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Commentary: PeopleSoft's silver lining

Former employees from failed dot-coms may be returning to PeopleSoft, but they are also returning to other enterprise resource planning vendors.

    By Charles Eschinger, Gartner Analyst

    Former employees from failed dot-coms may be returning to PeopleSoft, but they are also returning to other enterprise resource planning vendors.

    In Gartner's opinion, PeopleSoft

    See news story:
    PeopleSoft tightens ship to weather storm
    is not unique because of CEO Craig Conway's scare tactics. The trend is industrywide. There are a number of other reasons why the company has weathered the economic storm.

    For one, PeopleSoft is a leader in the enterprise resource planning (ERP) market, and it has substantial cash. Unlike midmarket players, which are experiencing financial difficulty, it is unquestionably viable. Customers feel secure buying from vendors such as PeopleSoft because of their size, viability and breadth of offerings--such as ERP, customer relationship management (CRM) and supply chain management (SCM). ERP market-share leaders such as PeopleSoft and SAP are starting to take business away from the smaller competitors for this reason.

    In addition, PeopleSoft has a full cross-sector suite offering. Early on, it realized that ERP customer demand was shifting from inwardly focused to outwardly focused functions. It purchased CRM and SCM vendors from 1996 to 1999 and has successfully integrated them. The functionality and flexibility of its PeopleSoft 8 CRM offering has been well received in the industry.

    Other vendors, such as J.D. Edwards, which acquired an SCM vendor in 1999 and a CRM provider this year, have not yet finished the integration process. PeopleSoft is able to sell already-integrated CRM and SCM solutions to its core ERP customer base (approximately 4,700 customers), and if sales of one application begin to wane, the company can easily change its focus to another.

    Another reason is that PeopleSoft has grown its services business--in areas such as education, implementation and maintenance. Its services-related revenue rose from $423 million in 1997 to $1.1 billion in 2000. That growth can be attributed to PeopleSoft's client base of midmarket customers, which often require vendor involvement.

    Services revenue represents a greater portion of total revenue for PeopleSoft than for other vendors. Revenue from new-application licensing represented only 28 percent of PeopleSoft's total revenue in 2000, whereas licensing represented 39 percent of SAP's total revenue that year. If PeopleSoft had a revenue split similar to that of SAP, its total revenue for the year would have been approximately $1.2 billion instead of $1.7 billion.

    Finally, PeopleSoft has a favorable customer mix. Unlike J.D. Edwards, which relies on the manufacturing and distribution industries for approximately 75 percent of its total revenue, PeopleSoft has a much broader coverage of vertical markets. PeopleSoft is able to sell its human resources and financial applications to industries ranging from the federal government--agencies such as the Internal Revenue Service--to health care to professional services automation.

    Having a broader appeal to several different industries has enabled PeopleSoft to shift its attention to industries less affected by economic conditions.

    (For related commentary on the PeopleSoft 8 CRM product offering, see Gartner.com.)

    Entire contents, Copyright © 2001 Gartner, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.