Software VARs Prepare To Enter PeopleSoft Breach

PeopleSoft's board announced Monday that it will submit to Oracle's 18-month-long takeover advances in exchange for about $10.3 billion, or $26.50 per share. The all-cash deal was unveiled the same day both companies were slated to meet again in Delaware Chancery Court over PeopleSoft's poison-pill anti-takeover measure. Until the deal was disclosed, Oracle had insisted that it wouldn't exceed its previous tender offer of $24 a share.

Oracle solution providers said the merger could lead to significant revenue gains as they attempt to move the PeopleSoft installed base to a new set of Oracle products. PeopleSoft partners expressed relief that, in a string of televised interviews, CEO Larry Ellison said Monday that Oracle will release of the next versions of PeopleSoft Enterprise and EnterpriseOne (a former J.D. Edwards product line), now under development at the Pleasanton, Calif.-based applications vendor.

"This opens up the whole PeopleSoft clientele to the Oracle partners," said Louis Cupo, CEO of Sabre Systems, an Oracle solution provider based in Boca Raton, Fla. "This is a big opportunity to start making inroads to integrate the PeopleSoft customers with some of the Oracle products like Oracle Application Server and Oracle Collaboration Suite.

"Oracle is really going to benefit from this," Cupo added. "They get the maintenance revenue, the support revenue. In my estimation, they will pick apart the best of PeopleSoft, which is their human resources and payroll [applications]."

Yet many PeopleSoft VARs disagree that Oracle will reap huge benefits, especially given the widely held view that PeopleSoft's applications are generally superior to Oracle's E-Business Suite.

"There's a fair amount of dislike among J.D. Edwards and PeopleSoft customers regarding Oracle," said one PeopleSoft reseller, who asked not to be named. "I think Oracle has a substantial challenge in front of them to keep this customer base. That's especially true for PeopleSoft World, which is built on the IBM AS/400. That's more than 3,000 customers loyal to IBM. On the EnterpriseOne side, I don't think you'll see this mad rush of customers moving to another solution because of the cost. Most people will adopt a wait-and-see approach."

The acquisition deal comes only weeks after PeopleSoft's behind-the-scenes introduction of a dozen new North American resellers to the midmarket channel for its EnterpriseOne line. PeopleSoft also changed the rules of engagement by raising the ceiling to customers with annual sales of $200 million and below as well as allowing Alliance partners to influence--and be compensated for--deals above the $200 million threshold.

Profit Concepts, which had been a longtime J.D. Edwards services partner, signed on last week as a PeopleSoft reseller because of those changes. "I think most customers are a bit shocked [about the Oracle deal]," said Steven Colgrove, vice president of Profit Concepts, Long Beach, Calif. "A lot of people still thought it wouldn't happen because they didn't think Oracle would raise their offer and the PeopleSoft board would not accept at $24 a share. I know some shareholders that did tender said they would not sell at $24, and I think Oracle heard the same message. For our customers, it's a case of deja vu from when PeopleSoft bought J.D. Edwards. For us, we've watched SAP's guys make great use of the uncertainty as they went to customers. We were in the throes of two large deals against SAP, and we thought we were ahead. Now we'll have to see how they go."

Other PeopleSoft VARs said they just don't know how the deal will affect them. Eventually, the deal will make Oracle a more formidable player in the midmarket because, in the past, it was difficult to justify Oracle in accounts with fewer than 1,000 employees, they said, noting that situation will change with the PeopleSoft deal.

Manuel Villa, president of Via Technology, an enterprise consulting firm based in San Antonio,said he already has a plan in motion to go after the PeopleSoft customer base that Oracle has little interest in retaining. "We are going to start in our own backyard and go after the existing installed base of [PeopleSoft World] customers. There are always some customers who are unhappy with the new product road map," he said, adding that he already expected to add Oracle expertise to consulting skill set. "This is a chance to go after them."

Villa said the deal could ultimately drive down enterprise software licensing margins where Oracle and SAP compete, similar to the way that Oracle and PeopleSoft have been undercutting each other's margins during the past 18 months. Still, he said he believes the services dollars in the channel are likely to remain at the same level.

"From the enterprise software standpoint, the biggest problem Oracle and SAP have right now is they are both in the same boat with mediocre channel programs," Villa said. "My advice to them is listen to VARs. Go out and see what VARs want and don't assume things. You need to listen to the channel."

One federal system integrator that partners with Oracle and PeopleSoft said the efficiencies gained by the merger will help both companies and its partners. "It offers some advantages to both sets of customers, including advanced integration and synergies to be gained by cross-pollination," said James McGuirk, vice president of business development at CACI, Chesapeake, Va. "There are clearly opportunities the company can make with an investment in service providers to support this merger. The implications are good [for partners]. It bodes well for distribution channels. I think the distribution channel all around will make out."

But Oracle and SAP aren't the only two applications vendors left in the midmarket space. There's also a fairly large vendor based in the Pacific Northwest: Microsoft.

One Microsoft solution provider said the Oracle-PeopleSoft deal puts pressure on Microsoft to respond. "If the government is letting the Oracle-PeopleSoft merger [happen], they ought to allow a Microsoft-SAP merger," said Ted Dinsmore, president of Conchango, New York.

The Redmond, Wash.-based software giant has acknowledged that it engaged in talks with SAP last year about a merger, but the two companies couldn't reach an agreement.

"Microsoft needs to look at a merger of that size and magnitude and [figure out] how they can play in that space," said Ken Winell, president of Econium, a Totowa, N.J.-based solution provider. "The combined [Oracle-Peoplesoft] entity is a strong force for vertical solutions and poses a threat to Microsoft. The direct threat is to Microsoft Business Solutions. Microsoft needs to find a complementary offering or more vertical complements."

Even vendors outside the applications arena said they expect the market's new dynamics to benefit them. "It's great for Linux and Red Hat," said Michael Evans, vice president of partner development at Red Hat. "Oracle is one of the boldest market players proactively supporting Linux and a very strong Red Hat partner."

No matter how the latest blockbuster acquisition shakes up the market, one thing is certain: Oracle can't afford to delay any actions that would assuage customers' fears.

"The good news is it puts pressure on the Oracle board to make decisions and announce those quickly," Profit Concepts' Colgrove said. "The bad news is SAP will be able to tap into the period of uncertainty before the whole thing is complete. There's supposedly a Chinese [proverb] that says, 'May you live in interesting times.' I'd say we're there."

PAULA ROONEY contributed to this story.