In-Depth

What PeopleSoft Users Should Do Now

While Oracle scores a TKO, PeopleSoft users face tough choices

• By Stephen Swoyer
• 12/07/2004

It’s all over but the shouting in PeopleSoft versus Oracle, but where does that leave users of the company’s software?

That’s a good question, says Robert Kugel, an analyst with consultancy Ventana Research, who argues that PeopleSoft customers need to put months of acrimony behind them and focus on a future that—however unpleasant the thought—includes Larry Ellison and Oracle.

This means different things for different users, Kugel concludes. “There may still be some twists and turns left in Oracle’s attempt to acquire PeopleSoft. Yet, for those who have not already done so, it is time to start planning for a post-takeover environment,” the analyst writes. “We advise companies that had been planning to purchase software from PeopleSoft to look elsewhere. Companies that rely heavily on PeopleSoft applications must secure the best contractual relationship possible at this point.”

In particular, he says, existing customers that don’t have a strategic dependence on PeopleSoft and its technologies should take steps to wean themselves off of PeopleSoft’s application stack.

“Firms where PeopleSoft is not strategic should plan to migrate to something else within the next several years,” he indicates. Of course, companies that are heavily invested in PeopleSoft technologies are in exactly the opposite predicament, says Kugel: “Corporations with a mature and stable HR and financials environment should leave well enough alone for now and concentrate on software that supports initiatives to improve their compliance activities, manage innovation, and enhance profitability.”

Oracle claims it now owns a majority (61 percent) of PeopleSoft’s shares, thanks to its “best and final” tender offer of $24 a share. Although PeopleSoft has a poison pill provision in place, Kugel notes that Oracle may yet get this tossed, thanks to a suit it has pending in a Delaware chancery court. This would enable Oracle to acquire the remaining shares.

Kugel allows, however, that the final nail hasn’t yet been driven into PeopleSoft’s coffin. “Having a majority now enables Oracle to win any proxy fight it cares to mount, but since PeopleSoft also has a staggered board of directors, it may take two years for Oracle to take full control of the company,” he concedes.

At the same time, PeopleSoft users must not delay.

“None of this should matter to PeopleSoft users because they should be focused on the long term, and it is highly probably in the long run Oracle will wind up controlling the company,” he argues.

So what should PeopleSoft’s customers expect from Oracle, especially given the database giant’s conflicting statements on the acquisition (see http://www.esj.com/Enterprise/article.aspx?EditorialsID=1150)? Kugel admits that he doesn’t know, but counsels that customers who choose to stay with PeopleSoft must remain vigilant.

“After some initial bellicose remarks from Chairman Ellison, the company has made it clear it intends to support the installed base for several years,” he notes. “Since the devil is in the details, it is hard to know whether and for which companies this level of support will be adequate.”

In particular, Kugel says, PeopleSoft customers shouldn’t take anything Oracle says at face value: “Companies that decide to go with Oracle and continue to pay maintenance must use this opportunity to extract as much in writing as possible.”

Elsewhere, Kugel and Ventana recommend that all prospective buyers put their purchases on hold and consider alternatives. Among existing customers, Kugel suggests that J.D. Edwards customers could be particularly vulnerable. PeopleSoft acquired J.D. Edwards in June of 2003. “We think manufacturing organizations, especially those using software originally from JD Edwards, are particularly vulnerable to losing effective support and development efforts in a post-merger environment,” he comments.

For those who plan to stick it out on PeopleSoft, Kugel says, it’s best to try to negotiate long-term contracts, if possible.

“It is possible Oracle will provide users with solid support, but users will do well to secure the best long-term contractual obligations they can,” he writes. “It is possible that Oracle ultimately will transform its applications business and be a strong contender to SAP, but this is still years away from being a reality. In the meantime, companies with businesses to run should focus on the most pragmatic solutions. They should hope for the best and prepare for the worst.”