Eyeing a Bigger Prize

Oracle's PeopleSoft bid part of bigger plan to take on SAP.

As PeopleSoft Inc. customers continue to sweat out the potential takeover of the company, Oracle Corp. said it wont stop at the Pleasanton, Calif., enterprise software developer to improve its chances against SAP AG and Microsoft Corp. Regardless of what happens to Oracles proposed $6.3 billion hostile bid for PeopleSoft, Oracle chairman and CEO, Larry Ellison, said he intends to position his company to lead the consolidation of the applications software industry.

In a conference call with financial analysts last week, Ellison restated his commitment to acquiring PeopleSoft but made no mention of increasing Oracles offer of $19.50 per share. To date, only about 11 percent of PeopleSoft shares have been approved for sale to Oracle.

PeopleSoft has until July 17 to make good on its offer to buy J.D. Edwards & Co., of Denver, while Oracle has extended its tender offer to PeopleSoft to July 18. Theres speculation that Oracle chose the date to give itself an out should the J.D. Edwards transaction go through.

"They havent definitely said they would walk away, but [Oracle] made it clear they are not interested in JDE," said Jim Shepherd, an analyst at AMR Research Inc., in Boston. "My feeling is Oracle will probably walk away."

To be sure, Oracles main focus is not PeopleSoft but SAP. The company believes it can beat the Walldorf, Germany, company in the applications and infrastructure markets by growing organically and through acquisitions and homing in on such areas as outsourcing, integration, storage and vertical markets, Ellison said.

"We have one dominant player, SAP, that is bigger than [players] two, three and four combined," Ellison said. "Maybe two, three and four should combine and give them a run for their money."

Ellison said he would consider acquiring application server software provider BEA Systems Inc. if the price were right. "Were in a position to buy almost anything," he said.

Whether or not Oracle, of Redwood Shores, Calif., goes through with the PeopleSoft acquisition, some of its customers think the deal is bad business.

"Essentially, Ellison is trying to do something that would hurt many of his customers, since most PeopleSoft customers have Oracle running somewhere in their company," said one CIO at a retailer that runs software from Oracle and PeopleSoft. "Larrys move is highly unfavorable. In my role as head of IS, I have already switched two planned implementations based on Oracle to [Microsoft Corp.s] SQL Server. I cant move my company far enough away from this kind of thinking."

The move seems not uncommon. Oracle has been losing database customers steadily to SQL Server and IBMs DB2. In 2001, 65 percent of customers were running PeopleSoft on Oracle databases, according to PeopleSoft spokesman Steve Swasey. Last year, that number slipped to 60 percent. One factor behind the slide may well be that PeopleSoft now recommends DB2 to customers that dont already have a database preference.

This slip is reflected in the overall relational database management system market, where IBM recently muscled Oracle out of the No. 1 spot for the first time. Gartner Inc., of Stamford, Conn., reported in late May that IBMs share of the market in 2002 was at 36.2 percent, in contrast to Oracles 33.8 percent.

PeopleSoft customers whove banished Oracle databases from their shops voice a similar lament: poor service, high prices. "Its very costly, the support is not great, in my experience, and I dont like not having a choice," said Peg Nicholson, CIO of golf equipment maker Acushnet Co., in Fairhaven, Mass., and president of PeopleSofts customer advisory board.

Beyond those complaints lies distaste at the thought of losing the ability to choose what database their companies run applications on. Nicholson said she expects that Ellisons initial position—that Oracle will move customers off competitors databases and onto Oracles—will come to pass, rather than Oracles subsequent pledges to support PeopleSoft on any database.

Microsoft officials said that if Oracle support for SQL Server erodes following a merger, Microsoft could shift resources to shore up its alliance with SAP. Microsofts PeopleSoft-dedicated resources include alliance managers, cross-pollinating sales training, an alliance-dedicated Web site, and co-marketing and co-sales efforts. "If PeopleSoft was acquired by Oracle and Oracle forced people off Microsoft, wed try to help customers to continue with their investment in SQL Server and make [a migration to SAP] as painless as possible," said Tom Rizzo, group product manager for SQL Server at Microsoft, in Redmond, Wash. "It gets chaotic for customers and may disrupt the service level people expect from PeopleSoft as a separate entity. The other thing is, [Oracle is] bringing in a set of technologies thats competitive to their existing set of technologies. Thats a weird sort of acquisition."

Other customers, such as Bill Lawson, vice president and CIO at Ametek Inc., said he just wants the issue to be resolved. "I want this to be a nonevent," said Lawson, in Paoli, Pa. "In the short term, I worry about Oracle losing focus. When they go through the creation of synergy [should the acquisition prove successful], support, sales and product innovation suffers. Is it a huge worry for me? No. Is it something I am concerned about? Yes."