When I stated in last week's article that PeopleSoft's acquisition of J.D. Edwards could lead to further software vendor consolidation, little did I know how quickly my prediction would come true. As MC Press prepared to post the article, Oracle Corporation made a cash tender offer of $16 per share to acquire all of PeopleSoft's outstanding stock. Within 24 hours, PeopleSoft CEO Craig Conway blasted the $5.1 billion bid as "a pathetic tactic even by Oracle standards." The offer casts a shadow of uncertainty over the futures of PeopleSoft, J.D. Edwards, and their customer bases.
While PeopleSoft's management publicly expressed outrage and surprise at Oracle's takeover attempt, there is little doubt that they privately anticipated such a move. Last year, Oracle CEO Larry Ellison and PeopleSoft CEO Craig Conway held talks about merging the two vendors' application businesses. While the combination would have made the vendors more competitive against enterprise application leader SAP, they were unable to agree on the terms of a merger. As a result, Conway went looking for a company that was a better fit for PeopleSoft's needs and found it in J.D. Edwards. Now, Oracle is trying to put the brakes on a union that would knock it out of its position as the world's second largest enterprise software vendor.
While Oracle's bid aims at stalling PeopleSoft's acquisition of J.D. Edwards, Oracle executives insist that their offer is a serious one. Ellison and his lieutenants believe that up to 70% of PeopleSoft customers use Oracle products as well. For such customers, Oracle claims, an acquisition would create a "one-stop shop" for enterprise software.
Though that might be true, many PeopleSoft customers could have problems with the way that Oracle keeps shop. Unlike PeopleSoft, which supports software vendor heterogeneity within its customers' IT infrastructures, Oracle has a history of pushing its customers to adopt a single-vendor architecture. Indeed, Ellison has already stated that while Oracle would support PeopleSoft's existing products, it would put any enhancements to those products in mothballs and encourage customers to migrate to Oracle applications over time. Ellison has also characterized the J.D. Edwards acquisition as a "risky merger" and indicated that Oracle could cancel the deal if PeopleSoft's shareholders accept its offer.
The Oracle Offer--Consequences and Conundrums
Before I offer any further assessments of these events, let me remind you once again that as one of J.D. Edwards' top partners, Andrews Consulting Group has a stake in the outcome of Oracle's takeover bid. That said, I think the majority of IT analysts would agree with most of my following statements.
As I see it, Oracle's offer is a boldfaced attempt to maintain influence in a mature software market where competitors have to rob each other of customers to achieve double-digit growth. In this environment, Oracle has concluded that if PeopleSoft and J.D. Edwards combine, it will face a far tougher competitor in the enterprise applications space. In addition, this competitor could erode Oracle's share of the database, application server, and development tools markets. Unlike Oracle, PeopleSoft and J.D. Edwards have forged tight partnerships with IBM under which they promote the use of DB2 and WebSphere products with their application platforms. Should the two firms combine, both IBM software brands would likely benefit from the union at the expense of Oracle's middleware products.
Given the risks of a PeopleSoft-J.D. Edwards union and the lack of other suitable acquisition targets, Oracle's offer makes sense from its competitive standpoint. However, this does nothing to reduce the negative consequences that the offer holds for customers of PeopleSoft and J.D. Edwards. Should shareholders accept Oracle's offer, PeopleSoft customers will likely lose any prospect of enhancements to their existing products and face a forced migration to Oracle products. As for J.D. Edwards' customers, they face either the loss of a powerful partner (should Oracle cancel PeopleSoft's acquisition plans) or a migration to Oracle products that would be more wrenching than that facing PeopleSoft users. Such a migration could be particularly brutal for the many customers of J.D. Edwards who are iSeries owners, as Oracle's applications run neither on the server nor on the iSeries' DB2 database.
Even if Oracle's offer fails to win shareholder approval, it has already cast a pall of fear, uncertainty, and doubt over the market that could delay hundreds of enterprise software decisions. Those delayed decisions hurt not only PeopleSoft and J.D. Edwards, but also IBM and Microsoft, as these vendors provide most of the database and middleware underpinnings for the two application vendors' solutions. Even if Oracle did not make its offer to throw a monkey wrench into its competitor's businesses, Ellison had to know it would do so. That fact has not been lost on PeopleSoft's Conway, who worked for Ellison at Oracle in the early 1990s and has characterized his old boss as "sociopathic."
In short, with the stakes as high as they are, Oracle's offer has triggered a battle for enterprise application leadership that will have a huge impact on the direction of the software industry. Given the bad blood between the combatants, it has also created a brawl that will likely compete with IBM and SCO's legal tussle for the biggest IT industry food fight of 2003.
Lee Kroon is a Senior Industry Analyst for Andrews Consulting Group, a firm that helps mid-sized companies manage business transformation through technology. You can reach him at
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