Oracle's tricky encore

It's been a set piece worthy of Wagner. The mighty Oracle lays siege to plucky PeopleSoft, and at first is rebuffed. The giants of Justice and Europe issue edicts from their mountain tops: there is talk of guns, bullets and dogs. The PeopleSoft king is driven mad and summarily executed by the praetorian guard: at length, arms are laid down, terms for peace agreed and a great chest of gold exchanged for the keys to the kingdom.

Highly entertaining, but like all Grand Guignol it doesn't touch on the consequences of the drama. As part of the deal, Oracle has committed to continued support and development of the PeopleSoft customers and products. That's a problem. Mega-mergers are justified by the economies of consolidation and rationalisation: much harder to achieve when you've promised to maintain diversity and separation.

There are also, as always, major cultural differences between the companies, fault lines that can only widen under the inevitable pressures of cost reduction and winning deals. Oracle has failed consistently to diversify its revenues from database products: it is by no means guaranteed that it can manage to use PeopleSoft to help it in this direction.

Big mergers make for big problems. Post-acquisition, a company can be as inert and vulnerable as a python digesting an antelope. Ellison knows this -- it was PeopleSoft's purchase of J.D. Edwards in 2003 that persuaded him to join the hunt. The problems don't go away quickly, either. It's taken three years for Carly Fiorina to announce that the HP/Compaq transition is over, and even now there are signs that she's being optimistic.

While the merger doesn't threaten Oracle's core business -- database technology is going to be important no matter what shape the applications market takes -- it doesn't present more of an immediate threat to SAP. If anything, it makes the PeopleSoft user base more vulnerable to raiders, especially those with a decent Web strategy or the promise of corporate stability.

Oracle must first secure that user base by backing up its promises with a detailed and plausible road map. It must also show how it intends to improve or replace the PeopleSoft technology in ways that reflect the changing market, and that form a cohesive strategy which makes the best use of its resources. These are basic necessities for any company, but all the harder in the aftermath of merger. Ellison has proved his dogged tenacity, but he won't enjoy a long interval before the audience demands the second act.