Meet The New Boss

Now that $10.3 billion in cash has finally sealed Oracle's hold on PeopleSoft, the business applications arena has only two primary players: SAP and Oracle. That tectonic shift in the applications landscape has created a new dynamic in the enterprise and a highly competitive midmarket space. And not just because of PeopleSoft's disappearance.

Time has not stood still in the 18 months since Oracle initiated its hostile takeover. Back then, Oracle clearly intended to remove a competitor and harvest PeopleSoft's maintenance revenue to fund its own development efforts. But thanks to PeopleSoft's counter-campaign of fear, Oracle now finds itself promising PeopleSoft customers to "oversupport" and "overdeliver" products currently in development at PeopleSoft's Pleasanton, Calif., headquarters.

PeopleSoft's partners can take relief in Oracle CEO Larry Ellison's promise to release the next versions of PeopleSoft Enterprise and EnterpriseOne (a former J.D. Edwards product line), now under development. And what of PeopleSoft World, which runs on AS/400? "We will maintain it and enhance it," said Oracle President Charles Phillips. "We have no plans to sell it off."

This now means, however, that Oracle must also retain more PeopleSoft employees than it had originally intended. If history is any guide, it should be another year or so before the combined company truly gets its house in order.

"It will take awhile for these two companies to figure out the absorption process," said Steven Colgrove, vice president of business development for PeopleSoft implementer and reseller partner Profit Concepts, Long Beach, Calif. "They don't have time to squabble internally over product line precedence."

Redwood Shores, Calif.-based Oracle must do more than just combine different organizations and cultures, however. It also must meld disparate approaches to the midmarket, the channel and products.

Oracle and PeopleSoft have recently created new programs targeting the midmarket. This past month, PeopleSoft doubled the network of resellers offering its EnterpriseOne and World lines and changed the rules of engagement, raising the ceiling to customers with $200 million and below and allowing Alliance partners to influence--and be compensated for--deals above $200 million. Oracle, too, has embarked on a midmarket path, offering a special edition of its E-Business Suite and recruiting resellers to sell it into companies with up to $75 million in revenue.

Not surprisingly, there's a fairly high quotient of fear, uncertainty and doubt among PeopleSoft's solution providers. They wonder if there's a place for them in Oracle's channel, especially since most have diversified their practices and now also represent competitive vendors such as SAP and Microsoft. "Our biggest concern is whether we'd be required to be exclusive to Oracle," said one PeopleSoft partner who asked not to be named.

In contrast to PeopleSoft, Oracle does not require an exclusive arrangement with its resellers. "We are just now in the process of formally reaching out and talking to potential partners as this agreement comes together," said Rauline Ochs, Oracle's senior vice president of global alliances. "While we are still working out the details, we can say we are pursuing a business-as-usual operation. That means no interruptions to their business- and revenue-generating capabilities. We want these PeopleSoft partners to know they are important to us. We want to retain them. We want to do business with them."

Roger Harris, general manager of MSS Technologies, a Denver-based PeopleSoft partner, said, "I do think Oracle realizes the partner channel is the way to go, especially in the small to midsize business."

Complicating matters for Oracle is the fact that it spent more for PeopleSoft than the $9.4 billion it has on hand in cash and readily converted assets. In a filing last week with the Securities and Exchange Commission, Oracle revealed it has arranged $1.5 billion in credit to help finance the deal. Rivals now see an overextended company facing a long period of adjustment. That spells "opportunity" with a capital 'O'.

"Oracle has now depleted its cash," said one PeopleSoft partner who asked not to be identified. "If I'm SAP or IBM or Microsoft, I'd use this time to go for the throat. SAP, for example, could lower its software to almost nothing and run Oracle into a place it can't recover from."

SAP, Walldorf, Germany, isn't saying whether it intends to try anything new to exploit Oracle's perceived weaknesses. Given its success so far, it might not have to. Since June 2003, when Oracle inaugurated its unsolicited PeopleSoft bid, SAP's revenue share grew from 51 percent to its current 56 percent, according to SAP's own figures comparing itself to Oracle, PeopleSoft, Microsoft and Siebel Systems. In that period, PeopleSoft's share dropped 3 percent and Oracle's fell by 2 percent. For the short term, at least, SAP remains the real beneficiary of the merger brouhaha.

"What was announced does not close this period of uncertainty. It just opens the next 18-month chapter of concern about what will happen to the PeopleSoft and J.D. Edwards products that customers own," said Bill Wohl, SAP's vice president of global communications. "Independently, Oracle and PeopleSoft are distant competitors to SAP on a global scale. Combining them just allows us to focus our resources on beating one competitor instead of two."

For its part, Microsoft wasted no time trying to stir those high anxieties. Three days after the announcement, the Redmond, Wash., software giant sent a letter to PeopleSoft customers touting Microsoft's platform for deploying ERP applications. Signed by Corporate Vice President Bill Veghte, the letter suggests they consider three options that each involve Microsoft technology.

"We really want PeopleSoft customers to know where we stand," said Tim O'Brien, senior product manager in Microsoft's platform strategy group. "And there's a set of customers, either on Unix or AS/400, that we'd like to talk to about the value we offer as a platform provider. We think in many cases they may want to migrate away from PeopleSoft altogether."

Many solution providers agree. Regardless of which camp they call home, nearly all see dollars for the picking in PeopleSoft's midmarket customer base.

"From a partner's perspective, the acquisition gives Oracle an even broader market to deploy partner resources and to allow partners to upsell Oracle technology into existing PeopleSoft clients where SQL Server lives as the underpinning database today," said Ron Zapar, CEO of Re-Quest, an Oracle partner based in Naperville, Ill. "I think this is one of the most positive, strategic moves Oracle has made since we became a channel VAR in the mid-90s."

Not surprisingly, many PeopleSoft VARs disagree--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."

One thing is certain, however: Oracle cannot 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," said Colgrove. "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 curse that says, 'May you live in interesting times.' I'd say we're there."