 |
| |
By Charles Phillips and Ray Lane
Optimize
April 2004, Issue 30
Phillips Defends Oracle's Bid
Oracle Corp. president Charles Phillips addressed PeopleSoft customers at a
March 1 meeting of the Quest User Group. Quest was a JD Edwards user group until
PeopleSoft acquired JD Edwards in 2003. The group opposes Oracle's bid to
acquire PeopleSoft. Phillips defended Oracle's takeover bid and tried to
reassure users of the benefits. Edited excerpts from that presentation follow:
It makes no sense for any company to pay billions of dollars to acquire another
only to alienate its customer base. After all, the most critical constituent in
all of this is the customer. That's why we're here.
We're convinced that a stronger combined applications company, joining Oracle
and PeopleSoft, is good for competition, good for investors, and good for users.
What's in it for users? No. 1 is access to high-quality, truly global customer
support through Oracle's customer-support organization. Few companies in the IT
sector can approach the breadth of Oracle's global-support operations, which
will be augmented with PeopleSoft support personnel.
Second is more vertical-market functionality. A combination of the two
companies' customer bases will create critical mass in several industries. That
justifies increased investments for software enhancements unique to selected
verticals.
Third is innovative world-class outsourcing services. Our outsourcing customer
base is growing rapidly and, unlike any other software company, we've
consistently invested in this business, which we consider strategic.
Fourth is access to future software enhancements and features that leverage the
collective wisdom of a larger development organization.
And finally, a larger combined organization will have the critical mass to
invest and compete against the largest competitors in this market: SAP and
Microsoft. It's good for customers to have a stronger supplier.
We've worked hard to try to provide as much clarity as possible about our
intentions concerning the PeopleSoft product line. But we're working with
limited information: We don't have access to PeopleSoft's current product road
map regarding, for example, the JD Edwards portfolio, which could change
significantly before we can conclude this transaction. Software products can
morph into many derivatives, through decisions to merge, integrate, or
substitute products. Some of these are good business decisions; some are not.
It's clear that this acquisition has not exactly been on the fast track, and it
will take more time for us to complete this transaction. So the best I can do is
provide our perspective on our strategy and philosophy around this acquisition.
Also, I'd like to remind you that Oracle's done a similar transaction
before—actually several, but one fairly large one. With the acquisition of Rdb,
a database company purchased from Digital Equipment about 10 years ago, we
promised to focus on quality and stability, while enhancing features based on
customer demand. At the time, Rdb users had the exact same questions about the
takeover you're asking us today. We looked closely at what Rdb customers had to
say, working together with their user groups. The bottom line was that we didn't
require customers to upgrade to our products. In fact, even today, we still help
thousands of Rdb customers running important applications. And we gained some
great people from that acquisition as well. The head of our entire
technology-development division came from Rdb. So we think the record speaks for
itself.
The bottom line is this: The market for enterprise applications is highly,
highly competitive, with larger companies coming into the market and many
substitute products and services evolving by the week, almost. And it's a
buyer's market. You all know that. Customers control the information in this
bidding market, along with consultants such as systems integrators and others.
They can assure they receive aggressive pricing regardless of the size of the
company or organization. Of course, the courts will have to decide on that one.
Given the huge potential and the benefit for customers and shareholders, it
becomes obvious that we should continue to pursue this acquisition and play to
win. We think that, over time, once we explain the global-support operations
plans and how we're going to invest in our product lines and enhance them,
customers will agree. They would rather have a stronger applications provider
that can support all these products with global support than not.
An Interview With Ray Lane: The Pros And Cons Of
Consolidation
Ray Lane was Oracle's president from 1996 to 2000, when he left to join
venture-capital firm Kleiner Perkins Caufield & Byers. He spoke with Optimize
associate editor Anne Donker about consolidation in the software industry, and
the pros and cons of Oracle's proposed takeover of PeopleSoft.
Q: What's your opinion of consolidation in the software industry?
A: In every industry, there has to be some consolidation to bring an industry at
large down to a rational number of competitors. And in an industry big enough to
support it, that number is less than five. The software industry is no
different. When I joined Oracle in 1992, we supported the Oracle database on 82
different platforms. That meant we needed 800 engineers just to port the
database to different platforms. Today, that number is down from 92 to just 10.
Choice, of course, is good, but it can get out of control. You could end up with
an environment [that looks] like a quilt work, where all the different
components aren't integrated. Users can't rationalize dealing with 100 different
software companies, 50 different hardware companies, etc. On the other hand, a
situation where an industry gets down to too few competitors could be
detrimental for users as well.
Q: Why?
A: Ultimately, customers care about price control. If you get too few
competitors, the players will try to maintain high prices, which is ultimately
detrimental to customers. That's what happened when IBM was a monopoly. Its
products were great, but its prices weren't. So the customers ultimately asked
themselves: Sure, IBM works great, but am I willing to pay for that? And their
conclusion was a definite no.
Q: Do you think Oracle's bid for PeopleSoft would create a comparable
situation?
A: Right now, SAP is the dominant ERP company with more than twice the share of
its two main competitors, Oracle and PeopleSoft. By acquiring PeopleSoft, Oracle
would be the clear No. 2 player in the application space. With $9.4 billion and
one stroke of the pen, Oracle would completely change the business-applications
market.
Q: How do you think that would impact users?
A: If Oracle takes over PeopleSoft, I think customers might feel as if their
options are being reduced. I just can't believe they wouldn't say, "That's not
as good for me as having more competition." In the end, competition lowers
prices and provides expertise and skill levels you can choose from. Lack of
competition doesn't do that.
There have been cases where you could argue that the acquiree needed to go away.
For example, when there's a weak competitor in the market that's not delivering
well and would benefit from a strong financier, consolidation would be a good
thing for the customer. Take Digital Equipment: Was it serving customers in the
end as well as it could? No. And so, Compaq helped it do that. But PeopleSoft is
a different story.
Q: Why?
A: When you look at the ERP systems of SAP, Oracle, and PeopleSoft, you'd be
hard-pressed to find any substantial differences. Any user who performs an
evaluation of ERP systems will eventually end up with SAP, Oracle, or
PeopleSoft, because they all offer the most functionality. In the
decision-making process, users tend to look at more than functionality. Soft
factors weigh in as well— how customers feel about the vendor's ability to
serve, the long-term future of the company—all these play an important role for
CIOs.
Q: What about the argument that a merger would present users with a more
attractive overall package?
A: Since the dot-com bust, virtually no customer wants to run all applications
from one vendor alone. In the late 1990s, everyone thought IT created
differential advantages for companies, so everyone wanted best of breed. The
2000s seem to be a period of compromise. CIOs are now more in the mood to mix up
their infrastructure environment. They realize that, for example, neither
Oracle, nor PeopleSoft, nor SAP is the best solution out there. The bottom line
now is: Why go with one vendor? No one wants to tear out everything anymore and
put in all SAP or all Oracle.
Q: What about other players in the business-applications market, such as
Microsoft?
A: It's true that Microsoft, for example, has begun to try to eat away at Oracle
and PeopleSoft's market share, but only in the market for small businesses, not
large enterprises. It will take years for Microsoft to get up to speed there.
There are other software companies that compete with Oracle. Lots of them are
small businesses that can't set standards or move markets.
Q: If the bid succeeds, do you think Oracle could discontinue the PeopleSoft
product suite, which, in effect, would force the new customer base to upgrade to
Oracle products?
A: That's the big question. A forced migration would plunge PeopleSoft customers
into significant extra costs. On the other hand, when Oracle bought Rdb from
Digital Equipment about 10 years ago, it did a great job of retaining Rdb users.
So you never know. When you spend billions of dollars acquiring a customer base,
it wouldn't make sense to alienate them. |
|
|
|
|
|
|
|
|
|
