Warning to Oracle: Customers Are Calling the Shots
Larry Ellison has been called many things, some of them not repeatable here. But this year hes being called something new: Hes The Grinch Who Stole Christmas. At least thats what folks at PeopleSoft must be thinking as they wonder whether to buy holiday presents or start printing resumes.
Yes, they should have seen it coming. PeopleSoft was in play last Christmas and even before. Regardless, this holiday at PeopleSofts Pleasanton, Calif., headquarters wont be as pleasant as yuletides of years past.
Consolidation is part of the natural cycle of business. Big companies tend to get bigger, while smaller companies grow, get acquired or die. Sometimes a big company goes away. This process is sometimes called "creative destruction" in recognition of the new opportunities a dynamic market creates. Market Darwinism is another way to describe this, though in PeopleSofts case I think its merely predation.
Its easy to predict gloom-and-doom when Oracle swallows a popular competitor or IBM sells its PC business to the Chinese. But for other companies these events create the opportunity to swoop in and snatch customers from the merged companies. Big mergers seem to go badly at least as often as they go well. Sometimes creative destruction is also self-destruction.
Of course, there are also deals that look like winners. Symantec and Veritas seem to be a good match and customers should benefit from their pairing.
Sprint and Nextel seems to be a neutral, combining two of the least-liked wireless companies into a single entity. The AT&T Wireless-Cingular merger rates only slightly better, though in each case the world loses a marginal wireless player and hopefully gets a better business in the deal.
These megadeals make world headlines, especially when the suitors attentions are unwanted. Yet for all the merging thats been going on, the real action may be among businesses too small to rate even a mention in the Journal.
Ive been talking to a number of interesting, profitable startups. They dont make headlines, and many exist in very narrow niches. Some of the most interesting provide software as a service. No, this isnt a repeat of the dot-com boom. But theres an important difference: Many of these companies will survive.
Oracles acquisition of PeopleSoft strikes me as an attempt to thwart another important marketplace trend: The shift of power from vendors to customers. My sense is that Oracle will try to convert PeopleSofts customers whether they want to be converted or not. Years of lawsuits doubtless will follow.
But despite Oracles efforts, customers will call the shots in 2005. The trend toward open systems, Linux and commodity pricing will continue. Microsoft will continue to provide mass innovation at fairly popular prices and seems more prone to customer pressure today than ever in its history. The trend toward utility computing and software as a service is a response to customers who want more for their money, less upfront investment, and to pay as they go. Customers have the money, and most are under no real pressure to replace what they own. That puts tremendous pressure on vendors.
Maybe Oracle thinks buying PeopleSoft will reduce this pressure. But theyre wrong. The screws are tightening on an entire industry, and buying customers can only help so much. The best way to deal with competitors is to beat em, not buy em.
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