In-Depth

Oracle Reassures Users as PeopleSoft Acquires J.D. Edwards

Virtual town hall meeting called to address PeopleSoft users' concerns; Oracle executive says it's all about maintenance, not expensive marketing

• By Stephen Swoyer
• 07/22/2003

By last Friday, investors had tendered 88 percent of J.D. Edwards shares, which prevented PeopleSoft from officially closing out the merger. In order for the transaction to be valid, PeopleSoft needed to close on 51 percent of J.D. Edwards shares.

PeopleSoft says that it hopes to acquire the outstanding shares of J.D. Edwards by the end of August. The company is offering investors $14.74 for every share of J.D. Edwards that they turn into PeopleSoft stock. PeopleSoft plans to offer investors who have not yet tendered their shares $7.05 plus 0.43 of a PeopleSoft common share for each share of J.D. Edwards.

Analysts say that PeopleSoft should be especially wary of Oracle’s hostile take-over bid once J.D. Edwards investors are on-board. The database giant has made a tender offer of $19.50 per share which would allow former J.D. Edwards investors to realize a quick profit on their new shares of PeopleSoft stock.

Oracle Corp., for its part, was undeterred: The database giant last week hosted a virtual “town hall” meeting to address the concerns of PeopleSoft users. Oracle reiterated its pledge of long-term support for PeopleSoft, promised that it would continue to sell PeopleSoft’s applications to existing and new customers, and confirmed that it would still pursue the acquisition even if PeopleSoft completed its acquisition of J.D. Edwards.

Over the course of nearly an hour, Oracle executive vice president Chuck Phillips fielded questions submitted by PeopleSoft users over the Web and via e-mail. Through it all, Phillips sought to downplay concerns over Oracle’s plan not to actively market PeopleSoft’s products—he argued that recurring maintenance and support revenue is more lucrative than new licensing revenue—and stressed that his company is committed to supporting and enhancing PeopleSoft’s product stack over the next ten years.

Phillips dismissed reports that Oracle would no longer market PeopleSoft applications to new customers. “All we said was in terms of how we take those products to market,” he argued. “[We said] we wouldn’t actively market those products, and that’s just the overhead and expense of doing marketing seminars, doing online seminars, those sorts of things that really cost a lot. As far as anyone who wants to buy the product, existing and new customers, they can certainly buy the product.”

He also repeated Oracle’s pledge to support and enhance PeopleSoft’s product stack beyond the support timetable that PeopleSoft itself has outlined—although on several occasions Phillips dodged the issue of whether Oracle will issue a PeopleSoft version 9 suite. “We will continue to make enhancements and improvements on an ongoing basis, [but] whether we change the version number to 9 is pretty much a marketing event and we’ll evaluate that as the enhancements continue over time,” he asserted.

Phillips said that product support and enhancement are central to Oracle’s strategy to derive most of its PeopleSoft-related revenue from support and maintenance fees, rather than sales of new software licenses. “Most software companies or actually many companies in the software business actually lose money on new sales,” he argued. “Servicing existing customers, that’s actually where the profits are.”

On at least two occasions, Phillips was pressed as to how Oracle planned to support PeopleSoft implementations in non-Oracle environments. In the first instance, he noted that Oracle today plays in many multi-vendor enterprise environments. “Our database today supports virtually every application that’s out there, so most of our database customers run things like SAP, PeopleSoft, etc.,” he commented, noting that Oracle already offers support to these customers. “In addition, we’d acquire obviously the PeopleSoft support organization, and that would be helpful as well.”

When asked later in the meeting how Oracle’s win-at-all-cost strategy—which heavily leverages its Oracle 9i relational database—could be reconciled with its pledge to enhance PeopleSoft’s applications and support customers in non-Oracle database environments, Phillips effectively dodged the second part of the question, however. “We don’t view the enhancement of the PeopleSoft product line as competing with ourselves if we own it,” he indicated. “[Enhancing PeopleSoft’s products] basically ensures that we’re retaining that very valuable maintenance revenue … The only reason it works is if we keep existing customers happy and they continue to renew each year.”

Phillips also reiterated Oracle’s pledge that customers would not be pressured to transition from PeopleSoft to Oracle’s own application stack. In addition, Phillips promised that Oracle wants PeopleSoft—come hell or J.D. Edwards. “We’ve said that for PeopleSoft customers if J.D. Edwards comes under the umbrella and that [acquisition] closes, then they get the same treatment [that Oracle outlined for PeopleSoft customers,” he confirmed.

PeopleSoft Users Underwhelmed

One user of PeopleSoft’s PeopleSoft 8 HRMS, FDM, and CRM modules says that Oracle’s take-over attempt has prompted his company to take a closer look at competing solutions from German ERP giant SAP AG. “We have no Oracle software … If the takeover is successful I don't think we would go with Oracle. We have too big of an investment in DB2 at this point. My guess—and maybe not a totally educated one—is that we would go with SAP.”

This user says that he’s not persuaded by Oracle’s promises, especially in light of today’s volatile economic situation. “I guess I feel talk is cheap. They can say one thing but, based on the economic situation, they could change overnight with the game plan,” he comments. This user also expresses skepticism in the face of Oracle’s promises to support non-Oracle environments—especially on the RDBMS tier: “Why would [Oracle CEO Larry Ellison] not force people to [move to] his software, especially those of us using DB2?”

Noel Cook, an administrator with health care managed services provider Extendicare Inc., says that prior to Oracle’s announcement, his company had narrowed its choices of packaged application suites down to PeopleSoft and Oracle, with PeopleSoft in the lead.

Since the database giant embarked on its hostile take-over bid, Cook relates, his company is more inclined to go for an Oracle-based solution—although he says that all bets are now off until the dust settles. “It has probably put our decision on hold until this shakes out….[Although] it has made us more likely to choose Oracle,” he confirms.

One of the reasons why he now favours Oracle over PeopleSoft, Cook explains, is because he doesn’t believe that the database vendor will be able to support PeopleSoft’s application stack over the long haul. “I don't believe they could support two different packages, so the current PeopleSoft customers have a legitimate concern,” he speculates. “At some point in the future, Oracle would have to pressure them to switch, but they can make the transition much less painful by building migration paths and incorporating some of the PeopleSoft ways of doing things.”

Oracle Users Delighted

Existing PeopleSoft users are dismayed, to be sure, and prospective users of the company’s software are backpedaling, but Oracle RDMBS shops seem generally delighted with the bid. “It hasn't changed our good feelings towards Oracle. We have an extremely good relationship with Oracle and are expanding our use of Oracle,” comments a systems software programmer and analyst with a state government’s IT organization.

This user says that PeopleSoft’s growth in his organization’s IT department has been limited by “the huge costs and pain involved in implementing and/or upgrading” its PeopleSoft infrastructure.

Not surprisingly, this programmer feels that Oracle has done enough to address the concerns of end users—although he admits that he’s uncertain whether the database specialist will refrain from pressuring users to transition to an Oracle application and database stack.

At the same time, this user isn’t sure that Oracle will successfully pull off its hostile take-over attempt. “Probably not, but I hope so,” he says.