Oracle's PeopleSoft victory, one year on
Customers say little has changed to allay their concerns and disagreements about the effects of the megamerger.
How has his decision affected the market for business application software?
Well, that depends on how you frame the question to executives who purchase these complex products.
The much anticipated announcement brought to a close a high-profile trial full of surprises and titillating information that under ordinary circumstances might never have seen the light of day. Today, those revelations provide the detail by which we might gauge whether Walker made the right call.
Microsoft, for example, was compelled to reveal that news of Oracle's PeopleSoft overture pushed its chairman, Bill Gates, to enter merger talks with German software giant SAP and consider taking a defensive stake in PeopleSoft. Oracle itself disclosed a long list of potential acquisition targets on CEO Larry Ellison's wish list.
But even more interesting was the rare peek behind the curtains at how users of sophisticated financial and human resources management software viewed the Oracle-PeopleSoft combination at the time. For one year later, with PeopleSoft fully absorbed by Redwood Shores, Calif.-based Oracle, some of these same executives are just as concerned about the effect of removing a big business software vendor from the competitive landscape.
Walker, in ruling for Oracle, found that the individual worries of a handful of customers brought to the stand by the Justice Department didn't matter much, since they couldn't accurately portray the true competitive nature of the market for HR and financial management software. In his Sept. 9, 2004, decision, he rejected the Justice Department's argument that the software products in question produced by PeopleSoft, Oracle and SAP were different enough from similar products made by other companies to warrant being considered a distinct market.
He also said the government failed to show that Microsoft, Lawson Software and other business software providers could not hamper a merged Oracle-PeopleSoft's ability to raise prices. Walker concluded that other kinds of companies, including Fidelity Investments Institutional Services of Boston and Roseland, N.J.-based Automatic Data Processing, would limit the merged company's ability to raise prices because software users could simply outsource enterprise software operations to these companies if it was too costly to keep them in-house.
And yet, over the past year, little has changed to allay the concerns and disagreements some customers have with the effects of the deal. Neiman Marcus Group's chief information officer, Phillip Maxwell, whose company at the time of the trial had already implemented Oracle financial management software and was preparing to start using the company's HR management applications, says that the choices remain especially limited for the major retailer.
At the time of the trial, Oracle's undisputed archrival, SAP, did not have strong offerings of enterprise software tailored to the retail market, and therefore it wasn't really an option for Dallas-based Neiman Marcus, says Maxwell. But he notes that SAP earlier this year began a bigger push into this vertical market, which sparked Oracle to counter with two acquisitions: the purchase of ProfitLogic for undisclosed terms and the $670 million buy of Retek.
Despite all this, the fact that SAP's products tend to be high priced marginalized the company's effect on Oracle's pricing, Maxwell argues. "SAP has always had the reputation of being premium priced, so they don't necessarily provide any price competition," he says.
Microsoft's role
Similarly, current and potential competition from other quarters got a lot of play from Oracle's legal team during the trial. The lawyers placed much emphasis on how Microsoft was developing competitive products that would rival Oracle's and SAP's and lead to lower prices.
But the Redmond, Wash.-based company, through the court testimony of its head of business solutions unit, Douglas Burgum, insisted it was focused on smaller businesses. Other witnesses agreed.
Case in point: Government witness Curtis Wolfe, North Dakota's chief information officer, told the court at the time that he had recently chosen PeopleSoft as a supplier of financial management and human resources software and special applications for the
state's college system. He had ruled out Great Plains Software, which was acquired in April 2001 by Microsoft and formed the basis of its enterprise application offerings, as inadequate for his state's needs.North Dakota considered Great Plains again after it was absorbed by Microsoft, and it came to the same conclusion, Wolfe testified. Today, Wolfe says that over the past year Microsoft still has not aggressively gone after the so-called high function enterprise application market to serve large, complex businesses.
Nor has St. Paul, Minn.-based Lawson Software, which was portrayed by Oracle during the trial as a viable competitor for the business of complex organizations. Lawson, says Wolfe, is not being aggressive. "It isn't calling on me," he says with a hint of surprise. "And I don't see anyone else moving up into this marketplace. It was and is obvious that there are now only two players in this space: SAP and Oracle."
SAP, in fact, also bid for North Dakota's software business, Wolfe recalls, but its price was too high, echoing the complaints of Neiman Marcus CIO Maxwell.
Overall, however, it's still difficult to judge how the end of PeopleSoft as a rival to Oracle has changed the marketplace. The reason: It's too early to say definitively how well Oracle is performing in the eyes of customers.
The company has said it would support major PeopleSoft product lines and those of J.D. Edwards, which PeopleSoft acquired in 2003, until 2013. Individual releases of Oracle and PeopleSoft will continue for a few years, but the major changes--including its so-called Project Fusion, which will meld attributes of Oracle, PeopleSoft and J.D. Edwards applications starting some time in 2008--are still a ways off.
"It is still too early to tell how this is going to work out for customers, but Oracle has been quite eager to ask us to sit still and not make any big decisions until the technical integration strategy is clear and we can see how they'll bring the platforms together," says another trial witness who asked not to be named. "We haven't had to decide anything because there's been no batch of upgrades yet."
Customer feedback
Still, feedback on how Oracle has been treating the customers of its acquired companies has been quite positive. A recent SG Cowen survey of 490 North American enterprise application software users found that 75 percent of customers acquired through Oracle's acquisitions of PeopleSoft, J.D. Edwards and Retek said they were satisfied with Oracle's product support and integration. Only 6 percent of those surveyed were dissatisfied.
The SG Cohen study also found that 84 percent of enterprises who became Oracle customers by way of these acquisitions plan to stick with their current applications. Thirty-eight percent of respondents said they plan to invest more with Oracle. "We believe our integration with PeopleSoft has gone very well and that it has already proven to be in the best interests of our customers, employees, shareholders and the community," says Oracle spokesman Bob Wynne.
Even North Dakota CIO Wolfe agrees. "The information sharing, cooperation and indications of support from Oracle have been better than I expected," he says. "Oracle still has to deliver on some promises, but so far I have heard nothing that makes me feel like they won't honor their commitments. I'd say I'm cautiously optimistic."
So there you have it. Depending on which question you ask, last year's antitrust ruling in favor of Oracle was misguided yet favorable in the eyes of its customers.
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