Just over a month ago, Charles Phillips was one of the most well-respected thought leaders on Wall Street and managing partner at Morgan Stanley. What 'Chuck' thought on any given matter related to enterprise software was vitally important to vendors and investors alike.
Fast forward to mid-June and Phillips has become one of Oracle CEO Larry Ellison's closest strategic advisers, is one of the drivers at the heart of perhaps the biggest shakeup of the enterprise software market ever and on the receiving end of a billion dollar law suit for his troubles.
Given that Phillips made the move to Ellison's Office of the CEO - essentially becoming the one man guaranteed access to the boss's ear! - after the software billionaire convinced him that in so doing he could "help change the entire industry", the past few weeks may only be a taster of what is to come. Even the lawsuit from JD Edwards alleging industrial espionage in his former role at Morgan Stanley doesn't seem to faze him too much. "Yeah it's a really great welcome present," he laughs. "Larry doesn't seem too bothered by it and it hasn't changed our strategy."
Maybe not, but the Oracle strategy itself has undergone a radical overhaul, made manifest by the decision to mount a hostile takeover of PeopleSoft after two decades of essentially organic growth and in-house development. Prior to this, the most significant acquisition of market share and customers executed by Oracle was the mid-1990s purchase of the RDB database from Digital Equipment Corporation (DEC). But from what Phillips says, the PeopleSoft acquisition is only the start of a whole new way of thinking.
"The applications industry has become more mature and overall growth is slower," he explains. "Like other industries, that means that there is going to be a period of rationalization. That's a good thing. It isn't good for anyone, including customers, for there to be hundreds of little applications companies that aren't making money."
"What has happened is that Oracle and particularly Larry have changed their view of acquisitions. For most of the company's history, acquisitions have been seen as a bad thing. We saw it as better to have a single product architecture and develop our own products. But industry standards are far more mature now, so that's not such an issue. And the price is more affordable as the stock market has declined. We couldn't have done this acquisition in 1999, it would have been too expensive at that time."
PeopleSoft, argues Phillips, has long been seen as a potential target for Oracle, citing the meetings that took place between Ellison and PeopleSoft CEO Craig Conway to discuss merging the two businesses. These were ultimately fruitless, but according to Phillips from Oracle's perspective this was not necessarily a bad thing.
"Until a few weeks ago, we could afford to wait," he says. "The price of PeopleSoft was coming down and that was important for us to watch. Why buy at $30 when you can wait a few months and buy at $25. At some point you have to draw a line in the sand and decide the price isn't getting any lower, but we weren't there yet."
What changed matters was PeopleSoft's decision to merge with JD Edwards which spurred Ellison and Oracle into action with a hostile takeover bid for PeopleSoft, but not necessarily for JD Edwards. Indeed, Oracle filed suit to slow down PeopleSoft's attempts to rush through the JD Edwards merger. Since then, Oracle has changed the terms of its takeover offer to allow the JD Edwards deal to close, but is still keeping its options open. "We have not made a decision about JD Edwards if we want it or not," explains Phillips. "We can do a multiple acquisition if we choose to, but of course it becomes more expensive and more complicated. There are more things that can go wrong. But we haven't reached any decision yet."
It's understandable that Phillips is keen to avoid being drawn into a JD Edwards discussion - the PeopleSoft acquisition threatens to prove a big enough problem in its own right. Top of the list of his frustrations is clearly the attitude being taken by the PeopleSoft management team and CEO Craig Conway in particular, which is to refuse to enter into any discussions with Phillips or the Oracle team.
This, he says, is something that he might have expected a few years ago, but surprises him in the heightened climate of corporate governance and fiduciary responsibility post Enron. "I think the PeopleSoft shareholders are displaying a mixture of surprise and now a second phase of annoyance [with the management]," he suggests on the basis of having met with a number of the biggest PeopleSoft investors.
"When we made the first offer of $16, they said to us 'So what' and they weren't interested, it wasn't a high enough price to get their attention. But then we improved the offer and they saw that we were serious about this. They have assumed that following the second offer, we would have met with the PeopleSoft management who have a responsibility to consider and evaluate any offer on behalf of the shareholders. But they refuse to meet with us."
Phillips suggests that PeopleSoft is playing an anti-trust issues card as the main justification for refusing to talk. If the deal was likely to upset the Justice Department and fall foul of anti-competitive legislation in the US, then there would be little point in any meetings between the two management teams. But Phillips does not see that there is an anti-trust concern anyway as even the combined might of Oracle and PeopleSoft will not be enough to close the gap with market leader SAP, which itself has only 18 per cent of the market according to estimates from International Data Corporation.
"Anti-trust issues are usually the concern of the Justice Department," muses Phillips, adding that he and Oracle chief financial officer, Jeff Henley, are due to meet with officials from the department this week. "PeopleSoft appears to have made their decision for them. But it means that they don't have to meet with us. I don't see any anti-trust problems. It will increase competition. Do you want to have lots of little companies or one or two big companies that can be a more competitive offering to SAP and protect customers from Microsoft."
Assuming the PeopleSoft deal can be closed successfully, Oracle has committed to providing ten years worth of support for existing PeopleSoft customers, but will not actively sell the PeopleSoft software. If customers ask for it, they can have it, but it will not become an addition to the Oracle sales team's portfolio.
"We have focused a lot more attention on the PeopleSoft customer base," Phillips says, conceding that Oracle's initial focus on investors and shareholders has fuelled customer concern. "We are offering them at least a decade of support for their products - that's more than PeopleSoft or any other company offers its customers. Oracle and PeopleSoft are far closer cultures - a lot of them came from Oracle in the first place! - than PeopleSoft and JDE which are very different companies. Oracle is a better fit."
For Phillips, it's clear that the logic of market consolidation is inevitable and unshakeable. "There is going to be rationalization," he insists. "We know that, JD Edwards and PeopleSoft agree with that. That said, it's then just a question of who is going to drive that consolidation. We want to do that.
"Our actions will have a wider effect," he concludes. "We are probably starting something here'but it's hard to say at this stage where we will end up."