Oracle vs. PeopleSoft: The Microsoft connection

The headlines from the last week shouting about the rivalry between Larry Ellison and Craig Conway overshadowed the real subtext to the struggle for PeopleSoft: the coming competition between Oracle and Microsoft for who's going to be No. 1 with enterprise customers.

This is a lot more than an offshoot of a personal rivalry between two companies--and their strong-willed founders--who aren't very fond of each other. Structural changes in the software industry are forcing both Oracle and Microsoft to step outside their comfort zones and vie for new customers. And with some $30 billion in Internet applications business up for grabs, the stakes couldn't be higher.

With his critics in high dudgeon, Ellison is being painted as a home wrecker for having the temerity to try and bust up PeopleSoft's proposed merger with J.D. Edwards. The announcement got PeopleSoft boss Conway so steamed that he accused Ellison of acting like Genghis Khan and running a company with a history of atrociously bad behavior. Conway, who once worked for Ellison, obviously knows his former boss, an egomaniac who no doubt will never be confused with Mother Teresa.

The verbal pyrotechnics surrounding the battle for PeopleSoft have been entertaining, but Oracle's bilious billionaire is less the great Satan of the software world than simply an opportunistic businessman.

The database market is far removed from the boom days when there wasn't a cloud on the horizon. Ever since the bust, however, Oracle has had increasing incentive to diversify its business.

Indeed, Ellison made the smart strategic move by building up Oracle's suite of business applications. Unfortunately for Oracle, the results have been uneven. The most recent version of Oracle's highly touted business suite, called 11i, got off to a slow start. Early claims of success--which focused on how many customers had agreed to use the product--rang hollow after reports suggested the company was guilty of exaggeration. What's more, it didn't help matters that bugs marred the product's debut.

The company says it's long over those humps, but after years of operational misfires, buying up PeopleSoft's customers may be the key to rejuvenating Oracle's applications business. And Ellison has no intention of keeping a separate post-acquisition brand alive. But will PeopleSoft's customers let him ram a forced upgrade to Oracle apps down their throats? That's the $5.1 billion question.

But will PeopleSoft's customers let him ram a forced upgrade to Oracle apps down their throats? That's the $5.1 billion question.

Meanwhile, Microsoft also has ambitions for the business applications market--though in this case the company is starting by targeting the small and medium-size companies. It earlier bought Great Plains and Navision, two software companies that are at the heart of a unit that it expected to account for some $10 billion in annual revenue by the end of this decade.

Orlando Ayala, the highly regarded exec put in charge of the new group, recently told CNET News.com he believes that Microsoft "is going to be positioned as the largest enterprise-producing solution for small and medium-size businesses." That may sound like a lot of piffle, but late starts never prevented Microsoft from steamrolling software companies that formerly dominated their respective categories. (Historical footnote: Microsoft and IBM once shook hands on setting clear boundaries between Windows and OS/2. But it wasn't long before Windows began setting its sights higher and ultimately ate Big Blue's lunch in the operating systems wars of the early 1990s.)

In their looming confrontation for enterprise-applications customers, Microsoft and Oracle are also starting out by approaching customers from opposite ends of the spectrum.

Conway, who once worked for Ellison, obviously knows his former boss, an egomaniac who no doubt will never be confused with Mother Teresa.

Ellison, a vocal critic of complexity in corporate software installations, argues for a simple strategy with the database at the data center hosting a variety of business applications sitting on top.

In contrast, everything at Microsoft is based around the Windows operating system. If Microsoft holds true to form, however, it is only a matter of time before the company "integrates" everything but the kitchen sink on top of the Office software suite that it sells to corporations.

Two very different approaches from two very different software companies. Customers don't need to choose one over the other just yet. But one day in the not-too-distant future, the issue will be forced upon them.