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Why PeopleSoft's pain is SAP's gain

CNET's Dan Farber was on hand to get an earful from SAP supervisory board Chairman Hasso Plattner, who thinks Oracle's acquisition plan will set in motion big changes in the software industry.

After Oracle's announcement Wednesday that it will raise its bid to take over PeopleSoft, SAP co-founder and supervisory board Chairman Hasso Plattner said that he expects the takeover to succeed.

"I am not surprised how he (Oracle CEO Larry Ellison) behaves," Plattner said. "It's staged...they have a full script. I think it will happen. Oracle made it clear they are serious about it. Oracle will force the PeopleSoft board to recommend accepting the offer, and then PeopleSoft will be gone."

Several analysts I talked to about the announcement gave the deal a much better chance of success now that Oracle had sweetened the offer. They agreed that Wall Street would shun Ellison if his company failed to make every effort to offer a fair deal.

Speaking at SAP's Sapphire customer conference in Orlando, Fla., Plattner said he doesn't believe that PeopleSoft customers will go meekly into Oracle's arms. "I think the PeopleSoft community will be strong and tell the organization (Oracle)--there's no way you can slaughter the company. It won't work. They are offering a replacement with a weaker product. PeopleSoft's products are better." He added, half jokingly, that Oracle would do well to replace Oracle 11i with PeopleSoft products.

In the conference call with analysts, Chuck Phillips, Oracle's executive vice president for strategy, said that his company would support PeopleSoft's products and would not force the users to move to Oracle applications, and would provide free upgrades to equivalent Oracle products.

"Once (customers) realize the advancements we've made, they...will understand the value of wanting to move to the (Oracle) suite," Oracle CFO Jeff Henley said. Oracle also said during a recent conference call with analysts that it would work with partners to devise migration tools. "We've already had a lot of our partners express interest in building migration tools," Phillips said.

So it's not exactly a slaughter, but the fact is that further development of PeopleSoft products will cease upon completion of the proposed transaction. Telling PeopleSoft customers that they will understand the value of moving to Oracle's applications or that they are working on migration tools does not inspire the utmost confidence. Oracle's appraisal of its products isn't exactly independently conducted.

"Oracle is good in some application areas, but PeopleSoft stands out in areas like health care, for example," said Albert Pang, director of enterprise applications at research firm IDC. "If a health care company is going to move to Oracle, it's going to be a stretch. Success will depend on the industry and operating environment."

PeopleSoft customers know where the road leads, and it will be a rough ride. It would be different if PeopleSoft was a kind of legacy system on its way to the junkyard, but it's on the forefront of enterprise applications and integration.

The timing couldn't be better. We come out with new versions, and they are struggling.

If Oracle ultimately succeeds, PeopleSoft shareholders will be royally cashed out and customers will be refugees. Litigation could continue to cloud the picture. They will be stateless unless they change religions. It's a phenomenon that happens all over the world and throughout history, whenever one country, person, or company conquers another.

In the case of Oracle and PeopleSoft, it's just software, and not a case for Amnesty International or even the FTC. Consolidation is a fact of life for the tech industry, although hostile takeovers are uncommon. Will it be worthwhile for PeopleSoft customers to fight against their new proprietor? Should PeopleSoft customers leave the country of Oracle for what they perceive as a gentler, kinder nation?

Those are questions each PeopleSoft customer would need to answer.

My prediction is that if Oracle succeeds, many will resign themselves to their fate, and give Ellison a chance to prove that he can be a benevolent dictator. It's clearly not in Oracle's best interest to further alienate those customers, so the ball is in Oracle's court to prove that it will preserve, protect and do what's in the best interest of its new constituency--as well as its shareholders. If Oracle fails to please them, they will be more than willing to move to another software provider itching for their business. Whatever the case, life for PeopleSoft customers will be disruptive at a time when IT organizations are trying to find calm and cost savings.

SAP sees benefits if Oracle is successful in its bid to acquire PeopleSoft. "The timing couldn't be better. We come out with new versions, and they are struggling," Plattner said.

As to the fate of J.D. Edwards, it's taking a back seat as the main event plays out.