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12/14/2004
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Oracle-PeopleSoft Buyout May Push Middleware Vendors Into A Corner

The combination of PeopleSoft applications with Oracle's database and middleware products could lead to a closer relationship between IBM and SAP.

Oracle's successful bid for PeopleSoft is going to change the face of the enterprise-applications market. It will blur the edges between middleware offerings and applications and force middleware vendors to compete or get pushed into a corner, says Yankee Group analyst Michael Dominy. Middleware suppliers such as BEA Systems, Tibco Software, and webMethods, as well as younger companies such as Blue Titan Software and Sonic Software, "are in danger of being left behind" by the combined impact that an applications and database vendor can have on the middleware space, he says.

One of the middleware's primary roles is to connect applications to database resources. Oracle is about to convert its ability to manage that connection seamlessly into a competitive advantage. And it will be developing that capability for an applications customer base second only to SAP itself.

One possible outcome will be greater cooperation between IBM and SAP, Dominy says. The two companies are longstanding partners on several fronts, and SAP has made its pioneering NetWeaver middleware and application-integration tools interoperable with IBM's WebSphere middleware.

IBM for several years has competed with Oracle by telling third-party application vendors that it won't compete with them on the applications front the way Oracle is willing to. IBM is unlikely at this late date to make a foray into the applications market because that would require it to either buy or build its own product set, observers note.

"IBM has done an amazing job of building professional services," says Niel Robertson, CTO of Newmerix Corp., a supplier of management software for PeopleSoft applications. Part of its IBM Global Services expertise is in moving enterprises onto ERP systems. Now it will lose part of that business as PeopleSoft, with whom IBM was a partner, disappears inside the Oracle fold, Robertson says. Nevertheless, IBM, more than Oracle, "has become master of the middleware infrastructure" with WebSphere, its Tivoli management system, and Rational Software development tools.

PeopleSoft will add to Oracle's strengths in certain areas. It has development, marketing, and sales expertise in human-resource, customer-relationship-management, and supplier management applications--the core of its applications business. It's also adept at selling to state governments, an area where Oracle has sometimes shown a tendency to stumble. For example, Oracle got into a brouhaha with California in 2002 when state officials charged Oracle with over-selling the expected benefits of a $95 million software contract with the state government. That contract was canceled.

"Oracle needs to be sure and retain the people with expertise in those markets," Dominy says. But he added that it's not yet clear that it will know how to do so. Efforts to retain PeopleSoft employees and the company's customer base may have been hurt by Oracle executives' comments about its plans for PeopleSoft in the early days of the takeover attempt, Dominy notes. Now a lot of key personnel inside PeopleSoft may or may not know what the future holds for them. Given that Oracle's efforts to buy out PeopleSoft took 18 months, Dominy says, "you would think Oracle would be ready to flesh out more details of the takeover at this point."

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