CW-05-01-Opinion-Rocky road for PeopleSoft, Oracle union

It was simply a matter of time.

That Oracle and PeopleSoft in December finally consummated a US$10.3 billion shotgun wedding comes as no surprise to those who have followed this long-running IT soap opera.

Oracle has been an aggressive suitor to a most reluctant PeopleSoft and this sort of ambivalence is certainly no way to start a relationship — especially one that, given the price tag, will invariably determine the future survival of both companies.

Oracle paid a large dowry to further build its applications business, an area which the company reports grew by 57 per cent in its most recent quarter. But how much new application business can a US$10.3 billion investment in PeopleSoft actually buy?

Oracle is betting plenty, but history has shown that just because you acquire a company doesn’t mean you likewise garner its customers. Even PeopleSoft learned that hard lesson. In merging with rival J.D. Edwards in 2003, the fallout of that deal was a reportedly high number of defections among some former J.D. Edwards customers — specifically the AS/400 user base that was inclined to consider other options.

In July, 2004, PeopleSoft CEO Craig Conway reported that the threat of an Oracle takeover was the catalyst that compelled many customers to consider an alternative. Success in acquisition more often occurs when a buyer looks to bring on board key members of that organization and/or to obtain key augmenting technology that might be considered core to future growth. In fact, those who have had long histories of acquisition success — Cisco Systems Inc., for example — typically acquire to obtain talent and seek to ensure individuals from those companies acquired are prepared to stay on board — prior to making the deal.

It may be folly to think that PeopleSoft customers who are now under the fold of Oracle will not consider other options. History also suggests that deals of this magnitude often don’t work or, at the very least, take a long time to jell. Then there’s the question of product support as the new Oracle/PeopleSoft goes forward. On Dec. 9, Network World U.S. reported Oracle CEO Larry Ellison saying that after PeopleSoft 9, Oracle would take both products’ development teams and build a functionally merged product.

It contradicted an earlier statement by Oracle president Charles Phillips who said Oracle would never merge the PeopleSoft and Oracle code bases. They’ll have to get this story straight if PeopleSoft customers are to remain. LIke deals of this magnitude, it will take a lot of time to sort out cultures, strategies and future direction.

A relationship forged by a hostile takeover needs care to see it through.