People Problems

What will Oracle do now that it's finally bought PeopleSoft? PeopleSoft customers want to know.

Russ Banham, CFO Magazine

April 01, 2005

In the software universe, a warm fuzzy place filled with flextime and endless rows of foosball tables, acquisitions are generally lovey-dovey affairs, gentle bondings that produce synergies and shareholder value and rivers of free fudge for all concerned. And then there's Oracle's acquisition of PeopleSoft, a hostile takeover so hostile, so rancorous, it may yet be broadcast on "WWF Raw." When Oracle management first announced its unsolicited tender offer for its bitter rival in June 2003, the comments coming out of PeopleSoft's Pleasanton, Calif., headquarters were anything but pleasant. The financial and human-resources software specialist had just announced that it would acquire ERP vendor J.D. Edwards for $1.8 billion, a deal that suddenly propelled PeopleSoft into the upper crust of the enterprise software strata (along with Microsoft, SAP, and Oracle).

But the irascible Craig Conway had little time to relish PeopleSoft's new status. Within months, the PeopleSoft CEO found himself facing down Larry Ellison, his old boss at Oracle. Over the next year and a half, Conway desperately tried to fend off Ellison, tossing up every possible barrier, including poison pills, lawsuits, and antitrust investigations. He went public with the fight, too, disparaging Ellison in print and paying for full-page newspaper ads that highlighted deep customer concerns about the takeover bid. In one of those spreads, Glenn Marfell, HRMS manager at Fujitsu America, defiantly claimed that his company "would never move to an inferior Oracle product." In the same ad, Bob Brobst, CIO at Alcon Labs, stated: "Having to convert to Oracle would cost us millions and millions of dollars without any benefit."

Brobst is going to find out. Oracle's $10.3 billion bid for PeopleSoft was completed in January, leaving Conway out of work and his former customers out on a limb. Interestingly, management at Fujitsu America says it is no longer making public statements about the Oracle acquisition. And Alcon has done something of an about-face, noting, "We are hopeful the merger will be beneficial to clients in the long run."

Others are not so sanguine. Jack Kane, senior vice president and CFO of IDX Systems Corp., a midsize health-care software and services company, presided over an implementation of a PeopleSoft management suite—a rollout that was well under way when Oracle announced its bid for PeopleSoft. As for Oracle's support of PeopleSoft products, Kane has no doubt that Oracle will continue to support the products. He just wonders what that support entails.

Migration Patterns

Compounding user worries: in January, management at Redwood Shores, Calif.-based Oracle announced the company would lay off workers to pare costs from the acquisition. And despite assurances that Oracle thinks highly of PeopleSoft's products—the company did end up paying a 65 percent premium over its initial bid—some industry watchers aren't convinced. "When Ellison says, 'We love PeopleSoft,' he means he loves them as customers, not as PeopleSoft," says Tony Rizzo, director of mergers-and-acquisitions research at technology research firm The 451 Group. "You can pretty much bet the Oracle game plan over the next 24 months will be to begin a hard-core effort to migrate those folks to Oracle."

For its part, Oracle management insists it will retain more than 90 percent of PeopleSoft's development and support personnel. And at two financial-analyst conferences in January, Ellison sounded both diplomatic and conciliatory, pledging to continuously improve and support PeopleSoft products until at least 2013. "We're finishing PeopleSoft 8.9 [and] selling an all new PeopleSoft version 9.0, so we're going to be supporting the products for a decade," he promised. "But we're going to do more than just support those products. We intend to enhance [them]."

Ellison also vowed that the combined companies—which have accretive revenues of about $12 billion—would produce a golden era in enterprise computing. "We are developing a merged product, a successor to the Oracle, PeopleSoft, and J.D. Edwards products, based entirely on Internet standards," he reportedly said. The merged product, currently dubbed Project Fusion by Oracle, will be a "superset application suite using modern technology," explained Ellison.

Such proclamations—whether ER or PR—come as good news for companies like QuadraMed Corp., a Reston, Va.-based health-care software developer with revenues of about $125 million. All of QuadraMed's financial systems and support systems for customers and service are PeopleSoft programs. "We are so PeopleSoft here it's not funny," acknowledges Kevin Haggerty, senior director of internal audit at QuadraMed. While Haggerty initially felt some concern over the proposed merger, he says a recent phone call he received from an Oracle representative calmed his nerves a bit. And, as the internal auditor points out, "We have such a big investment in PeopleSoft, it would take a lot to move away from it."

A fair number of PeopleSoft users are in the same boat. At retailer London Drugs Ltd., in Richmond, British Columbia, CFO Laird Miller says he received a "fairly detailed road map" from Oracle following the PeopleSoft acquisition. Like a lot of small and midsize businesses, London Drugs turned to PeopleSoft to integrate its financials in the late 1990s (Oracle wasn't even on the short list for the company). "When we heard about the merger, we were very concerned, given all the rhetoric and noise in the press," he acknowledges. "After all, we'd spent a lot of money."

The Oracle road map has eased those concerns, says Miller. "I've been told they'll support my [PeopleSoft] applications and databases for the next decade and that I won't be forced to make any major changes, which gives me comfort," he adds. "We're optimistic."

Indeed, Oracle's customer representatives seem to be going out of their way to placate PeopleSoft customers—at least for the time being. If and when the cross-sell happens, Oracle will likely come in with some discounted pricing to retain PeopleSoft customers. And as Rizzo points out, even if Ellison & Co. holds on to only half of PeopleSoft's 12,750 customers, it's still a great deal for Oracle. "In a saturated market where there was no new business to be had," notes Rizzo, "they bought customers by the boatload."

This Can't Be Happening

Some of those customers have been down this path before. Construction firm The Weitz Co. was a J.D. Edwards shop when PeopleSoft acquired that software company in early 2003. Notes Mark Federle, CIO of Weitz, which reported revenues of $1 billion in 2004: "We bought [J.D.Edwards's] ERP system—and pretty much everything [the company] sold—in 2001, because it was the only tier-one supplier meeting the needs of a general contractor." When PeopleSoft bought J.D. Edwards, recalls Federle, his first reaction was, "'Oh, no, will they continue to support the product and develop it? Will I be forced to spend money that doesn't make business sense?'"

In the end, Federle's fears were unfounded. "The transition was fairly uneventful," he grants.

Even die-hard PeopleSoft backers seem to be coming around to the acquisition. "My initial thought [about Oracle's tender bid for PeopleSoft] was that this couldn't be happening," recalls Andrew Albarelle, principal executive officer at Remy Corp., a Denver-based IT staffing and executive search firm. "PeopleSoft is such a strong, vibrant company that I was completely against the merger."

That's putting it mildly. Albarelle publicly announced that Remy did not want any part of being an Oracle customer. His anger was further flamed after he read a report indicating Oracle would fire thousands of PeopleSoft employees, triple PeopleSoft maintenance fees, and force PeopleSoft users to migrate to Oracle databases. Albarelle even gave depositions to the Department of Justice as it gathered information for an antitrust lawsuit against Oracle. Explains Albarelle: "PeopleSoft customers are dramatically loyal."

But following the deal, Albarelle says he got a call from one of Oracle's integration specialists, who told the Remy executive that the company didn't have to change databases and wouldn't be forced to be an Oracle customer. Albarelle adds that his recent system-maintenance bill showed no changes and he continues to deal with the same PeopleSoft sales and management personnel as before.

Of course, if Remy ever decides to jump ship, there's always SAP and Microsoft. Just days after Oracle signed the letter of agreement to acquire PeopleSoft, SAP acquired TomorrowNow, a private software maintenance company founded by former PeopleSoft employees, giving the ERP giant the ability to support and maintain both PeopleSoft and J.D. Edwards applications. Almost simultaneously, Microsoft announced a new migration program predicated on persuading PeopleSoft customers to switch to its ERP and CRM applications. The prospect of losing the lion's share of its hard-earned PeopleSoft customers to rival SAP could leave Oracle with little choice but to substantially sweeten future migration offers. Says 415's Rizzo: "Either Oracle forces a better price when it proposes a switch [to customers] or the exodus will begin."

Russ Banham is a contributing editor at CFO.