Oracle’s management held a “Better Together” launch event to discuss the future of the applications business now that the PeopleSoft acquisition has been completed. The company emphasized (again) its commitment to supporting the PeopleSoft and JD Edwards installed bases through 2013 and laid out a product roadmap that included major upgrades to applications from the two companies. Ventana Research believes management has every intention of making the merger work well. It is clearly in its best interest to offer a world-beating next generation application suite, planned for completion in 2008. We think PeopleSoft and JD Edwards users should proceed with caution in making commitments beyond existing releases in production. Ventana Research advises organizations to monitor the progress of the integration of the two companies over the next year before adopting new releases.
The essence of the message Oracle management delivered to existing customers was essentially: (1) they are supporting all existing users of all of the applications and will meet their stated commitment of long-term support of the PeopleSoft and JD Edwards applications customers; (2) they will continue to support other databases, middleware and other applications required for PeopleSoft and JD Edwards applications; (3) they are working to bring together the combined expertise (particularly in verticals) of the applications developers of both organizations; and (4) the combined organization will have greater critical mass for ongoing support (technical support and applications development). The company laid out a product development roadmap that essentially continued the existing plans of the organizations (e.g., PeopleSoft Enterprise 9.0 will be released in 2006). The combined entity will be working toward a new application built on open standards, which it calls “Project Fusion.”
Oracle restated its commitment to retaining the installed base of those organizations using Peoplesoft and JD Edwards. The event was aimed at getting this message directly to everyone, including customers, consultants, press, and analysts. We think it is clearly in Oracle’s best interest to keep its user base satisfied and paying maintenance in order to reach shareholders’ expectations. We agree with management’s assertion that financially and technically it is not too difficult for Oracle to support all of the active user bases at a high level, at least over the next 2-3 years. This focus on customer satisfaction is critical for presenting Oracle’s next generation applications suite under the “Project Fusion” label.
Oracle executives chided SAP for being proprietary and not supporting industry standards. It is not clear whether this was an intentional misstatement or they were simply not up to date on the details of the applications software industry. SAP has already shipped releases that support .NET, J2EE, and other specific industry standards.
The critical issue confronting organizations using existing PeopleSoft and JD Edwards applications revolves around how well “Project Fusion” will address their future needs. The question is how well a “best of both worlds” intention translates into a product reality that meets their requirements. In our judgment, it is too early to make a definitive call. On the one hand, the combined organizations have a great deal of transactional applications (what they call “process automation”) expertise, and Oracle is working hard to retain developers and other people close to end user/vertical requirements. However, despite Oracle executives’ best intentions and their insistence on how alike the PeopleSoft and Oracle cultures are, their discussion on future product focus was oriented around infrastructure, not applications capabilities or areas of differentiation like BI and performance management. In our opinion, there is a real risk that “Project Fusion” will provide another generation of transaction applications and will not be what many existing PeopleSoft, JD Edwards, and even Oracle users need to advance their organizations.
Since Oracle will no longer be selling new PeopleSoft and JD Edwards licenses to new organizations as stated by Oracle executives, the combined company will almost certainly begin losing market share in 2005 in key enterprise packaged applications categories. (Note, though, a majority of PeopleSoft’s new license business was with existing customers, so the market share loss will be minimal.) We also expect most companies that did not want Oracle applications will continue to not want the product and therefore will purchase software from other vendors. In our judgment, SAP will be the biggest beneficiary overall and Siebel will pick up business in the CRM market that would otherwise have gone to PeopleSoft. Among smaller vendors, we see Epicor, Lawson, QAD, and Mapics also gaining potential incremental business from the result of Oracle acquiring Peoplesoft.
PeopleSoft and JD Edwards customers must remain vigilant over the next several years in order to make informed decisions about product and maintenance commitments. We advise them to keep an eye on key management and execution to delivery dates, and have a good understanding of other organizations’ customer satisfaction in the new Oracle. We believe their users’ groups should be forceful in playing a part in determining the requirements, both now and particularly in “crunch” periods when crucial either/or decisions are being made regarding the next generation applications suite.
Companies that have a heavy commitment to PeopleSoft applications and were in the process of rolling out additional functionality and capabilities should continue with these plans if they can live with the possibility that they will be facing very difficult choices in the 2008-2010 period if they are unhappy with the results of “Project Fusion.” On the other hand, we advise companies that have no compelling business reasons to make significant new commitments to their PeopleSoft/JD Edwards implementations to defer these investments. Companies evaluating Oracle E-Business Suite applications should also consider the reality of a migration in three years to the “Project Fusion” suite.
Robert Kugel is CFA, VP & Research Director - Financial Performance Management at Ventana Research.