With two large anti-trust obstacles out of the way, an Oracle Corp. acquisition of PeopleSoft Inc. is rapidly shifting from a remote possibility to a likely reality. In the event of such a move, customers, analysts and company insiders are predicting a rocky road ahead for PeopleSoft customers.
With nearly 100 percent product overlap between Oracles E-Business Suite and PeopleSofts Enterprise and EnterpriseOne suites, polar-opposite views on supporting technologies, and classic cultural differences, Oracles challenges postmerger will be far more critical than its recent regulatory hurdles. But how the Redwood Shores, Calif., company resolves each could have a dramatic impact on the thousands of global companies relying on PeopleSofts enterprise software.
The European Commissions announcement last week that it will not block the proposed deal came on the heels of a similar decision in September by the Northern California U.S. District Court to allow the deal, after Oracles takeover attempt was challenged by the U.S. Department of Justice on antitrust concerns.
Now a ruling by Delaware Court of Chancery Judge Leo Strine, expected by months end, could remove yet another set of obstructions for Oracle: PeopleSofts controversial Customer Assurance Program and poison-pill anti-takeover measures that would cost Oracle billions more than its current $21 per share, or $7.7 billion, tender offer with a successful acquisition.
While shareholders may have the final say in whats become a fierce showdown between the two business software developers, it is PeopleSoft customers that should prepare for what many in and around the two companies are saying will be a painful integration.
Oracle has been relatively unambiguous about its product strategy should it acquire PeopleSoft, of Pleasanton, Calif. In a letter to PeopleSoft customers posted on Oracles Web site in September, Oracles co-president, Charles Phillips, said the company would continue to support PeopleSofts product lines for 10 years, with ongoing enhancements and product maintenance.
But to most industry watchers, “enhancements” translates into necessary and selective upgrades with very little innovation. “If youre running financials and theres a new tax law, thats going to get added,” said David Yockelson, an analyst with Meta Group Inc., in Stamford, Conn.
Its also not clear if Oracles product support plans include PeopleSofts complete product line, including the former J.D. Edwards & Co.s OneWorld, now EnterpriseOne, and World, now PeopleSoft World, suites.
“Ive speculated that one of the actions that Oracle would take is to sell off the JDE organization,” said Jim Shepherd, an analyst with AMR Research Inc., in Boston. “The good news is that simplifies the integration side. What Oracle said all along is they didnt have much interest in [the JDE] customer base—with the IBM customer base.”
Next Page: Migration Incentives
Migration Incentives
In addition to product and road map support, Oracle has announced that it would create a sort of super, combined product with the best functionality culled from PeopleSofts code base rewritten into Oracles E-Business Suite code base.
Analysts speculate Oracle would take advantage of PeopleSofts development in finance, human capital management, enterprise performance management, lean manufacturing, supplier relationship management and supply chain planning.
According to Oracles Phillips in his September letter, PeopleSoft customers would receive free module-to-module exchanges, along with free database licenses, if they chose to migrate to Oracles E-Business Suite “superset” in the event of a buyout. Oracle would then go to market with one set of applications—its E-Business Suite, officials said.
But for customers and analysts, the underlying infrastructure of both companies software is equally as critical as the products themselves. For example, Oracles applications are optimized for its own database and application server, while PeopleSofts applications are written with an abstraction layer to support a variety of platforms, primarily Oracle and IBM databases and Oracle and BEA Systems Inc. application servers.
Considering that nearly 40 percent of PeopleSofts 12,750 users are on non-Oracle databases (PeopleSoft doesnt release the number of customers running BEA application servers), the question becomes not which applications—but which infrastructures—Oracle would support.
Market watchers agree Oracle would have little desire to continue PeopleSofts strategic relationships with BEA and IBM. “We dont see those relationships being particularly strategic to Oracle,” said Lee Geishecker, an analyst with Gartner Inc., in Stamford, Conn.
Added Metas Yockelson, “What we dont know is if Oracle would suddenly decide what support they will maintain, depending on what infrastructure is in place. It is an element of risk. There is no certainty they would support other infrastructures.”
Part of the infrastructure decisions Oracle would face revolve around PeopleSofts third-party technology agreements, such as its $1 billion co-development deal with IBM announced in late September. This deal, many speculate, would be over with an acquisition, particularly given PeopleSofts plans to bundle WebSphere middleware into its applications. Analysts speculate that neither the IBM nor the BEA relationship would fit into Oracles long-term plans.
“It is unlikely that Oracle would want to continue spending money on development to shift to an IBM platform,” AMRs Shepherd said. “So, effectively, if this acquisition takes place, this deal is dead.”
Officials at IBM, of Armonk, N.Y., and BEA, of San Jose, Calif., declined to comment on their plans should Oracle acquire PeopleSoft. Likewise, PeopleSoft officials declined to comment due to the speculative nature of the article.
Next Page: Never Lose the Database
Never Lose the Database
“All PeopleSoft applications will run on the Oracle database and Oracle application server—thats unequivocal,” said John Ottman, executive vice president of worldwide markets at Corio Inc. and a former 10-year executive with Oracle. “We had a saying at Oracle: Never lose the database. Its fundamental to the Oracle strategy. The biggest reason why Oracle would want to buy PeopleSoft would be to secure the Oracle database [on PeopleSoft] and secure maintenance.”
Oracles E-Business Suite is built on the Oracle language and is proprietary. There is no way to port the suite to any other database, according to Ismael Ghalimi, president of Intalio Inc., which develops business process management software that interoperates with SAP AG, Oracle and PeopleSoft software. Practically speaking, “Oracle is not going to make the investment for portability moving forward—its expensive,” Ghalimi said. “But most importantly, Oracle wants to sell the database.”
PeopleSoft Enterprise user Andrew Albarelle, principal executive officer with staffing consultancy Remy Corp., has no intention of attempting to port his applications to Oracles database.
“If they gave [the database] away, if it were free, I wouldnt nibble on that because eventually they are going to charge you,” said Albarelle in Denver. “Our original [PeopleSoft] 8.0 environment was in Oracle, and it was very expensive, and it wasnt as stable as it is now … [with Microsoft Corp.s] SQL [Server].”
Like many PeopleSoft customers, Remy has a contingency plan in place should Oracle acquire PeopleSoft. Now in the midst of a core financials upgrade to Enterprise 8.8, Albarelle would go off maintenance from PeopleSoft and home-grow his applications. He would wait two or three years and re-evaluate whats available then.
Because of a recent acquisition, Peter Pereria, CIO of Sun Life Financial Inc., in Toronto, is migrating some PeopleSoft subledgers to Oracles financial modules. While migrating, Pereria said, he looked not just at the PeopleSoft and Oracle environments but also beyond what he was currently using to migrate into areas such as banking and reconciliation.
Because his PeopleSoft applications were already based on Oracles database, Pereria said, the transition has been relatively smooth. But he cautioned that companies attempting the same move should resist modifications to their software, such as customizations that make porting more difficult, and instead rely on open standards.
“Most of the challenges will come in understanding what youre getting into,” Pereria said. “Its single-digit or low double-digit. Half of it is understanding what youre buying into.”
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