PeopleSoft Users Bear Brunt of Merger

An increase in annual maintenance fees for PeopleSoft and J.D. Edwards customers is in the cards as Oracle takes control of PeopleSoft's operations next week, according to sources close to the company.

As Oracle Corp. begins operations this week with PeopleSoft Inc. well in tow, it will waste little time in executing several changes that will affect PeopleSoft customers.

Among other things, Oracle executives are preparing to implement a 2 percent increase in annual maintenance fees for PeopleSoft and J.D. Edwards & Co. customers, according to sources close to the company.

In addition, Oracle officials have also made hard and fast decisions regarding head-count reductions at PeopleSoft, in such areas as sales and marketing, many of which could come as early as this week.

The moves, while not surprising to PeopleSoft customers and observers, are nevertheless giving some serious pause. "Were seriously wondering if we should even bother with maintenance," said PeopleSoft user David Gallaher, director of IT for Jefferson County, Colo. "Whats Oracle going to offer us? Theyre not offering anything except expense."

/zimages/2/28571.gifClick here to read more about Oracle and the former J.D. Edwards customer base.

An Oracle spokesperson in Redwood Shores, Calif., would not confirm the rate hikes for PeopleSoft customers, saying only that the company will announce any changes at this weeks press conference, which is scheduled for Jan. 18.

A 2 percent increase would bring PeopleSofts annual maintenance fees on par with Oracles 22 percent. After the definitive merger agreement was announced last month, analysts began questioning how and when Oracle will reconcile differences in maintenance fees and whether the company will honor previously negotiated contracts.

Last year, Lou Gerny, vice president of PeopleSoft applications at Pioneer Investments, renegotiated with PeopleSoft to combine a half-dozen maintenance agreements into one, paying a single annual maintenance fee that amounts to 20 percent of retail for his Enterprise implementations, pro-rated on an annual basis for each invoice.

"If Oracle were to come back and say, You owe 2 percent on outstanding invoices, I would challenge that," said Gerny in Boston. "Its certainly not something we would embrace, but at the same time, what are you going to do?"

The danger for Oracle of an immediate increase in fees is that it could drive away those customers it is seeking to retain—and push them into competitors hands, according to Joshua Greenbaum, principal at Enterprise Applications Consulting.

/zimages/2/28571.gifSAP sees opportunity in the Oracle-PeopleSoft merger. Click here to read more.

"In order to keep things sane with its playing field, Oracle had to do this," said Greenbaum in Berkeley, Calif. "But this is not the right time to start talking about raising prices."

In addition to the disgruntlement of customers, massive staff reductions could result in a boon for Oracle competitors.

Andrew Albarelle, principal at Denver-based IT staffing company Remy Corp., said he has seen a 23 percent increase in résumés in the past two months alone, not only from PeopleSoft employees but from Oracle staff as well.

"When you start cleaning house, you dont know where all the bones are buried because you dont have the resources available," said Albarelle.

By early last week, Harry You, chief financial officer of PeopleSoft, in Pleasanton, Calif., suggested Oracle might announce staff cuts by Jan. 14—three days prior to the planned launch of the merger. Industry analysts suggest upward of 6,000 layoffs this week—about half of PeopleSofts head count—particularly at the executive level and in sales, marketing and administration.

The New Oracle

  • 40,000-plus employees
  • Offices in more than 60 countries
  • Headquarters: Redwood Shores, Calif.


  • 11,000-plus employees
  • Offices in nearly 50 countries
  • Headquarters: Pleasanton, Calif.
  • JDE headquarters: Denver
  • Expected cuts at PeopleSoft in Pleasanton and Denver: 6,000

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