2004: A Tumultuous Year for Enterprise Apps

By John Pallatto  |  Posted 2004-11-26

2004: A Tumultuous Year for Enterprise Apps

The past year has been remarkable for the number of issues in the enterprise applications software story that still remain unresolved from a year ago.

Few would have predicted that Oracle and PeopleSoft would still be locked in the bruising takeover battle that has persisted for nearly 18 months, making it one of the most hard-fought buyout disputes in recent memory.

But after a full year of government regulatory decisions, court trials, a failed proxy vote, and the interminable pandering for shareholder sale commitments, Oracle has neither succeeded in taking over PeopleSoft nor shown any sign it will ever give up the chase.

Still more curious is the rise of a crowd of search engines from companies large and small that are more advanced search technology aimed at keeping them in the race with Google. In 2003 it was practically revealed faith that Google had the market locked up, and it seemed nonsensical that anybody would be willing to invest heavily in new search technology to challenge that position.

To read PC Magazines reviews of the latest search engine technology on the market, click here.

But every major contender, including Yahoo, America Online, and AskJeeves on down to Copernic Technologies spinoff Coveo Solutions, as well as startups Blinkx and X1 Technologies, are all jostling to get at least a sliver of the search industry pie.

As it does in most other technology sectors, Microsoft wants to make a big dent in this market with its own search engine next year. Meanwhile, old standby AltaVista, along with Vivisimo and LookSmart, all remain in contention.

A key new development in 2004 was the emergence of local search services from Google, Yahoo and AskJeeves to help users find business services in their area and to encourage businesses to purchase local online advertising.

The rapid development of local search services prompted SBC Communications and BellSouth to purchase YellowPages.com, an online local search directory, to allows these old-line publishers of Yellow Page directoriess to keep pace with Internet search giants.

Equally remarkable are the new developments in the Internet browser field, where a year ago it appeared that there was little point in trying to develop new products in a market that was thoroughly dominated by Microsofts Internet Explorer. Why would anyone invest in creating and supporting a new browser when 95 percent of the Internet-savvy population was using Explorer? the thinking went.

Next Page: Mozilla challenges Internet Explorer.

Challenge to Explorer

But that hasnt stopped people from taking a close look at the Mozilla Foundations browsers, including the Firefox 1.0 that it released this month. Mozilla has managed to knock a few chips off of Explorers granite pedestal by increasing its market share more than five points, from 2.1 percent in May to 7.4 percent by the end of October.

Coming up a valiant third in the market is Norways Opera Software ASA browser, which runs on all the key platforms: Windows, Linux, Macintosh and Unix. The company is rapidly upgrading Opera to take advantage of the attention it is getting from computer users far beyond the shores of Scandinavia.

Of course, the once-popular Netscape Navigator browser is still in use, but it hardly makes a ripple in the market. It is rarely seen, like a shy, nocturnal mammal whose extinction has been long predicted, but not yet proven.

Whether the erosion of Microsofts market share will continue into 2005 remains to be seen and depends on whether the next version of Explorer will have compelling enhancements that will reverse the slow downward trend that started this year.

But the biggest continuing story of 2004 was, without question, Oracles unremitting effort to buy PeopleSoft.

The battle has cost both companies millions of dollars that would have otherwise been spent on research and development or marketing of their software products. It also cost former PeopleSoft CEO Craig Conway his job, when the companys board of directors determined that Conway made deceptive comments to Wall Street analysts that the Oracle takeover bid wouldnt be a sales deterrent.

PeopleSoft founder Dave Duffield returned to lead the company through its buyout battle with Oracle.

Early in 2004 it looked like PeopleSoft might get a reprieve from the U.S. Department of Justice that ruled the proposed buyout would violate Federal antitrust law. However, Oracle sued to overturn that ruling. After a two-month trial in the U.S. District Court in San Francisco, Judge Vaughn Walker ruled that there was sufficient competition in the U.S. enterprise software market to prevent the merger from violating antitrust law.

Next Page: Court wrangles destined to continue.

Heading back to court


Next, Oracle sued in Delaware Chancery Court, seeking to expunge a "poison pill" shareholder rights provision that would flood the market with millions of new shares if Oracle acquired a substantial percentage of PeopleSoft shares. Early this month, Oracle raised its bid for PeopleSoft shares from $21 to $24, saying this was its "best and final offer."

This was sufficient inducement for 61 percent of PeopleSoft shareholders to tender their shares to Oracle, which immediately called for PeopleSoft to bow to shareholders will and promptly negotiate a definitive merger agreement.

But PeopleSoft refused and said it would carry the battle to what could be a climactic proxy vote at its annual meeting in February 2005.

Oracle could finally prevail in that proxy vote if the majority that accepted its $24 offer shows up to vote for a slate of directors that would favor the buyout. Shareholders rejected Oracles slate of directors in at the 2004 annual meeting.

Oracle has put forward its slate of directors. Click here to read more.

PeopleSoft also plans to go to trial in January with its lawsuit claiming that Oracle is engaging in unfair business practices by using the buyout effort to disrupt its business.

Computer Associates added to the legal drama in 2004 with a series of executive firings and federal indictments that led to the ouster and eventual departure of former CEO Sanjay Kumar from the company.

Kumar, long responsible for formulating CA product and technology strategy, had long been former CA Chairman Charles Wangs right-hand man. Kumar succeeded Wang when he retired.

However, an investigation by the CA board of directors and federal investigators found accounting that the company had been booking revenue from sales contracts that hadnt been signed and sealed to inflate its revenue and profit columns.

First, CA forced Kumar to step down as CAs chairman and CEO. However, the company retained him for a time as chief software architect. But he left the company altogether as the investigation showed that he shared responsibility for the premature booking that required the company to write off more than $2 billion in revenue claimed in 2000 and 2001.

In September, the Justice Department indicted Kumar, and CA struck a deferred prosecution deal with the government in which it will establish a $225 million restitution fund for current and former shareholders.

It also agreed to try to recover bonus and stock compensation from former CA officers and employees who participated in the accounting fraud.

CA made a major step toward a recovery from these troubles as new reports indicated that the company would name John Swainson, vice president of worldwide software sales at IBM, as its next CEO. He would replace interim CEO Ken Cron, who stepped in to replace Kumar.

The settlement and CEO hiring offers hope that CA will be able to but these legal problems behind it in 2005 and focus on completing the business restructuring that Kumar pursued over the past three years.

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