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Commentary: Oracle's bid is bad for all

PeopleSoft's shareholders over the next few weeks will decide the fate of Oracle's hostile takeover effort. What's clear is that if the bid succeeds, customers will lose.

Commentary: Oracle's bid is bad for all
By Forrester Research
Special to CNET News.com
June 9, 2003, 8:10AM PT

By Laurie M. Orlov, Research Director

Last week was a wacky one for enterprise applications. On Monday, PeopleSoft offered to buy J.D. Edwards; and on Friday, Oracle unveiled a hostile bid for PeopleSoft. PeopleSoft stakeholders should object loudly to a saber-rattling move that hurts customers.

Timing is everything. Friday?s predawn raid--a $5.1 billion hostile takeover bid for PeopleSoft--was timed to create pandemonium in the wake of Monday's announcement that PeopleSoft would buy midmarket enterprise resource planning (ERP) rival J.D. Edwards for $1.7 billion. The fate of the deal will be decided by PeopleSoft's shareholders over the next few weeks--what's clear is that if the hostile bid succeeds, customers will lose for the following reasons:

• PeopleSoft's customers would face forced migration. Oracle CEO Larry Ellison was clear that the move was about acquiring a new customer base for his company's E-Business Suite. He announced


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the intent to assign PeopleSoft's top developers to create migration tools and to insert PeopleSoft features into the the E-Business Suite. More likely is that PeopleSoft developers--and customers--will look to escape from an Oracle migration that could be nightmarish.

• Everyone's maintenance pricing would rise over time. As license sales have dropped across the enterprise applications market, vendors have lived off the revenue from maintenance and services. And PeopleSoft's customers were already paying top dollar for maintenance. This would only worsen: Oracle will need to fund all of the research and development required to migrate the PeopleSoft base to the Oracle suite--and the best funding source will be maintenance revenue. Customers will be left with little choice but to pay, given a shrinking pool of enterprise application vendors.

• J.D. Edwards' customers would catapult into no-man's-land. If the deal happens, the customers of J.D. Edwards move into a mystery zone waiting to see if Oracle buys them or if they remain independent. Either way, it is a state of uncertainty that makes purchases, upgrades and long-term plans difficult.

© 2003, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.