Customers hold the key in Oracle/PeopleSoft fight

No one wants to be caught in the middle of a row – especially if the combatants are heavyweights like PeopleSoft and its would-be acquirer, Oracle.

But for many US customers of PeopleSoft, standing aside has not been an option. They have been summoned by Washington to give evidence to the US Department of Justice, which is reviewing the antitrust implications of Oracle’s bid.

Investigators have been asking, among other things, why these customers bought PeopleSoft software and how they think a successful Oracle bid might affect their business. True, this may not exactly be a harrowing experience, but who wants the Department of Justice knocking at the door?

Or, indeed, the Competition Directorate of the European Commission – because Brussels, too, is now deciding whether to launch a full-scale investigation into the proposed merger. If the EC extends its probe, it will be seeking the views of European PeopleSoft customers.

The key question that antitrust regulators want answered is how an Oracle takeover would affect PeopleSoft users and, for that matter, how it might affect JD Edwards’ customers as well, now that the PeopleSoft-JD Edwards merger has closed.

So much is riding on this issue that Oracle and PeopleSoft have taken turns to reassure the organisations affected. Oracle said that, should the bid succeed, it will extend support by another two years for PeopleSoft 7, the version of PeopleSoft’s enterprise resource planning (ERP) software suite that was introduced in 2000 and that was due to be ‘de-supported’ by PeopleSoft in January 2004.

PeopleSoft responded by offering guarantees to its customers and extending some aspects of customer support for PeopleSoft 7 beyond that deadline, including support for all-important tax and regulatory changes and so-called upgrade scripts.

The guarantees – PeopleSoft’s ‘customer assurance programme’ – mean that any acquirer of PeopleSoft could have to pay up to five times the value of licence agreements struck since the second quarter of 2003 if it (the acquirer) stops development of the PeopleSoft products within two years of a takeover.

Some think this tactic is simply a ‘poison pill’ takeover defence, since, if it ended the support, Oracle might have to pay customers compensation worth some $380 million just to honour guarantees offered in the second quarter.

As if all that was not enough, those same customers are trying to assess how the recent PeopleSoft-JD Edwards merger might affect them.

Early on, PeopleSoft CEO Craig Conway reassured users, promising that no products would be dropped as a result of the merger. “This was never intended as a consolidation play. It was never intended to drive down the size of the product line or coerce or enable a revenue stream by consolidation. It’s always been about growth,” he said.

When the integration is complete, the combined company will be left with two main product lines: PeopleSoft EnterpriseOne, aimed at the mid-market, and PeopleSoft Enterprise, aimed at large enterprise users.

But Conway says PeopleSoft will also continue to support JD Edwards World products, rebranded as PeopleSoft World. Only about 250 of 11,000 customers worldwide use all three major product lines already and PeopleSoft expects cross-selling to generate between $30 million and $40 million in extra licence revenue in 2004.

Conway expects all this to be completed by March 2004. By then, PeopleSoft’s customers will no doubt be hoping that the future of their flagship supplier will have been resolved.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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