Oracle judgement spells bad news

Yesterday's ruling in the Oracle PeopleSoft drama makes grim reading if you care about competition in the software market. The Department of Justice had tried to prove that the merger of Oracle and PeopleSoft would damage competition in the market for what PeopleSoft called 'high-function' financial and human resources ERP applications. However, the judge ruled that this market distinction doesn't really exist 'as a separate and distinct line of commerce.'

Back in the real world, we all know that there is a market for high-end ERP systems -- one that SAP dominates. Oracle argues that if it teams up with PeopleSoft, it will join the side of the angels by helping to rationalise a crowded applications market and create a stronger company better able to compete against SAP and Microsoft. The merger of Oracle and PeopleSoft will not dominate the market in the way another proposed software merger -- Microsoft and SAP -- would have done. But that does not mean it is a good idea for customers.

The clean legal prose and nice distinctions of this latest court judgment seem a world away from the sweaty, ego-driven reality of the software industry. There is no love lost between the worker bees and management of PeopleSoft and Oracle, so exactly how amicable and productive is the combined engineering team of the merged company likely to be?

PeopleSoft, which has its own business challenges, at least brings its full attention to the problem of writing business applications. We have spoken to several former Oracle executives about that company's problems in the applications space, a business with which it has struggled to do more than simply service its existing database customers. The ex-Oracle executives all say the same thing: that Oracle is fundamentally a technology software company which just does not get the persnickety, user-driven world of application development. Its best and brightest navigate towards the company's core database software.

Oracle is famous for its aggressive management style and has already promised swingeing staff cuts if the deal goes ahead. It's hard to see how a merged entity will be better able to service existing and future customers. It will have to struggle with the management problems created by a hostile takeover, deal with painful migration and integration issues, and settle turf wars and painful redundancies while fending off SAP and Microsoft.

The deal looks as though it is now more likely to go ahead, which means more uncertainty for existing PeopleSoft customers, and more fees for the lawyers. It's a shame.