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PeopleSoft devotees in denial?

With software tycoon Larry Ellison poised to dismantle his rival, why are PeopleSoft customers so relaxed?

SAN FRANCISCO--PeopleSoft's user conference here this week looked like any other, with thousands of people jamming the halls between meetings and crowding around cocktail bars at a rowdy kick-off bash.

Throughout the Moscone Convention Center, there was barely a whiff of concern over Oracle's hostile attempt to acquire PeopleSoft, even though Oracle is newly emboldened by its recent victory in the antitrust case that threatened to derail the proposed $7.7 billion merger.

Except for a few brief comments about the situation from PeopleSoft Chief Executive Craig Conway, people seemed content to brush the Oracle threat under the rug. It was a taboo subject at a sampling of "breakout sessions." PeopleSoft customers discussed comfortable subjects regarding PeopleSoft's business administration programs, such as new features they'd like to see in the next version--rather than whether there will even be a next version.

"Conversations with customers have been interesting, in that many are ignoring the elephant in the corner," Tad Piper, securities analyst for Piper Jaffray, said in a report published Wednesday.

Reluctant to bring up Oracle, several PeopleSoft customers interviewed at the conference mainly complained about overly busy schedules or a lack of bottled water. OK, but what about the fact that the software they've invested millions of dollars and years of toil in could become obsolete if Oracle has its way? The response was surprisingly muted.

"It's an annoyance," said Shellie Nath, senior manager of field sales support at Longaberger, a handmade baskets company in Newark, Ohio. "But I'm not worried too much. PeopleSoft is a very strong company."

Whether the company's strong enough to beat Oracle's predatory boss, Larry Ellison, looks increasingly doubtful, however. PeopleSoft no longer has an antitrust suit to hide behind, and its revenue is shrinking.

But Nath is like many customers here, who have traveled from across the country--in some cases from overseas--to participate in the conference. They booked the trip months ago and don't see the use in spending their time fretting about the Oracle situation, which took a turn for the worse just three weeks ago with the antitrust ruling.

"It's bothering us, but there's not much we can do about it from our end," said Martin Diller, director of application development at Complete HealthCare Resources, an assisted-living services company in Horsham, Penn.

Not everyone was downplaying the gravity of Oracle's very real threat. "It's outrageous that this has been drawn out as long as it has and may jeopardize millions of dollars that companies have invested in PeopleSoft systems," said Pat Nicholson, chief information officer of golf ball maker Acushnet.

"I don't know who that judge was in (the Oracle antitrust) case, but I don't think he knew what he was talking about," added Nicholson, a former president of PeopleSoft's International Customer Advisory Board, a customer advocacy group.

The judge was Vaughn Walker of the U.S. District Court of Northern California, and the case was brought by the U.S. Department of Justice. In a ruling issued three weeks ago, Walker said an Oracle-PeopleSoft merger would not harm competition in the business software market, discounting customer testimony to the contrary.

The ruling is understandably distressing to PeopleSoft customers. Buying business software from PeopleSoft and others like it is a big commitment. The programs can cost millions of dollars to license and install and often take years to set up. Once it's in, the software becomes central to a company's operations by automating sales, billing, customer service and other critical tasks. PeopleSoft clients fear they'll have to start all over if Oracle buys the company and phases out its products as it indicated it intends to do.

PeopleSoft was working overtime at the convention to spark hope in its future. It posted numerous banners around the conference hall urging people to register for next year's show, scheduled for September 2005 in Las Vegas. "See you next year in Las Vegas!" one large poster exclaimed. The company also announced a partnership with IBM, in which the two companies agreed to spend $1 billion on joint research and marking over the next four to five years.

Yet software and stock analysts say there's a strong chance PeopleSoft won't be around in a year, let alone four. Oracle has yet to clear a number of hurdles still blocking the merger, including a review of the deal by European regulators, a possible appeal of the U.S. antitrust ruling, and a PeopleSoft shareholder rights plan that dilutes an unwelcome bidder's holdings once it acquires more than 20 percent of the company's shares. But few analysts see any of these obstacles stopping the deal if PeopleSoft shareholders want it to happen.

In the meantime, even the feistiest customers are donning rose-colored glasses, at least while they're in San Francisco. "It hasn't happened and it may not ever happen," Acushnet's Nicholson said. "It's business as usual."