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AOracle's
Good Intentions for Applications
Will PeopleSoft users find happiness in "fusion"?
By Robert Kugel
VentanaMonitor™
Oracle's
management held a "Better Together" launch event
to discuss the future of the applications business now that
the PeopleSoft acquisition has been completed. The company
emphasized (again) its commitment to supporting the PeopleSoft
and JD Edwards installed bases through 2013 and laid out
a product roadmap that included major upgrades to applications
from the two companies. Ventana Research believes management
has every intention of making the merger work well. It is
clearly in its best interest to offer a world-beating next
generation application suite, planned for completion in
2008. We think PeopleSoft and JD Edwards users should proceed
with caution in making commitments beyond existing releases
in production. Ventana Research advises organizations to
monitor the progress of the integration of the two companies
over the next year before adopting new releases.
Assessment
The essence of the message Oracle management delivered to
existing customers was essentially: (1) they are supporting
all existing users of all of the applications and will meet
their stated commitment of long-term support of the PeopleSoft
and JD Edwards applications customers; (2) they will continue
to support other databases, middleware and other applications
required for PeopleSoft and JD
Edwards applications; (3)
they are working to bring together the combined expertise
(particularly in verticals) of the applications developers
of both organizations; and (4) the combined organization
will have greater critical mass for ongoing support (technical
support and applications development). The company laid
out a product development roadmap that essentially continued
the existing plans of the organizations (e.g., PeopleSoft
Enterprise 9.0 will be released in 2006). The combined entity
will be working toward a new application built on open standards,
which it calls "Project Fusion."
Oracle restated its commitment to retaining the installed
base of those organizations using Peoplesoft and JD Edwards.
The event was aimed at getting this message directly to
everyone, including customers, consultants, press, and analysts.
We think it is clearly in Oracle's best interest to keep
its user base satisfied and paying maintenance in order
to reach shareholders' expectations. We agree with management's
assertion that — financially and technically —
it is not too difficult for Oracle to support all of the
active user bases at a high level, at least over the next
2-3 years. This focus on customer satisfaction is critical
for presenting Oracle's next generation applications suite
under the "Project Fusion" label.
Oracle
executives chided SAP for being proprietary and not supporting
industry standards. It is not clear whether this was an
intentional misstatement or they were simply not up to date
on the details of the applications software industry. SAP
has already shipped releases that support .NET, J2EE, and
other specific industry standards.
The
critical issue confronting organizations using existing
PeopleSoft and JD Edwards applications revolves around how
well "Project Fusion" will address their future
needs. The question is how well a "best of both worlds"
intention translates into a product reality that meets their
requirements. In our judgment, it is too early to make a
definitive call. On the one hand, the combined organizations
have a great deal of transactional applications (what they
call "process automation") expertise, and Oracle
is working hard to retain developers and other people close
to end user/vertical requirements. However, despite Oracle
executives' best intentions and their insistence on how
alike the PeopleSoft and Oracle cultures are, their discussion
on future product focus was oriented around infrastructure,
not applications capabilities or areas of differentiation
like BI and performance management. In our opinion, there
is a real risk that "Project Fusion" will provide
another generation of transaction applications and will
not be what many existing PeopleSoft, JD Edwards, and even
Oracle users need to advance their organizations.
Market
Impact
Since Oracle will no longer be selling new PeopleSoft and
JD Edwards licenses to new organizations as stated by Oracle
executives, the combined company will almost certainly begin
losing market share in 2005 in key enterprise packaged applications
categories. (Note, though, a majority of PeopleSoft's new
license business was with existing customers, so the market
share loss will be minimal.) We also expect most companies
that did not want Oracle applications will continue to not
want the product and therefore will purchase software from
other vendors. In our judgment, SAP will be the biggest
beneficiary overall and Siebel will pick up business in
the CRM market that would otherwise have gone to PeopleSoft.
Among smaller vendors, we see Epicor, Lawson, QAD, and Mapics
also gaining potential incremental business from the result
of Oracle acquiring Peoplesoft.
Recommendation
PeopleSoft and JD Edwards customers must remain vigilant
over the next several years in order to make informed decisions
about product and maintenance commitments. We advise them
to keep an eye on key management and execution to delivery
dates, and have a good understanding of other organizations'
customer satisfaction in the new Oracle. We believe their
users' groups should be forceful in playing a part in determining
the requirements, both now and particularly in "crunch"
periods when crucial either/or decisions are being made
regarding the next generation applications suite.
Companies
that have a heavy commitment to PeopleSoft applications
and were in the process of rolling out additional functionality
and capabilities should continue with these plans if they
can live with the possibility that they will be facing very
difficult choices in the 2008-2010 period if they are unhappy
with the results of "Project Fusion." On the other
hand, we advise companies that have no compelling business
reasons to make significant new commitments to their PeopleSoft/JD
Edwards implementations to defer these investments. Companies
evaluating Oracle E-Business Suite applications should also
consider the reality of a migration in three years to the
"Project Fusion" suite.
Robert
Kugel is CFA, VP & Research Director - Financial Performance
Management at Ventana Research
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