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PeopleSoft cuts hosting prices

The company is slashing prices for its software hosting services, the second time in three months it has cut prices in an effort to jump-start its hosting initiative.

PeopleSoft is slashing prices for its software hosting services, the second time in three months that the company has cut prices in an effort to jump-start its hosting initiative.

The Pleasanton, Calif., company announced Monday that it's lopping off 20 percent to 30 percent of the cost of its application hosting service, but only for midsize businesses with less than $1 billion in annual revenue, said Bill Henry, vice president of marketing and strategy for PeopleSoft Global Services.

Under the new lower-cost hosting option, midsize companies license PeopleSoft's business-management applications as the normally would, but for an additional monthly fee PeopleSoft furnishes the hardware, software infrastructure, facilities and staff to maintain and support the system. The fee starts at about $7,000 per month, but varies depending on the level of service and number of users supported, Henry said.

The price reduction is a result of PeopleSoft's work to make the service more efficient, Henry said. For instance, the company has added a self-service Web portal where customers can go to check software upgrade schedules and other pertinent information.

PeopleSoft has partnered with a Lexington, Mass., company called Surebridge, which provides the data center facilities, hardware and some support staff included in the service. PeopleSoft supplies its own in-house experts to tend to the applications themselves. The company, which has promoted various application hosting services over the past three years, also counts Hewlett-Packard and a Seattle-based company called WTS as it closest hosting partners.

In November, the company said it would cut the price of its lowest-price hosting plan by 10 percent to 15 percent. Analysts say PeopleSoft is trying to come up with the right formula as competitors, including Oracle and Siebel Systems, charge hard into the software hosting arena. Oracle said recently that its second-quarter application hosting revenue grew by 82 percent compared with the same quarter a year ago, and company plans to rake in $1 billion in hosting sales in 2006.

Siebel made a big hosting play last year through a partnership with IBM and the acquisition of UpShot. It's modeling its service after up-and-comer by writing entirely new software programs designed to accommodate numerous customers on a single server. Siebel Chief Executive Tom Siebel recently said that the new programs could account for as much as 15 percent of the company's sales in the coming years.

But some analysts believe PeopleSoft's approach to hosting, which requires customers to pay additional charges on top of their standard license fees, will fail to really catch on. "As long as PeopleSoft continues to sell on a license basis, the appeal will be limited," said Paul Hamerman, an analyst at Forrester Research. "They should consider a rental model."

PeopleSoft and Oracle have been enmeshed in a hostile takeover battle since June 2003. On Friday, Oracle named five prospective replacements to PeopleSoft's board, a necessary step in the company's takeover efforts.