PeopleSoft's Challenge: Keep Customers

PeopleSoft Inc.'s acquisition of J.D. Edwards & Co. was easy compared with the challenges the business-applications vendor faces in holding on to the customers it inherited, a market-research firm said Monday.

More than two-thirds of former J.D. Edwards customers surveyed by IDC said they don't plan to buy significantly more PeopleSoft applications in the next six months compared with when they were J.D. Edwards customers. PeopleSoft bought J.D. Edwards last year for more than $1.7 billion.

The findings suggest that in order to win the hearts of new customers, PeopleSoft will need to prove a dramatic return on investment in upgrading to new products from the combined company. Success is critical to PeopleSoft's long-term financial condition, considering that 6,500 of its 11,000 customers are former J.D. Edwards users, IDC analyst Albert Pang said.

"It remains to be seen just how much added value and revenue streams PeopleSoft can secure out of these people," Pang said. "It may be a wild success for PeopleSoft, or it could really be just a mediocre type of performer over the next few years."

While bringing new technology and customers to PeopleSoft, the acquisition has also brought the problems associated with J.D. Edwards products. For example, the company's advanced planning and scheduling applications for manufacturing weren't performing as well as promised, and customers, in general, believed J.D. Edwards software needed to be easier to use, Pang said.

Integration of the many new products with former J.D. Edwards applications is also a major priority among PeopleSoft's newly acquired customers, IDC said. Companies, for example, want their J.D. Edwards financial applications to remain in synch with any new applications deployed from PeopleSoft.

Many J.D. Edwards customers were using only portions of the company's overall suite of products, so easy integration will be very important for PeopleSoft to convince customers to buy more software, a process expected to take from 12 months to 18 months, IDC said.

PeopleSoft "has actually taken on a lot more customers than they were previously managing as an independent entity," Pang said. "They have a much more diverse population out there with many, many layers of technology and support requirements, so it's going to be a huge undertaking for them to make this work."

However, PeopleSoft is starting with a large amount of goodwill. Since the acquisition was first announced, more than 80% of former J.D. Edwards customers either have a more favorable view of PeopleSoft as a software vendor to do business with, or haven't changed their perception of the vendor, the IDC survey found. Only 9% of the respondents said they had a less favorable view of PeopleSoft.

Still pending is Oracle's hostile bid for PeopleSoft. Oracle is offering $19.50 a share for PeopleSoft, which would cost it $7.5 billion. But that price is more than $4 a share below PeopleSoft's Monday closing price of $23.77. Oracle is awaiting a decision from federal regulators on whether the proposed merger would violate antitrust laws.