High-Stakes ERP Consolidation

Gobbling up of competitors in ERP market puts developers and users to the test.

The stakes in the ERP consolidation game are high for enterprise resource planning software developers and users alike. The ongoing drama surrounding Oracle Corp.s proposed $8 billion takeover of PeopleSoft Inc. has highlighted the quandary facing corporate IT departments. Customers want new technologies from ERP providers, but vendors say they must increase revenues and market share to fund new development.

Other than raising prices, ERP vendors know they can increase revenues by simply buying more customers through acquiring competitors. But while acquisition and consolidation strategies may solve one problem for companies such as Oracle, they create new problems for customers caught in the cross fire.

"This whole issue with Oracle has us concerned," said Randy Senn, CIO of Scana Corp., in Columbia, S.C. Scana is nearly finished migrating from Geac Computer Corporation Ltd. to PeopleSoft applications. "We had done a lot of process engineering and documentation with the Geac implementation, and I figured it would be easier to do the PeopleSoft implementation because of that," Senn said. "What we found out is that previous work is probably not going to minimize the work of going to the second set of applications; thats a wrong assumption."

The Oracle deal is just the latest sign of consolidation in the $20.6 billion ERP market. PeopleSoft, of Pleasanton, Calif., gained customers and technologies with its $1.8 billion acquisition of J.D. Edwards & Co. this month. SSA Global Technologies Inc. last week closed on its acquisition of manufacturing ERP software maker Baan Co. That purchase followed acquisitions by Best Software Inc. and Epicor Software Corp.

(Read about more ERP consolidation moves.)

Microsoft Corp. over the last few years has jumped in with acquisitions of Great Plains Software and Navision A/S.

All these companies are chasing ERP leader SAP AG, of Walldorf, Germany, which last year acquired TopManage Financial Solutions Ltd.

Oracles proposed PeopleSoft buyout is under investigation by the Department of Justice, and a resolution is not likely for several weeks or months, experts agree. This gambit could end sooner if Oracle does not renew its offer to buy PeopleSoft shares, which expires Aug. 15.

Several factors have promoted ERP market consolidation—slowing sales of new software licenses, an increasing reliance on an existing customer base and low stock valuations that make acquisition targets attractive.

SAP, PeopleSoft and Oracle, and their midtier brethren, are looking to attract new customers as well through development of add-on technologies such as supply chain management, customer relationship management and business intelligence. Each company also hopes to provide bigger pieces of the IT pie by offering their software as Web services and ultimately composite applications, which are business automation services that can be assembled to form ERP-like applications.

SAP announced in January its Enterprise Services Architecture and NetWeaver technology stack that promises application integration through Web services. PeopleSoft similarly plans to bundle its Portal, Integration Broker and Enterprise Data Warehouse as a single infrastructure offering.

Oracle made some mention of buying infrastructure provider BEA Systems Inc., which offers its own integration software with WebLogic Workshop. However, CEO Larry Ellison, who suggested that possibility earlier this month, did not say how Oracle would use BEA technology.

Oracle Executive Vice President Chuck Phillips said that while acquisitions are important for Oracle, the company will continue to focus on internal development. "Well be larger through internal growth, and [the] Applications [division] will be larger with some acquisitions," said Phillips, in Redwood Shores, Calif. "We have a lot of things that were doing. The acquisition [of PeopleSoft] is just one thing."

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