Making Sense of Oracle's Battle Planby Ira Breskin
The pitched battle for survival among vendors of enterprise resource planning (ERP) software, which generates transaction-based data that's similar in scope and ambition to PLM software, has become downright nasty.
What kicked off this no-holds, bare knuckle seeming fight to the finish was Oracle Corp.'s unexpected, $5.1 billion hostile takeover bid on June 6 for PeopleSoft Inc. This masterful, well-timed surgical strike reflects the trademark boldness of Larry Ellison, Oracle chairman.
If nothing else, it throws a monkey wrench into the PeopleSoft/J.D. Edwards deal and current sales efforts by those two vendors.
Oracle's low-ball, preemptive bid came hard on the heels of PeopleSoft's announcement that it planned to buy competitor J.D. Edwards & Co., one of the six top tier ERP players, for $1.6 billion.
Oracle's subsequent bid, which clearly caught many by surprise, is designed to further consolidate the ranks of the so-called JBOPS. JBOPS is the acronym listing the major ERP players, a compilation that's likely to continue getting shorter. The players are:
- J.D. Edwards, which boasts a number of large, discrete manufacturers as its prime customers;
- Baan Co., a wounded vendor recently sold by to an industry consolidator by Invensys Corp., a troubled British controls company. Invensys never realized its well-conceived vision: tying the information flow from the shop floor to boardroom. Meanwhile, Baan is working to retain the confidence of Boeing Co., its biggest account
- Oracle, which in additional to enterprise software also is a major vendors of database management tools;
- PeopleSoft, now in play, whose software's strength is handing personnel/labor component of a manufacturing or service organization;
- SAP, the large German ERP vendor that that hopes to capitalize on industry warfare to steal market share. In fact, SAP plans to launch a global print effort designed to poach PeopleSoft and J.D. Edwards customers. (It's also worth noting that SAP is the most prominent ERP vendor offering a PDM module. However, many industry insiders consider it simply a product line extension that won't stand up to heavy-duty use.)
Second, the bid is low. Oracle is offering $16 in cash per share, only $1 higher than the closing share price on June 5 and, in fact, lower than that subsequently registered by PeopleSoft.
Third, Ellison has made it clear he plans to cut many jobs at PeopleSoft should Oracle gain control. Such a cavalier attitude traditionally is taboo in high tech deals, as are hostile takeovers, because the acquirer runs the risk of alienating code writers, the prime assets of most software companies. In fact, such key personnel are likely to leave for a shop across town.
Apparently, Ellison doesn't mind running that risk because, he covets PeopleSoft customers and the annuity-like maintenance revenue they provide, according to published reports.
Moreover, Ellison has said there is no "integration risk" tied to merging the disparate product lines because no integration is planned.
Ellison's strategy jives with his recent pronouncements that because the fast growth software industry is maturing and growth likely will be slower, successful players must act more like traditional businesses. Hence, successful players will drive industry consolidation to get economies of scale and savings attached to operating efficiencies.
Ellison can afford to take such an unconventional stand because of the ready availability of prime software talent in the wake of sharp fall-off in demand for enterprise software during the past 18 months or so.
While the ultimate line-up of ERP players is still much in question, what's not in doubt at this early juncture is Ellison's ability to upset the competitive ranks and set the short-term ERP industry agenda.
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Ira Breskin, a freelance editor/writer specializing in business and technology issues, is a frequent contributor to Business Week, Newsday, and the New York Times. He holds a B.A. from Columbia University and a Knight-Bagehot Fellowship in Economics and Business Journalism, Columbia University Business School. He may be reached at Email Contact.
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