Oracles Phillips Drives PeopleSoft Deal

By eweek  |  Posted 2004-02-23

Oracles Phillips Drives PeopleSoft Deal

Within weeks of joining Oracle Corp. last spring Charles Phillips began to play a very prominent role in Oracles hostile takeover bid for enterprise applications developer PeopleSoft Inc. Having come from more than a decade as an IT industry financial analyst on Wall Street, that was not surprising. Observers did take note, however, when Oracle founder and CEO Larry Ellison appointed Phillips and Safra Catz co-Presidents of the database and business applications giant. Phillips recently sat down with eWEEK Department Editor John S. McCright and Senior Writer Brian Fonseca to discuss the PeopleSoft deal and IT issues at Oracle headquarters in Redwood Shores, Calif.

eWEEK: What kind of reception have you been getting from shareholders since offering a pro-Oracle slate of PeopleSoft directors?

Phillips: We continue to want to try and invite the PeopleSoft management team and board to meet with us. They have refused to do so despite the fact that our newly revised offer is at a substantial premium to where the stock is. We have heard back from plenty of stockholders that they would love to have access to the $26 [per share] in cash.

I guess PeopleSoft said six months ago, no price, no structure, no way; and I guess they meant it. They havent, we think, responded at all or even considered it.

So, given that, the next milestone is waiting for the Department of Justice [to make its official recommendation]. That should happen sometime in March, then well see what happens. But we think we put forth a strong case that this is pro-competitive. Huge competitors like Microsoft [Corp.] and SAP [AG] that are investing and buying companies in this market locked up with an alternative like offshoring and outsourcing, this [merger of Oracle and PeopleSoft] creates a competitive critical mass against these other companies. We still remain confident that the DOJ will come to the same conclusion.

eWEEK: How did you pick the slate of board candidates?

Phillips: Well, its a long process, a careful review of people who are prominent in the field and are known…that was the main criteria. They were unaffiliated with Oracle, they will be paid like directors, as all directors are.

eWEEK: Have you complied with everything the European Commission wanted?

Phillips: They have suspended the process to gather more information because they came back to us and asked for additional information. Although largely, theyve gotten the same information the DOJ has gotten for the most part. I think its a timing mechanism to stage it behind the DOJ – they typi-cally like to know what the DOJ is going to do to U.S. companies before they make a decision. Were complying with the additional requests now. They [the issues] arent significant so well do that quickly.

eWEEK: You have a lot of experience in finance and IT, what do you bring to the company as far as running operations, running sales, and directing development?

Phillips: Im not running development and I think its a team approach here so Im not really looking at it as involving these big decisions that one persons making. Its a combination of myself, Safra, and Larry and other people as well.…most things here are a team approach and that means multiple people look at it with different perspectives, its useful. So I feel like Im adding to an already strong team.

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Next Page: Phillips strengths.

Phillips Strengths

eWEEK: What are your strengths that youre adding?

Phillips: Well, everybody has different backgrounds and I guess thats for Larry to decide but mine has been broad across the industry, Ive known a lot of customers already. [I have] a technology background. But it doesnt matter what I bring, it matters what I deliver. No one cares what your resume looks like.

eWEEK: I suppose that knowing a lot of customers gives you an understanding of what they need but an entrée into opening the sales door?

Phillips: My focus is on customer-facing activities and to make sure that we have more senior executives spending time with customers. So well do a lot of that; so Safra, Jeff Henley, our chairman, well all be doing some of that.

eWEEK: How long will co president management structure last?

Phillips: Well, we certainly didnt put a timeframe on it. Thats the structure were going forward from here.

eWEEK: Oracle uses staff around the world. That is a trend a lot of people are talking about or worrying about, because it reduces cost. Where do you think we are in that trend of globalizing IT development?

Phillips: Looking at the per capita income differences around the world, theres a long ways to go. Usually that is the driving factor once you see a certain region cross a certain threshold from per capita income and standards of living reaches to a certain point thats when IT tends to follow in, so its goodness globally the more regions that cross the threshold, the more IT will be consumed, better standard of living for everyone, so it creates markets for everyone. Global markets are generally good so we are investing in those areas and finding customers in those areas.

eWEEK: Do you consider Oracle being ahead of the curve as far as doing that kind of global development, right along step with the mainstream?

Phillips: I think [Oracle] probably started [doing development around the globe] a lot earlier than most companies. Well find talent wherever it is.

eWEEK: At Oracle AppsWorld in January you talked about the Customer Hub and application integration in general. That seems to be something that other application vendors have recognized as important. As far as Oracles efforts on integration, how much of that is a recognition you need to reach out to others? How much do you think that would be helpful with a PeopleSoft acquisition?

Phillips: Well theres different reasons for it. You can also look at integration as a way for people to evolve into the Oracle E-Business Suite. Customers that want to 100 percent lead with architecture and design goals, but they couldnt get there quickly for multiple reasons. So to give [customers] a way to start with a few modules and slowly add new modules over time, have them start with an easier on ramp -- thats a big part of this. Integration helps new customers [and it helps] existing customers migrate into this suite over time. Then when it comes to our Customer Hub. this is yet another alternative for those companies that dont buy the suite at all, or have a lot of legacy applications that cant really migrate away from. They still want some of the benefits of a single data model, one thats been tested in the market. Thats yet another set of customers we can now reach that we couldnt talk to before.

eWEEK: People are talking a lot about applications, and reusable development code. Will the Oracle Application Server ever be something that works beyond Oracle applications?

Phillips: We have the ability to build composite applications today with our Application Server. Our fastest growing product is the application server – its really taken off in the last 12 months in a number of different regions. We think it should be viewed as a standard application server that can be used with other applications, non-Oracle applications that can be used with non-Oracle databases as well.

eWEEK: Are you putting significant development effort or marketing effort into making sure it is on par with [IBMs] WebSphere or [BEA Systems Inc.s] WebLogic?

Phillips: We think it already is. We put enormous resources into it. We own the benchmarks for application servers today. We are reliably first or second when it comes to getting certified on the latest J2EE [specification], any time theres a change. We have an installed base of customers that I think probably rivals anyone right now. Were less in dollars but more in units because were a cheaper price; but its the units are going up fairly quickly. I think were on our way to basically catching anyone out there on both units and dollars.

Next Page: Lowering prices?

Lowering Prices

?"> eWEEK: Is the new pricing of the Oracle Standard Edition One database an admission by Oracle that it has to lower prices to become more competitive?

Phillips: You always want to do that, but you have to have a product to do it. So whats different now with these latest releases [is] the product reflects the ease of use attributes that people wanted on certain parts of the market. We always had a lot of power and scale, what was missing was the ability to appeal to customers who value ease-of-use more and automation, administration, and things like that. So we basically did an assessment of the product, had some consultants look at it for the last couple of years [and they] came back and pointed out hundreds of areas of the product that were manual that didnt have to be. We took that list and automated those tasks and created a workflow study on how to use the product everyday. So even for people who dont care about grid, theres a lot in [Oracle 10g] for ease of use, productivity, automation, even for large customers. Its a big leap for us.

eWEEK: Would you go to an outside consultant to continue finding out the next step?

Phillips: I dont know if we need to do it again. I think were there. In terms of the base platform now, it is different. Theres a level of automation that we just didnt have before.

The bigger leap in the database, we took out 2000 third-party products that were adding complexity -- for instance, interaction issues with a couple of our core infrastructure functions, so we engineered those out and offered those components for free at no extra charges, when you do that it allows you to automate more. So you dont really need third-party volume managers or cluster wares that are complex. Some of these third-party components had their own quality issues.

eWEEK: Where do you think Linux is broadly in IT industry as far as adoption curve? Any changes in commitment to Linux from Oracle?

Phillips: I still think were early in the curve but its accelerating. Its becoming more mainstream and it certainly has proven itself in production. I think the risk perceived around Linux is starting to go away and now its just a matter of what makes business sense for any particular company.

I cant say its just another OS, because we have put quite a bit of time behind commercializing it. Weve done a lot to make Linux acceptable in the marketplace. Having said that were not going to sub-optimize for any other platform, Linux has superior economics, especially Linux on Intel [Corp. processors] lowers the cost for customers dramatically. Stuff runs really, really well on Linux. Its a small tight operating system that can do one thing – run server software very fast. The fact that its so small and tight, that usually means high quality as well, high performance, so theres all these benefits and its so much cheaper its hard not to recommend since the economics seem to favor it so much and the performance.

eWEEK: How about Suse Linux, equally interesting as Red Hat? Is it a two horse race?

Phillips: We support Suse as well, its obviously very important in Europe. I would say those are the two primary ones but theres Red Lion in China that seems to be coming on [and] were taking a look at right now.

eWEEK: Where else do you see IT industry consolidation happening, what areas are we likely to see multi-billion-dollar acquisitions?

Phillips: I cant really name any areas but it is natural that an industry thats now getting to be up there, 30 years or so, a lot of its founders getting up there as well, you start to see some consolidation and the buying binge, especially with the [stock market] bubble, [which] kind of supported companies that probably shouldnt have been companies. Now that thats gone away its a natural outgrowth. So consolidation seems to be the natural way for the next few years, but we arent not counting on that as our way of growing. We think we have enough new products coming out for organic growth and some things in the hopper even without acquisitions were pretty optimistic where were going.

eWEEK: Even if the PeopleSoft acquisition doesnt work out, youve got a lot of money burning a whole in your pocket.

Phillips: Well theres nothing wrong with cash. Its served us well in the past. PeopleSoft was one decision, one opportunity. Its independent of any other ones.

Next Page: Can IT help differentiate?

IT Differentiation

eWEEK: A Harvard Business School report asked if IT can still help companies differentiate themselves from competitors. In the context of the consolidation of IT software and hardware vendors is that a valid issue?

Phillips: Some of that article we agree with, that the infrastructure shouldnt be required at the level of investment at some companies, that there are simpler ways to do things, that complexity is generally a bad thing. In some cases the right thing is to a take a dramatic step towards simplicity and collapse consolidation and automate and try to standardize on commodity components to lower cost, to try to simplify the whole process.

I think there are a lot of companies that can move to standard applications and standard platforms and not lose anything - get creative and add all of the customizations to make it look like the old systems thats in place. I think a lot of systems could be used as designs these days because theyve gotten highly functional. If all thats correct and people migrate to the commodity platforms that were suggesting, actually costs will go down, even though theyll be getting more technology and more bene-fits... more customization, less integration. So if things work as we think there probably wont be a lot of spending growth in IT but the pie will shift in terms of things people are spending and people will get a lot more bang for the buck out of their infrastructure so they can free up some dollars and focus on new things.

eWEEK: Concerning Oracles grid vision, as far as the availability, scalability, computing resources benefits, what are the priorities youre hearing most of from customers?

Phillips: They like the lower cost, the fact that grid takes advantage of these commodity platforms. But they also like the flexibility to have applications that are deployed across a grid platform and those applications can tap into any excess compute power on that grid and load balance. So youre not configuring each application with its own server its configured for the high water mark so you have all this excess capacity that you arent using.

They also like the fact its pay as you go computing, you can add a small amount of resources incrementally, when you add it you get current processor technology as of the date youre adding it. Youre not buying it a year later and turning processors on over a year or two. So I think its an approach that makes imminent sense, its less capital up front, flexibility and you dont have these excess of servers that arent being useful most hours of the day.

eWEEK: What are the challenges IT will face over the next year?

Phillips: These things go in cycle and philosophies change. Right now people are recognizing that collapsing down and de-fragmenting data and consolidating that stuff is good. When the economy is good, the mindset is just the opposite. Time to market, centralize, when youre creating fragmented systems to aggressively go to market.

Now you can get the best of both worlds. You can consolidate but still have the small systems associated with distributed systems as the base platform and get cost advantages associated with that but still manage them centrally.

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