PeopleSoft: Dominant or Distracted?By Larry Dignan | Posted 2003-06-06 Print
PeopleSoft's acquisition of J.D. Edwards and the subsequent hostile bid from Oracle could redraw the enterprise software landscape. Or it could give technology executives a reason to put off a purchase.Arlyn Richards doesn't want a spate of proposed enterprise software mergers to become an implementation headache for him.
Richards, manager of information systems at Gallatin Steel based in Ghent, Ky., is a two-year J.D. Edwards customer and hopes PeopleSoft doesn't absorb his OneWorld suite, leaving him with what effectively will be another integration job. Gallatin, a midmarket company with $450 million in annual sales, isn't a PeopleSoft customer.
"Our desire is to standardize and not have to upgrade for a while," says Richards.
Richards, like other J.D. Edwards and PeopleSoft customers, is hanging tight watching a merger soap opera unfold. On Friday, Oracle launched a $5.1 billion takeover bid for PeopleSoft, which just days earlier said it would acquire J.D. Edwards to create a combined company with $2.8 billion in revenue and 13,130 employees.
If Oracle CEO Larry Ellison gets his way, he'll acquire PeopleSoft and integrate its software with Oracle's e-business suite. Once Oracle acquires PeopleSoft, it will "review whether, and on what terms" it will support the J.D. Edwards deal. For its part, J.D. Edwards says it has a definitive agreement with PeopleSoft.
That's a lot of uncertainty for technology executives buying enterprise software from PeopleSoft or J.D. Edwards. It's unclear what effect all the proposed wheeling and dealing will have on software spending. Will PeopleSoft customers chafe at becoming assimilated into an Oracle suite? And if Oracle's bid fails, PeopleSoft may still have a tough time cross-pollinating between large enterprises and midsized company markets.
According to SoundView Technology analyst James Mendelson, Oracle is in a no-lose situation. If Oracle wins its bid, it'll pick up PeopleSoft for a decent price and bolster its applications business.
"If Oracle can buy PeopleSoft at a reasonable price, they substantially increase their market share and eliminate a competitor," Mendelson says.
If Oracle isn't successful with its bid, it'll still be able to cause confusion among PeopleSoft customers and potentially gain business.
While the saga plays out, technology executives may hold off before buying from either PeopleSoft or J.D. Edwards, analysts say. The logic: It's better to see how the saga plays out before committing money. "On the margin, this deal may benefit SAP," says W.R. Hambrecht analyst Rich Petersen.
According to AMR Research, here are some steps technology executives should take amid the merger talk:
Technology executives say it's too early to say how the PeopleSoft acquisition of J.D. Edwards will play out. And the Oracle bid may just add more uncertainty.
Frank Hood, chief information officer for Krispy Kreme, says J.D. Edwards will still be invited to a resource-planning software bake-off against SAP and Oracle this summer with a rollout scheduled in the fall. "We're still looking at the top three vendors, which to us are SAP, Edwards and Oracle," says Hood, adding that he has no immediate plans to use PeopleSoft's human resources applications.
PeopleSoft isn't expected to reveal anything about product roadmaps for the J.D. Edwards deal until the end of the month in a yet-to-be-scheduled analyst meeting. PeopleSoft's second quarter earnings report in July may also give some hints about whether customers postponed purchases.
Oracle is hoping to close the PeopleSoft deal in July.
Nevertheless, savvy negotiators could benefit from the merger chatter, analysts say. Technology executives currently evaluating PeopleSoft or J.D. Edwards may be able to squeeze out better prices. They could cast doubt on PeopleSoft's ability to integrate J.D. Edwards smoothly—and tout their ability to turn to SAP or Oracle for enterprise software—to bolster the case for price concessions, analysts say.
With a distracted J.D. Edwards, analysts expect SAP to push its software for the small-to-midsize markets. Competitors to PeopleSoft such as SAP are likely to argue the company is also too busy either mulling an Oracle bid or integrating J.D. Edwards to focus on them.
And what if Oracle's bid is successful? "Although we will not be actively selling PeopleSoft products to new customers, we will provide enhanced support for all PeopleSoft products," said Ellison in a statement.
Melding some applications may not be a bad thing. Tom Gaylord, CIO for the University of Akron and a PeopleSoft customer, says he wouldn't mind if "some of J.D. Edwards' 'style' would find its way into the PeopleSoft suite improving the user experience." Gaylord says J.D. Edwards financial management portal has a better user interface than PeopleSoft's.
PeopleSoft's game plan
Assuming PeopleSoft thwarts the Oracle bid, the company's J.D. Edwards deal—0.860 PeopleSoft share for each J.D. Edwards share—would combine the No. 2 and No. 4 enterprise software companies. The goal: fend off SAP AG and squeeze out Oracle.
PeopleSoft didn't have an immediate comment on Oracle's bid Friday, but CEO Craig Conway noted on a conference call this week that the J.D. Edwards merger "could not be more compelling."
On paper, the deal—which is expected to close in the third or fourth quarter—works. PeopleSoft hasn't had much success targeting the midmarket, and J.D. Edwards makes it an instant player, say analysts. The company has also had a tough time being viewed as more than a human resources and financial-application player despite offering customer-relationship management and other software modules. The purchase of J.D. Edwards gives it a better foothold in the enterprise resource planning market and opens the door to manufacturing customers.
J.D. Edwards, which posted a net loss of $393,000 for the quarter ended April 30, is being squeezed on its home turf by SAP, Microsoft and a host of other targeting mid-tier companies. As a result, license revenue for the April quarter fell to $43.5 million from $54 million a year ago. By merging with PeopleSoft, J.D. Edwards squelches any worries about the company's future and may give it more clout and distribution among large enterprises.
Combined, the two companies have little customer overlap and can target industries ranging from technology and financial (PeopleSoft) to industrial manufacturing, consumer goods and real estate (J.D. Edwards).
On the technology front, software from J.D. Edwards and PeopleSoft are likely to remain separate. J.D. Edwards software will continue to operate manufacturing plants, and PeopleSoft applications will focus on corporate functions such as human resources and financials. Meanwhile, the architectures underlying the two companies' main products are dramatically different. Many of J.D. Edwards' 6,752 customers run on IBM's AS/400 platform and have no intention of changing. PeopleSoft's 5,133 customers are used to running their software via a Web browser.
When asked whether PeopleSoft would try to migrate J.D. Edwards' customers to a Web-based platform, Conway couldn't provide an answer because the two companies were "just getting started on dialogue."
Nevertheless, there will be issues for customers of peripheral products. In CRM software, J.D. Edwards acquired Youcentric in 2001 and PeopleSoft bought Vantive in 2000. In supply-chain software, J.D. Edwards added capability by buying Numetrix in 1999. PeopleSoft acquired Red Pepper in 1996. Oracle brings the same software to the table.
"They will have to slowly rationalize these and pick the clear leaders," said AMR Research analyst Colleen Niven, referring to the PeopleSoft and J.D. Edwards combination. "It'll be interesting to see how it is cross-pollinated."
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