Oracle rides the second wave


1 Jul 2003

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The big question hanging over London’s ExCel exhibition centre at the start of last week was never asked because it was banned. Oracle’s communications director had given a somewhat terse message to the press corps attending the firm’s annual AppsWorld showcase: don’t mention the takeover. A few hours later, when CEO Larry Ellison finished his keynote speech and took questions, the game was up and the hottest IT story of the summer so far — Oracle’s hostile bid for PeopleSoft — was suddenly on the agenda.

In the event that the takeover happened, Ellison refuted suggestions that Oracle would kill the product, pledged to support existing customers for up to ten years while making it clear that Oracle wouldn’t actively promote it into the future. He also gave the first sign that Oracle would be prepared to increase its offer to shareholders, effectively making sure that this story was going to run and run.

Next day, it was the turn of Chuck Phillips, executive vice president from Ellison’s office to fill in the gaps. Until recently Phillips had been a top analyst at Morgan Stanley and he left us with no doubt that he was hired by Oracle as chief scout on the acquisition trail. The PeopleSoft bid, it seems, is part of a fundamental switch in Oracle strategy. In the past the company has pursued market share through the merit of its own innovation and software architecture rather than merger and acquisition. Now it’s all change.

“The industry has become more mature, growth has slowed and there needs to be some rationalisation,” said Phillips, referring specifically to the ERP (enterprise resource planning) segment. “Investors think it’s overdue; prices have come down and the natural thing that has happened in other industries is consolidation. And if the industry is going to consolidate, we’d rather drive it.”

It was not a move taken lightly according to Phillips: “PeopleSoft had been monitored for some time. It is an attractive company with good qualities and good engineers.” Oracle finally made its bid when PeopleSoft announced its proposed acquisition of JD Edwards. “We had to move before it closed the deal. SAP has a substantial lead in the market and we need to close the gap and get there much more quickly,” explained Phillips.

The complex power struggle that followed has seen Oracle increase its share offer while JD Edwards set about suing Oracle, claiming that it has illegally interfered in its proposed merger with PeopleSoft. In turn, PeopleSoft’s CEO, Craig Conway, rejected Oracle’s offer, claiming it was “a transparent attempt to disrupt the acquisition of JD Edwards by PeopleSoft”.

PeopleSoft has also claimed the proposed buyout is anti-competitive and contravenes US antitrust laws. “We think there are plenty of competitors out there,” argued Phillips. “SAP is still gaining over us and PeopleSoft. Even if you combined the companies, there would still be a significant gap. And Microsoft is increasingly coming into the space.” He went on to make the converse argument: “It increases rather than decreases competitiveness. It gives SAP a run for their money!”

The takeover saga may have been the headline-grabbing example of a shift in Oracle thinking but there were plenty of others. At the previous AppsWorld, Oracle had announced its commitment to Linux, the open source platform that is growing in favour as a cost-effective and increasingly efficient foundation for business processes. This year it launched new software tools to enable organisations that use its E-Business Suite to migrate over to Linux. Sergio Giacolletto, executive vice president, Europe, Middle East and Africa, was quick to stress that Oracle also supported Windows, Unix and mainframe, but there was no escaping the sub-plot in the Linux strategy. Oracle and Microsoft are fierce rivals and it was no coincidence that Ellison and his team highlighted total cost of ownership as the biggest selling point for Linux — exactly the line of argument that Microsoft uses to drive its platform.

More familiar mantras to be heard echoing around the vast halls of ExCel were the ones about its E-Business Suite consolidating business processes on top of a single database. Oracle could also be seen to be dancing to the tune of current technology trends such as outsourcing – “cheaper and more convenient” — and a renewed interest in the medium sized enterprise customer. “Business transformations were very expensive from a technology point of view,” said Giacolletto, “but we can now make the kind of applications that someone like Dell runs on, available to mid-sized companies.”

There was also much rubbing of hands over selling software to the public sector. “Every citizen will be connected to their company and their government,” said Giacolletto clearly hoping that some of them somewhere will be using Oracle systems in the process.

The overriding pitch is that a ‘second wave’ of technology was looming up in front of us, one that has gone beyond the early adopter market and is increasingly available to smaller companies and the public sector. We can only hope that it doesn’t leave as many people washed up and drowned as the first wave.

By Ian Campbell