What's it all about, Larry?

The jury is still out on Oracle's play for PeopleSoft but what are the implications for customers if the unthinkable happens?
Written by Gary Flood, Contributor

The major issue facing the enterprise business apps space moving into 2004 has to be the state of play re Oracle's attempted acquisition of rival PeopleSoft.

This has less to do with any of the antler-clashing going on between the protagonists as with the implications for the software landscape in general. If colourful Oracle CEO Larry Ellison is right, his swoop on PeopleSoft is not as much to do with the specific changes in the apps market as it is a bellwether for wider and more troubling shifts in the wider industry.

That's because Ellison's argument -- in public -- is that Silicon Valley is dead. "The idea that Silicon Valley is going to come back and be anything like it was in the past with hundreds and thousands of start-ups, the Silicon Valley of old where people talk about deal flow and venture capital, a new company every day -- that's over, and that's a good thing," he told BusinessWeek in August.

IT doesn't matter
By which he means that the IT industry has matured to the point where fewer and fewer large players will inevitably and calmly preside over a less frantic supplier universe. Ellison's bid for PeopleSoft, in this light, is part of a wider Zeitgeist, a march to the drum of history. Significantly or not, Oracle's move came a month after the Harvard Business Review's pessimistic May article, "IT Doesn't Matter", which said users should cut IT investment and work with fewer suppliers.

Could be. What we do know is that this has all turned very nasty indeed. As it stands, Oracle's June hostile takeover bid (the value of which has since been raised to $7.3bn) has been rejected by the current PeopleSoft board. PeopleSoft's global director of corporate public relations, Steve Swasey, is adamant his company regards the bid as dead, given if nothing else that his company's stock is now trading in the low $20s and Oracle hasn't revised its $19.50 revised bid.

An Oracle spokeswoman told ZDNet UK in turn: "We certainly do not believe the deal is 'dead', and from the volume of activity on PeopleSoft's side it doesn't look like they think so either. If the deal goes through, Oracle believes it will lead to greater innovation, increased competition, and greater customer choice in enterprise applications."

All sorts of mud-slinging, poison pills, charges and counter-charges have ensued. And beyond all that the deal faces a formidable set of legal and regulatory challenges resulting from worries over two such large players (effectively numbers two and three in enterprise apps after SAP) combining, from such minor impediments as the US Department of Justice, the Canadian government, the European Union competition agency, and some US states' joint action to derail it.

"On balance it's more likely not to happen," says David Bradshaw, principal analyst at analyst group Ovum. Still, Butler Group's senior research analyst, Andy Kellett, says: "There's still a long way to run."

Reducing choice
All this aside for a second -- what sort of a world would be in if this does complete sometime in 2004? Most observers agree that despite Oracle's protestations, customers would have fewer options in the marketplace. "They're doing this to take a competitor out, which is always about reducing choice," points out Robert Thomson, professional services director at business process management specialist Commerce Quest. "Customers will ask, how can a bigger player help me in my business -- will they be any less inflexible than they were before?"

Again, "less choice" is the verdict from Ovum's Bradshaw, as for Butler's Kellett. "We prefer markets to have plenty of choice and a wide spread of vendors able to deliver variation to customers. On the whole I'd prefer this not to happen," he goes so far as to say.

But what of the underlying logic of Ellison's argument? If consolidation is the name of the game, why fight it? Interestingly, PeopleSoft's Swasey agrees there is consolidation, and that Oracle's is a consolidation move. He could hardly otherwise, given his company's $1.8bn July acquisition of fellow ERP-er J.D. Edwards. But "we see the market as consolidating, yes, but still expanding."

What could that possibly mean? A clue is provided by Ovum's Bradshaw: "The enterprise apps market is expanding -- but not through licence sales, but services," he says. The idea is that there is less interest in buying more software, but lots of interest (and need?) to make it all work together.

Hence the PeopleSoft version of consolidation -- we (that is you, the customer base) want big players. Which is fine so long as we're (PeopleSoft) one of them, not part of someone even bigger. "A company like General Motors wants to work with players able to offer breadth, depth, and global reach -- and CIOs want one back to pat, they want to bring in two or three suppliers to talk with, not 12," he says, before highlighting the strength of the combined PeopleSoft-J.D. Edwards combo and its 12,000 customers worldwide.

But of course that logic doesn't work for all levels of the market. "Only the very biggest companies want that kind of relationship with their suppliers -- SMEs certainly don't," adds Kellett.

"This style of argument about consolidation becomes moot when you're talking about multibillion-dollar companies coming together. Consolidation is about taking out smaller players, as indeed PeopleSoft did with J.D. Edwards, or has happened to Baan. This could be two of the three largest players merging -- that's not a maturing market dynamic," warns Ovum's Bradshaw.

Life won't get easier
One thing's for sure -- whatever happens, in one respect your life won't get easier either way. "The fact is customers would still have lots of different ERP systems albeit from a smaller number of manufacturers, and would still face the same integration problems," says Ovum's Bradshaw. "An Oracle-PeopleSoft combination won't help them there any time soon."

That's because enterprise applications are hard; they solve complex problems; and we have a lot of them that aren't going away. "SAP spent the 1990s telling everyone they should have wall to wall R/3," muses Commerce Quest's Thomson. "Now they have finally realised that the reality is no one will do that, and they have recently started opening up and changing their message and how they view customers as a result."

Never forget the suspicion that Oracle may be taking this historical inevitability bit with less than total seriousness. "There are a lot of very smart people there, and you have to suspect the real motivation is quite different from what we read in the press," says European general manager for Informatica, Patrick Buffet. "You just can't believe it's just about consolidation."

So how would the software landscape look post a possibly less than likely Oracle-PeopleSoft merger going ahead? Possibly less choice, and in the end, some issues for users. "Eventually, they'd face some sort of pressure or inducement to move off PeopleSoft, with all the hurdles that can throw up," warns Kellett.

But the underlying realities of a complex and heterogeneous enterprise apps world wouldn't be 'solved' by any Ellison-style historical materialistic type philosophy. Probably to his relief. "I think Oracle would be utterly horrified if they did succeed," Bradshaw says. "It's all gotten so acrimonious, it'd be brutal. What a way to bring the PeopleSoft and J.D. Edwards people together -- they've bonded through both hating Oracle."

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