Worried Yet?

Consolidation. Litigation. Forced migration. Is this any way to run an industry?
Oracle insists PeopleSoft's customers wouldn't have to change a thing. But other than providing bug fixes and maintenance-level work, Oracle doesn't plan to continue developing PeopleSoft's applications, which means customers would be stuck with an aging platform or forced to choose an alternative. That's what has some of them riled. Connecticut's lawsuit alleges an Oracle takeover would "directly damage" the state and its economy and raise prices by reducing competition and forcing software replacement. In a statement, Gov. John Rowland said an Oracle takeover could cost Connecticut millions of dollars.

Oracle chairman and CEO Larry Ellison responded diplomatically. "We understand that maintaining your satisfaction as a customer is the key to the success of this transaction," Ellison wrote to the governor. But PeopleSoft customers aren't easily assuaged. "Even if Oracle gives its software away for free, there are costs for consulting resources, internal resources, and redevelopment of modifications that companies make to standard ERP applications to make them unique," says Bob Cerny, president of the Distributors and Manufacturers' User Group.

As manager of IT strategy at a manufacturing company, Cerny has more than a theoretical interest in the outcome. His company is midway through a PeopleSoft upgrade scheduled to go live in the fourth quarter. "It's not a good situation to have that potentially crushed," Cerny says.

IT advisers are trying to help clients sort through it all. Tom Pisello, president of consulting firm Alinean, recommends companies keep app tuning to a minimum. "Think long and hard about every bit of customization that you do. You may have to redo it because of this market volatility."

Sound advice, because the industry shakeup will probably continue. Oracle executive VP Charles Phillips says acquisition will remain a growth strategy because it's one of the few ways software companies like Oracle can get businesses to switch. "They get these apps entrenched, and they just kind of stay there," he says. "You need a catalyst to get them to move."

Microsoft acquired two applications companies, Great Plains and Navision, in the past two years. Its low-cost model could put downward pressure on prices. "We expect pricing to continue to be intense," Phillips says. "We can't count on prices to go up. They're more likely to go down."

Another potential outcome: Linux vendors will be forced to pay closer attention to the code they serve up, making Linux a more viable operating system for business environments.

Brent Frei, CEO of Onyx Software Corp., a customer-relationship management vendor with annual sales of about $70 million, sees the bright side. The tug-of-war between Oracle and PeopleSoft has helped his company, because other developers can no longer claim they're more viable simply because they're bigger. "It's taken the veil of security away from them," Frei says.

What may have been a veil of security for those companies was a security blanket for their customers. And some don't like it being yanked away.

-- with Beth Bacheldor, Eileen Colkin Cuneo, and Rick Whiting