Adam Gifford: Oracle goes hard on PeopleSoft

As the pink slips are dished out at Peoplesoft and its new owner Oracle, it's a good time to look back at one of the hardest-fought takeover attempts the IT industry has seen in some time.

To understand what is happening with Oracle's takeover of the rival application software company, the first thing to remember is that this was a hostile takeover.

Oracle wasn't able to do proper due diligence on PeopleSoft and still doesn't know exactly what it bought for its US$10.3 billion ($14.7 billion).

It was able to make a few guesses, and about the middle of last year it assigned senior managers the task of preparing for the transition, which is why it has been able to move so quickly once the deal became final on January 7.

The main thing it wanted was PeopleSoft's customers. They were what made PeopleSoft the number two business applications company behind German rival SAP, spending millions and tens of millions of dollars on software to run their back office processes and communicate with customers and suppliers.

Oracle wasn't that interested in PeopleSoft's technology, since it considers its own products and approach superior.

It has laid off most of PeopleSoft's sales staff, but plans to retain more than 90 per cent of product development and support staff. It has also promised to support PeopleSoft customers for 10 years, but a lot can change in a decade.

There is a big cultural difference to overcome. While former Oracle executive Craig Conway imposed a suit and tie dress code during his time as PeopleSoft chief executive, the company's corporate culture still retained much of the new age vibe promoted by founder David Duffield.

Oracle is more hard-edged, as can be seen by the way it handled the lay-offs - many staff only found out by letter.

It is more aggressively competitive, often at the expense of customer relations - its style was sometimes tagged "drive-by selling".

Most of Oracle's business is about technology - the database software used to manage an organisation's information, and all the other bits of infrastructure used to build systems.

In that respect its main competitors are Microsoft and IBM, which also offer comprehensive technology stacks, as well as various best-of-breed vendors who offer bits of the puzzle.

Dougie Beck, who has worked for both Oracle and competitor Intentia, said Oracle sees applications in a different way from its competitors.

"When PeopleSoft or SAP or JD Edwards or Intentia talked about applications, they were talking about business functionality which has been software-enabled. For Larry [chief executive Larry Ellison], it's all about data management, so providing tools to store and manage data, that is the centre. Larry is in the information technology game, building strategic software infrastructure," Beck said.

He said ERP (enterprise resource planning) software was a mature industry, with all the major vendors capable of delivering an acceptable solution.

"Most decisions are about cultural alignment or career enhancement - someone wants an SAP project on their CV - or they go for Oracle because they are technology bigots," Beck said.

"Now people who bought PeopleSoft for cultural reasons - which means they deselected Oracle for cultural reasons - have to work with Oracle, so there are all these interpersonal transactions to sort out."

Josh Greenbaum, a principal of Enterprise Applications Consulting in Berkeley, said Oracle was attempting to shift its focus to applications, making significant changes at the executive level.

"The new Oracle-PeopleSoft combination will require someone with a strong view of the world outside Oracle," Greenbaum said.

He picked Oracle president Charles Phillips, a former industry analyst, to play a leading role, rather than Larry Ellison.

"He is well-known in the industry, he understands software like no one else.

"The applications business needs someone to be the public face, like Shai Agassi is doing over at SAP."

Greenbaum said Oracle had won support for the takeover because it was able to articulate its vision of applications being part of a services-oriented architecture, where customers could build reusable components rather than being locked into monolithic systems.

"Even conservative customers like mid-market manufacturers are starting to understand that service-oriented architectures may have value to them," Greenbaum said.

The pressure will be on PeopleSoft customers, if not to switch to an Oracle application, then to at least switch to the Oracle database and middleware.

Oracle chairman Jeff Henley last month told the Herald that Oracle wanted a larger share of the applications market, which was significantly bigger than the database market.

"We are not buying it for their applications or the JD Edwards applications. We will support their applications but the assumption is if we do a good job we will get the PeopleSoft customers over the years to migrate to Oracle, and that is really the big benefit," Henley said.

"We will support the middleware they have today on JD Edwards and PeopleSoft, but long-term if we can convert the majority of those customers, and we think we can, they will end up using our middleware and database."

The big losers could be the customers on what used to be known as JD Edwards World software, which runs on IBM's iSeries server platform. This includes many New Zealand and Australian manufacturing companies.

Many of the support staff with iSeries skills were lost after PeopleSoft's takeover of JD Edwards.

While one possibility is that Oracle could carve out the world division and flick it on to a vendor specialising in iSeries applications, such as SSA or Intentia, it might want to hang on to those customers, and the millions of dollars of maintenance revenue they represent, in the hope of eventually shifting them to an Oracle platform.

One thing is certain though. Rival SAP is certain to sell a lot of software this year.