A Long Week In A FUD Market

MyCustomer.com

A week may be a long time in politics, but for certain figures in the enterprise applications industry the past seven days have been either the most amusing or among the most traumatic in a long time.

This time last week, PeopleSoft's CEO Craig Conway was happily flying to Europe to spend a relaxing couple of days in Amsterdam, content in the knowledge that nine months of painful negotiation with JD Edwards had resulted in a deal that would result in a merged company becoming the second largest player in the sector, after SAP and way ahead of Oracle.

For Bob Dutowsky, CEO of JD Edwards, what might have been just another annual user conference this week would now be fired up by the prospect of a brave new world as part of the second biggest applications vendor, a radical turn around in the balance of power in the industry.

But the happiness of both CEOs came at a terrible price - the bruised ego of Oracle CEO Larry Ellison who must have been left brooding darkly in the Emerald City of Oracle HQ in California. Oracle's applications business has been through more downs than ups and at the moment has been amongst the worst performing in terms of growth in the sector.

To man like Ellison who built the world's most successful database company based on an ethos of taking marketshare at all costs, the prospect of being trounced in this manner would have been unacceptable at any time. But at a time when Oracle had already hired Morgan Stanley to explore potential acquisitions, the news could hardly have come at a more opportune time for him - or a worse time for anyone seeking to antagonise him.

So in retrospect it should have come as no suprise to anyone that last Friday Ellison decided to spoil Conway and Dutowsky's weeks by mounting his hostile takeover bid and throwing the the market into a period of chaos.

So who are the winners and who are the losers likely to be? Conway has reacted with considerable hyperbole and his comments about the supposedly sociopathic nature of Ellison and Oracle - which he has trotted out before - are likely simply to detract from his more legitimate claims that Ellison is mischief-making. He doesn't look like a winner right now.

Dutowsky's argument that a successful Oracle takeover of PeopleSoft would not be allowed under anti-trust laws seems more like wishful thinking than reality. A combined Oracle/PeopleSoft would still be less than half the size of SAP and the only real loser would be JD Edwards which would have to tout itself around the market one more time. That "For Sale" sign isn't going to be taken down now.

Customers of JD Edwards and PeopleSoft are of course easily categorised as losers. Until the uncertainty about ownership is sorted out, anyone making a major procurement decision with either firm is bound to pause for thought. Decision influencers such as Gartner Group are already issuing just that advice. PeopleSoft customers are perhaps entitled to be the more nervous given that Ellison has already said that there is no long term future for the PeopleSoft products under his regime.

So to the winners...step forward Lawrence J Ellison the Third, once more the centre of attention and stirring up trouble for his rivals left, right and centre. Is he serious about really wanting PeopleSoft or is he just doing this for effect? Who can tell? We've been here before in some respects - remember the non-existent takeover of Apple that earned him so many headlines in the mid 1990s? If he's serious about this one, why offer such a low asking price - opening gambit or a sign that this is a gesture designed to cause trouble for others rather reach a successful conclusion?

On the other hand, he's got the cash and the credit line in hand to finance the deal, Oracle could undeniably do with the PeopleSoft customer base (which he has openly admitted is what he's really after) and there is the wider question of how credible a force in the applications industry Oracle can be if PeopleSoft/JD Edwards becomes the real alternative to SAP.

So maybe he's serious, maybe he's not. Maybe this is the first fruits of the appointment of former Wall Street thought leader and power broker Chuck Phillips as Larry's new ideas man? Whatever happens, Ellison will be losing no sleep tonight over the chaos he has set in motion with his actions. Remember one of his maxims when building Oracle - it's not enough to win, the other guy has to know he's lost. A quarter of a century later, Oracle hasn't changed its spots.

So is Larry the real winner? Not really. The real winners are sitting in Walldorf in Germany where the management team at SAP must surely be unable to believe their luck. Not only has SAP managed to be the only major applications firm to show anything like healthy growth in recent years, its status as the sector's "gorilla" company can only be strengthened by the tea party antics of the chimps that compete with it.

If anything could be predicted from last week, it was SAP's hasty advertising campaign designed to lure customers from both JD Edwards and PeopleSoft. Unfortunately for all the other vendors - mischief making Oracle included - SAP has got to look like a pretty winning proposition right now to customers baffled by a week otherwise characterised by fear, uncertainty and doubt.

My personal prediction - PeopleSoft will reject the Oracle takeover bid, but Ellison will up the price and drag this out well into the summer. He has nothing to lose by doing so and possibly a significant amount to win.

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