COVER STORY
CRN Interview: Craig Conway, PeopleSoft

By Amy Rogers Nazarov, CRN
CRN
, 5:59 PM EDT Fri. Jun. 06, 2003
From the June 06, 2003 CRN

Before Friday’s surprise announcement that Oracle would make a takeover bid for PeopleSoft, Craig Conway, PeopleSoft CEO, told CRN Washington Bureau Chief Amy Rogers Nazarov that his company’s pending acquisition of J.D. Edwards, announced Monday, would benefit channel partners and customers of both companies.

CRN: What is the impact of this deal for customers?

Conway: This should have enormous benefits for customers. These two companies really have common roots: a value system based on technology innovation, high customer satisfaction and a commitment to respect for employees. They grew, but they grew in different areas. J.D. Edwards grew in the mid-market, in manufacturing and distribution, in the asset-intensive industries. PeopleSoft grew in the large enterprise markets, the service industries. As both companies prospered, there was a magnetic pull between them to combine resources.

What customers should feel excited about is the potential of these two companies together.

CRN: What would your message be to J.D. Edwards’ channel?

Conway: In almost every dimension the measure of this merger is, ‘What additional value can it bring to ‘fill-in-the-blank’ while protecting their investment?’

That’s a great metric by which to measure this merger: customers, employees, channels, integrators. If the answer to the question is ‘nothing,’ then it’ll be a tremendous failure. If the answer to that question is significant, then everybody will be celebrating.

Let’s talk about channels. What additional value could be brought to [channel partners] while protecting their investment? The investment that some number of [partners],I think it’s in the hundreds,have made … in J.D. Edwards? They have learned the architecture and learned the products, they have taken those products to market and implemented them in companies around the world. How could it get better for them? With more products, stronger products, more geographies, more operating systems and hardware platforms, better support. Those are some of the [things] a reseller should expect to find while protecting the investment. If I was a customer and I made the investment in [J.D. Edwards], my first question would be, ‘Is my investment protected?’

Look, it would make no sense to acquire a company with 6,500 satisfied customers and then force them to do something they didn’t want to do. It would be unthinkable. The idea is to take those 6,500 customers and offer them,not compel them, not extort them, not pressure them,but offer them additional value, electively.

I think customers will celebrate the combined resources of these companies. If a reseller has been successful with the J.D. Edwards product line, and all of a sudden he was given an update to that product with the PeopleSoft [human resources software] on it, I think he’d be pretty happy! They could go back to a customer and say, ‘I’ve got an update of the world’s leading HR system to provide to you.’

Likewise, if PeopleSoft goes to our high-end customers and says that our manufacturing and distribution CD update contains a huge increase in capability as a result of the J.D. Edwards acquisition, I think our customers would be pretty happy about that, and so would resellers.

Everyone has the understandable fear that comes from [losing] an investment they’ve already made. But the objective is so clear that the furthest thing from [an acquiring company’s] mind is jeopardizing that investment.

CRN: PeopleSoft likely could not have fully penetrated the midmarket without buying J.D. Edwards. Why is that market so attractive?

Conway: Let me correct the premise that we could not penetrate it. We not only could, but were. We were already doing 35 percent of our business through the midmarket.

However, [PeopleSoft] could not have achieved the market penetration that [J.D. Edwards] has organically in a short period of time. If acquisitions are driven by desperation or as a correction to failure, they almost always fail. PeopleSoft wasn’t failing in the midmarket and neither was [J.D. Edwards].

If you take a ruler and extend the growth of either company and you have a very long timeline, combining the companies would enable the combined company to do things that neither company could do organically in a short period of time.

The key is if you have an appetite to change the world of enterprise apps and you are doing it organically, the date that you have to be prepared for is many, many years in the future. If you can take advantage of another company’s success and share yours with them, it is much more likely that you can accelerate your success in these different markets. We can accelerate our success in the midmarket with J.D. Edwards. We can accelerate our success in asset-intensive industries like manufacturing, like construction, like life sciences. They can accelerate their success in services industries through our expertise.

One of the things you have noticed among the analysts watching the deal is the almost total absence of any criticism of this deal.

CRN: The only criticism I’ve heard is from some of my J.D. Edwards partners who say PeopleSoft is not channel-friendly.

Conway: Well, for sure, because we have traditionally sold large enterprises.

What [the merger] should mean for resellers is getting their hands on a broader, stronger base of products, taking those to a market that has a better appreciation for a single company called PeopleSoft, taking it to more geographies. Look, a company that is [valued at] $3 billion can be in more geographies and offer more support.

It’s the same really in any maturing industry. Glaxo and Merck can take a drug to a lot more markets than some small drug-development company.

CRN: Do you expect to keep your internal consulting head count in the 2,500 range, or will you add or subtract people?

Conway: That will stay the same or grow larger. Our motivation is not to cut or add people, it is to rationalize a company that can be the co-leader with SAP. In that process, we will look for operating inefficiencies ourselves, but more importantly how to increase revenue. That’s our motivation. That will drive our decisions.

CRN: How much services revenue is driven by partners?

Conway: We do not have the expertise that J.D. Edwards has with resellers. The closest we come is the systems integrators, the big ones. Of all of the implementation work done around PeopleSoft applications, partners get approximately 85 percent of it.

We estimate that about $1 out of $8 that is associated with the implementation of PeopleSoft goes to PeopleSoft. The rest goes to our partners. That’s why companies like PwC Consulting, now IBM; Cap Gemini Ernst & Young; Accenture; Deloitte Consulting; and BearingPoint like us so much. We are not SAP or Oracle. We don’t have tens of thousands of consultants; we have 2,700 consultants and whatever J.D. Edwards has, which I think is about 900.

For a $3 billion company, that amounts to a company that is capable of participating when the partner or the customer wants us to. But the lion’s share of all implementation work goes to systems integrators.

Now, the reason I wanted to clarify resellers vs. systems integrators is that although we don’t have an aggressive reseller program here–or one at all, to be honest–I am very familiar with the reseller channel. I [dealt with] the reseller channel at Oracle and at other places in my career.

The reseller channel goes beyond just integrating. This is an organization that takes responsibility for configuring the product and sometimes accepts title on the product and configures it for a customer, makes a royalty or a margin or a commission on the sale. When we look at J.D. Edwards, we are coveting that expertise. We are saying, look PeopleSoft has gotten where we are without having been successful with resellers. We tried, by the way, four years ago. Who did we go to? Accenture, Deloitte. It was like turning to a tank to mow the lawn. These companies were obviously not positioned to be much of a distribution channel.

I look at the combination of J.D. Edwards and PeopleSoft. People’s fear is what is going to be sacrificed; my fear is, how do we take advantage of what is great about [these] two companies?

They covet our HR line, to bring it to the midmarket. We covet their manufacturing and distribution to bring it up to the large enterprise market. We covet their distribution channels. They covet some of our service industry expertise.

One of the reasons the analysts are so enthusiastic about this is that, this is the first time that there has been a credible company that pound for pound had an alternative to SAP. There are a lot of people that are holding their breath and crossing their fingers that this resulting company can be a logical, compelling, credible, stable, global alternative to SAP.

When you have credible competitors, the customers win. When Netscape [Navigator] was knocked out of the picture and there was only one provider of Internet browsers, there was never a single innovation after that point.