PeopleSoft's never-ending bad dream

By ADAM GIFFORD

Oracle's drawn-out US$7.7 billion bid for PeopleSoft is driving the number two business applications company into a tight embrace with IBM.

"Have you ever had a bad dream that just wouldn't seem to end? Ours has been going on for 15 months," president and chief executive Craig Conway told 15,000 customers, partners and staff at the PeopleSoft Connect conference in San Francisco last week.

It was almost the only reference he made - or his lawyers would allow him to say - about the prospects of having Larry Ellison as his boss again.

Conway repeated the list of impediments still in Oracle's way, as set out in the carefully worded statement put out this month when a California judge threw out the United States Department of Justice's challenge to the merger - the department could appeal, the European Commission must agree to it, PeopleSoft has its own application for an injunction and damages, and Oracle must find a way to get over the PeopleSoft shareholder rights plan, aka the poison pill.

But the big news at the conference, an alliance with IBM, could make an Oracle takeover that much harder.

PeopleSoft will standardise its applications on IBM middleware, and both companies will market the joint solutions.

The companies have committed to spend US$1 billion over the next five years on research and development associated with the alliance.

They have also agreed to jointly develop solutions for three major industries: telecommunications companies, financial services and insurance.

Middleware is all the unsexy but necessary pieces of software infrastructure that make IT systems work - things like application servers, integration tools and connectors which allow applications to talk to each other, and portals.

While Oracle is known primarily for its databases, software which businesses use to order their information, and to a lesser extent its business application software, in recent years it has put considerable effort into building up its middleware stack.

By giving away key components of IBM middleware with its applications, PeopleSoft makes Oracle's overall offering less attractive.

It could also cut into the market share of another important middleware vendor, BEA, a company which is itself a likely acquisition target for Oracle, and to the technology stack built up by Sun Microsystems.

Oracle's game plan if it acquires PeopleSoft seems to be to cease development of PeopleSoft applications, choke off new sales in favour of its own applications, and encourage customers to switch from their IBM and Microsoft databases.

That "any colour as long as it's black" prospect isn't going down well with PeopleSoft customers.

Since the court decision, online user forums have debated whether firms should shift off Oracle databases, and one of the biggest cheers at a session on PeopleSoft's new upgrade process came when solutions vice-president Ram Gupta demonstrated how easy it was to switch databases.

Conway said the Oracle controversy had been like static on the line over the past year, drowning out achievements such as the integration of the two JD Edwards product lines World and OneWorld into the PeopleSoft portfolio as PeopleSoft World and Enterprise One.

PeopleSoft added more features to the products over the past year than JD Edwards did over the previous five - a sign software development at the former Denver-based company slowed while its management was trying to find a buyer.

The IBM alliance should comfort the many New Zealand users of World and OneWorld, as JD Edwards made a similar alliance with Big Blue two years ago.

The joint development should also position PeopleSoft to face what it sees as the next major trend in the IT industry - adaptable business process generation.

This envisages tying together parts of PeopleSoft with third party and home-grown elements to create new applications, something which will require a robust and flexible middleware platform.

Analyst Kristian Steenstrup, from research firm Gartner Group, said the IBM alliance would give PeopleSoft a major point of difference from applications rivals Oracle and SAP, who offer proprietary middleware stacks.

"The technology stack is becoming more important and more visible for customers and vendors and as a selection criteria," Steenstrup said.

The IBM alliance raised the prospect IBM could step in as a "white knight" and buy PeopleSoft to keep it away from Oracle. But IBM group senior vice-president Steve Mills said that was out of the question.

* Adam Gifford was a guest of PeopleSoft at Connect