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6/21/2003
01:05 AM
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Worried Yet?

Consolidation. Litigation. Forced migration. Is this any way to run an industry?



Let's see if we've got this right: SCO Group revoked IBM's Unix license and upped the damages it's seeking from IBM in an intellectual-property lawsuit to $3 billion. PeopleSoft Inc. enhanced the financial terms of its proposed $1.8 billion acquisition of J.D. Edwards & Co. to avoid Oracle's hostile takeover attempt. Oracle sweetened its offer for PeopleSoft to $6.3 billion and countersued PeopleSoft and J.D. Edwards. And the state of Connecticut, a PeopleSoft customer working on a $100 million project, filed an antitrust suit against Oracle, claiming a takeover would have dire consequences. All of which happened within 72 hours of sitting down at your desk last Monday morning.

So much for the software industry's doldrums. With Unix proprietor SCO Group ratcheting up its intellectual-property battle against Linux distributors, and Oracle's aggressive play for PeopleSoft, the job of choosing the right technology platform just got a lot harder. "We've talked to our legal counsel already," says Scott Hicar, CIO of disk-drive manufacturer Maxtor Corp., regarding the company's use of Linux in some parts of its business. "And we'll probably do [that] on a fairly regular basis."

If you're not worried yet, consider this: There's no end in sight to SCO Group's pursuit of licensing fees for Unix code it claims has been misappropriated. Customers of IBM's AIX operating system have likewise been put on notice. If Oracle has its way, PeopleSoft's apps will be put into "maintenance mode." And if PeopleSoft is no longer a safe bet, what about Siebel Systems Inc. or dozens of smaller software companies?

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All of this comes just when many business-technology professionals were beginning to feel better about the overall business climate. Attitudes on the economic outlook jumped in InformationWeek Research's just-completed IT Confidence Index (see story, "Confidence In Economy Rises, Now What About I.T.?"). Uncertainty about the software industry could cause some companies to hold back on IT spending, even when the macro picture is brightening.

Case in point: Nielsen Media Research, which collects and analyzes TV viewership data, was already cautious about implementing Linux. The current legal scrap adds to that hesitation. "That's one of the reasons we've taken a more reserved approach," says Kamal Nasser, VP of IT strategy.

But it's not all bad. Some insiders predict software prices actually will come down in the long run. And certain vendors recognize an opportunity when they see one. "I got a voice mail from SAP," says Joseph Vossen, VP of information services at Smead Manufacturing Co., a PeopleSoft user. "They say they're offering a really good deal to bail out of PeopleSoft." For its part, PeopleSoft last week initiated an exchange offer for shares of J.D. Edwards, and PeopleSoft's board recommended shareholders reject Oracle's $6.3 billion deal.


Tracy Wundrock -- Photo by Bruce Fritz

Not just the vendors' business is affected, but users', too, says Wundrock, IS director at Electronic Theatre Controls.
Still, uncertainty is causing tech buyers to sweat. "I'm nervous about the Oracle acquisition," says Tracy Wundrock, director of IS with Electronic Theatre Controls, which manages lighting for events and uses version 8.8 of PeopleSoft's apps. "The biggest problem would be migration. It's not [just] a matter of PeopleSoft's business or Oracle's business, but every single customer's business. This impacts our bottom line, too."

Smead's Vossen estimates it would cost his company close to $25 million, and about 18 months of work by 70 internal IT employees, to swap out its just-completed PeopleSoft 8 implementation. "There would be direct costs from the standpoint of licensing, costs to switch our technology from SQL Server to an Oracle database, and it would take a massive amount of effort to switch, with no productive value for the company," he says.

Photo of Tracy Wundrock by Bruce Fritz

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

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