Eyes on the prize

Larry Ellison, Oracle's chief executive, has shaken the IT world with a bold take-over bid.

Any doubt that consolidation in the business software market is the order of the day was erased recently by two blockbuster, and contradictory, proposed deals.

Just two weeks ago PeopleSoft said it planned to buy JD Edwards, and a bigger share of the mid-market, in a $1.7bn stock deal. Theoretically, that buy-out would make PeopleSoft the second-largest business software maker in the world after SAP.

By the end of the same week, that friendly pact was pre-empted by Oracle's surprise, unsolicited, $5.1bn cash bid for PeopleSoft.

Craig Conway, chief executive of PeopleSoft, called the offer "atrociously bad behaviour from a company with a history of atrociously bad behaviour". He added: "Obviously, this is a transparent attempt to disrupt the acquisition of JD Edwards by PeopleSoft."

At time of going to press PeopleSoft's board had just voted unanimously that shareholders reject the bid because they believed it would raise antitrust issues. Resellers, meanwhile, reacted with a mixture of concern and resignation.

Chris Gloede, vice-president of business development at reseller Capita Technologies, said: "I think it's pretty simple: [Oracle chief executive] Larry Ellison can't sell software, and everybody in the industry knows that.

"It comes down to the fact that Ellison will not be one-upped by anybody. He can fend off becoming number three, which I don't think he could stomach."

The deal is by no means done. But, whatever the outcome, it raises questions.

Marc Maselli, president of US VAR Back Bay Technologies, said: "JD Edwards and PeopleSoft partners are in limbo."

Oracle's chief financial officer, Jeff Henley, maintained that the PeopleSoft buy-out could be sealed by July and that Oracle would then consider whether to proceed with the JD Edwards buy-out.

Ellison maintained that his proposal, to submerge PeopleSoft's applications in Oracle's apps business, makes more sense than PeopleSoft's previous plan. "We can combine our HR team with their HR team to come up with a much better HR product," he told analysts.

"This consolidation allows us on the one hand to save money, and on the other hand to make some vast product improvements to make us a much stronger player in the market.

"That is in contrast with [PeopleSoft's] current plan, which is to enter a lot of new markets."

Oracle's earlier statement left no doubt about who would be on top of the applications business. Oracle will "not be actively selling PeopleSoft products to new customers", but will incorporate "advanced features from PeopleSoft's products into future versions of Oracle's eBusiness Suite", the firm stated.

Many observers said Oracle isn't dealing from a position of strength. Its perch atop the database heap is under siege from Microsoft and IBM, and Oracle has yet to prove itself in business applications.

Last quarter, the company earned 26 per cent of its turnover from applications. The perception is that Oracle applications are riding the shrinking coat tails of its database business.

As the enterprise IT spending doldrums continue, Siebel Systems, SAP, PeopleSoft and Oracle, all with enterprise pedigrees, are trying to get traction in the mid-market with varying degrees of success.

While SAP remains the enterprise application leader, Microsoft has bought more than $2bn worth of mid-market business software companies in the past few years and pledges continued investment.

Microsoft repeatedly stresses that it is targeting smaller companies, but no one doubts it will move upmarket when the time is right and hit other players where it hurts.

Laurie Orlov, research director at Forrester Research, said: "In the short term, SAP is the one to beat. Long term, it's Microsoft, [which has] all the time in the world [to attack enterprise apps] and can sit back while the rest of the software players self-destruct."

Resellers agreed that Microsoft is Oracle's likely end game. Chris Cangero, vice-president at Epoch Data, a Microsoft partner in the US, said: "PeopleSoft has the internet functionality to help Oracle compete against Microsoft. Microsoft has taken on Oracle, and this is its response."

Microsoft's chief executive, Steve Ballmer, declined to comment on the proposed deal.

Should Oracle succeed, there could be huge ramifications. PeopleSoft has tight ties with IBM, and even Microsoft, on the database front, although the bulk of its applications still run on Oracle. Last month, PeopleSoft and IBM announced a joint Linux push.

One PeopleSoft partner is hopeful. "We were excited about the [JD Edwards] news earlier in the week," said Joe Nicholson, president of Surebridge, a mid-market applications outsourcer.

"The focus here was the mid-market, as is our focus. We work extensively with Oracle database products, and we look forward to extending that relationship with Oracle."

LATEST UPDATES:

PeopleSoft files suit against Oracle
JD Edwards to sue Oracle for £1bn
Ellison attacks PeopleSoft 'decline'

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