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Niche Players Swoop In as Oracle Tends to PeopleSoft

January 5, 2005

This past fall, thousands of PeopleSoft Inc. customers saw the tongue-in-cheek message, made loud and clear on a 39-by-25-foot banner outside the San Francisco conference center where they had gathered for the software maker’s annual user conference: There’s nothing hostile about letting Lawson take over.

    And just in case the PeopleSoft customers missed it there, 100 to 200 taxicabs also carried the message as they circulated the city.

    In the midst of the 18-month-long takeover battle between Oracle Corp. and PeopleSoft Inc., Minnesota-based Lawson Software made the most of that rare opportunity. Lawson’s campaign came as the top two U.S. business software makers were distracted, noisily duking it out in court, in the media and before shareholders. And as they flailed away at each other, some of their customers started shopping around for new software.

    Now, as Oracle starts the difficult process of integrating PeopleSoft--which it finally won on Dec. 13 at a price of $10.3 billion, or $26.50 a share--that opening has widened, albeit temporarily.

    Germany-based SAP, the world’s largest business software developer, has been labeled the clear and obvious beneficiary, gaining market share in the United States, presumably at the expense of Oracle and PeopleSoft. But SAP is not the only one. Smaller business software makers, including those focused on human resources, have jumped at the chance to get their foot in the door with customers, in some cases even succeeding in winning business away.

    "Whenever you have that kind of disruption, it’s always an opportunity for other people," says Craig Symons, principal analyst with Forrester Research.

    But the opportunity is a short-term one, Symons cautions. Though there will be some chaos, Oracle will wrest back control as quickly as possible. With PeopleSoft’s power behind it, the Redwood Shores, California, high-tech giant will be stronger and more formidable than ever, Symons says.

    In the meantime, the smaller competitors are wasting no time in trying to slice off a larger piece of the business-software pie.

    "In the past several years, we’ve been competing with them more and more heavily and displacing them," says Christopher Faust, vice president of global strategy at Softscape in Wayland, Massachusetts. "In the past 12 months, that’s gotten easier."

    PeopleSoft and Oracle waged a fierce campaign to win the support of customers, but many were confused by their dueling messages. Early on, PeopleSoft customers came out in droves to support the company, worried that their investments could be wasted and that they would be forced to replace their PeopleSoft systems with Oracle software.

    Oracle fought back, accusing PeopleSoft of stirring up fear and uncertainty among its own customers. It then promised to maintain

    PeopleSoft’s products, with enhancements, for at least 10 years. It even plans to keep people on site at PeopleSoft’s Pleasanton, California, headquarters to develop and support a PeopleSoft 9 and a J.D. Edwards 6, part of PeopleSoft’s acquisition last year.

    All of this back and forth in the past year and a half wounded PeopleSoft and Oracle, leaving them unable to meet all the needs of their customers, Faust says. "It’s going to be a long time before they shake off that one," he says.

    PeopleSoft managed to circle the wagons and keep most of its customers from leaving during the battle. But even its loyal constituents started roving as the takeover became more and more likely. "Even those existing customers are going to say, ‘Wait a minute. This isn’t to my benefit,’ " Faust says. "Make no mistake. People are thinking about (switching)."

Ready to jump ship?
    A study by AMR Research predicts that not all of PeopleSoft’s customers will meekly transition to Oracle. That’s something competitors are counting on.

    "Many PeopleSoft customers that we talk to have no intention of moving to Oracle," says Bill Copeland, marketing and communications manager for NuView Systems Inc. "That sentiment is good for NuView."

    In fact, Copeland adds, his company converted three customers from PeopleSoft to NuView late last year.

    The Wilmington, Massachusetts, software firm saw "a lot more interest" at trade shows from companies looking for alternative products as they tried to hedge their bets and entertain different options, Copeland says. "I predict a lot of nervous people and turmoil ahead."


"Many PeopleSoft customers that
we talk to have no intention of
moving to Oracle. That sentiment
is good for NuView."


    Lawson saw a lot of customers delay decisions as the takeover fight waged on. Now it’s hoping that they will be able to make a decision--for Lawson.

    Already, Lawson has benefited from the battle. In 2004, it was singled out when Oracle sought to demonstrate that its hostile takeover bid did not pose antitrust problems and should not be blocked by the government. Oracle repeatedly held up Lawson as one of its main competitors apart from PeopleSoft and SAP.

    A federal judge agreed, ruling in Oracle’s favor and lambasting the Justice Department for "Lawson amnesia" because it did not acknowledge Lawson as a competitor.

    Lawson took full advantage. A week after the judge’s decision, Lawson spent about $100,000 to place the taxicab and banner advertisements at PeopleSoft’s annual customer conference.

    "I think it’s clear to us we need to get more awareness of Lawson," says Angie Franks, vice president of market development for Lawson. "I would say with the distraction of Oracle and PeopleSoft, it does open a window for us to do so."

    In June, Lawson launched an aggressive new strategy, called its "Manifesto for Change in Business Application Software," to make the company as competitive as possible. Franks says that the company did not initiate the plan because of the Oracle-PeopleSoft takeover battle, but it is clear that the company will reap the rewards if it can prove to customers that it offers a better deal than PeopleSoft, Oracle and SAP, the three largest business software players.

    Lawson’s manifesto stemmed from research it did on the market. It found that most business software customers were unhappy with their experiences, Franks says. "Our vision is to break away from this standard and provide a very different experience," she says.

    The plan was billed as a 1,000-day transformation, and Lawson announced the results of its first 100 days in November. It restructured the company to make it more centralized, boosted its consulting services, developed a product road map--with a focus on its core human resources, financial and procurement software--and refined its 12-month product schedule. For the next 100 days, which end in March, it will start implementing its product road map and kicking off targeted marketing campaigns.

    The takeover battle "has strengthened our resolve to continue on this path," Franks says.

Oracle gets proactive
    Oracle hasn’t sat back. To make the merger profitable and valuable to the company, it must retain as many PeopleSoft customers as possible, and it has clearly made that its top priority. It formed an advisory council to reach out to PeopleSoft customers and will seek input as it develops a new product that will combine the features of PeopleSoft, Oracle and J.D. Edwards.

    In a memo to PeopleSoft employees, it outlined its goals, such as its commitment to "100 percent customer retention and satisfaction" and to put "together under one roof the best and brightest talent in the enterprise software industry," thereby better serving customers.

    What has come out of the takeover feud is that the business software market, particularly in the human resources business, has reached a level of maturity. Oracle CEO Larry Ellison is banking on this and the subsequent need for consolidation as the reason to acquire PeopleSoft. Most of the world’s largest businesses are already using human resources management systems, with the large business software vendors now vying for small and midsize business customers.

    This is both good and bad news for the smaller human resources software companies. The industry’s growth is in the strategic part of human resources, as customers add on the so-called "talent management suite," such as recruitment, performance management, succession planning and compensation, says Jim Holincheck, research director at Gartner Inc.

    Both PeopleSoft and Oracle offer such features, but so do the smaller human resources software firms, such as Softscape, and the takeover battle has lowered the barriers for them to step in. "I think there’s room for the other vendors to be successful in the market," Holincheck says.

    At the same time, many of the smaller companies will eventually be swallowed by others. "There’s a big race to see who’s going to be the next $100 million-revenue human resources vendor out there," he says.

    It’s difficult to predict if any of the companies will emerge in the coming years as the future PeopleSoft, whose origins are in human resources software. But Oracle’s hostile takeover bid has opened the field for those who want to rise to that level.

    "Whoever breaks that $100 million barrier will be considered among the elite," Holincheck says. Everybody is "vying to be in that group."

Workforce Management, January 2005, pp. 58-59 -- Subscribe Now!