buell Duncan, IBMs general manager of ISV and developer relations. The alliance raised speculation that IBM was standing in the background prepared to make a direct investment or perhaps acquire PeopleSoft as an alternative to Oracles $7.7 billion takeover bid. Talk of IBM as a potential "white knight" kept percolating, even though such an acquisition would fly in the face of IBMs steadfast policy of staying out of the software applications business. Such talk continued even as IBM executives repeatedly stated that the company had no interest in getting into the applications business.

PeopleSoft wanted its customers to leave the user conference ready to buy PeopleSoft applications—with the confidence that it would fight hard to stay independent. Instead, the IBM announcement only further muddied the water. Customers had to wonder whether PeopleSoft was serious about staying independent if it was even tacitly encouraging far-fetched speculation of an IBM buyout.

This very likely was the last straw for Duffield and for the PeopleSoft board. They decided that Duffields return as CEO was the last, best chance to win the battle with Oracle. But the company still has to play out the muddled hand dealt it by Conway.

In any event, dont look for Duffield to meekly beg Ellison for generous terms. Look for him to get out on the road to talk to PeopleSoft customers—and to try to convince them that the company still has the wherewithal to fend off Oracle and profitably market its software.

Its hard to believe that Duffield is ready to give up on the company he founded nearly 18 years ago. If he is willing to keep fighting the good fight, Duffield may prove to be PeopleSofts only viable white knight.

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John Pallatto John Pallatto is's Managing Editor News/West Coast. He directs eWEEK's news coverage in Silicon Valley and throughout the West Coast region. He has more than 35 years of experience as a professional journalist, which began as a report with the Hartford Courant daily newspaper in Connecticut. He was also a member of the founding staff of PC Week in March 1984. Pallatto was PC Week's West Coast bureau chief, a senior editor at Ziff Davis' Internet Computing magazine and the West Coast bureau chief at Internet World magazine.

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