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PeopleSoft, IBM in $1B Bundling Venture

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Posted September 21, 2004 By Michael Singer     Feedback

The companies agree to a joint support and development program that puts WebSphere in every PeopleSoft platform.

SAN FRANCISCO -- UPDATED: In its quest to thwart Oracle's $7.7 billion hostile bid and remain a standalone company, PeopleSoft plans to partner with IBM for its middleware support, CEO Craig Conway said today.

During a company-sponsored conference here, the executive stood defiant of his ongoing battle with Oracle and highlighted how Armonk, N.Y.-based IBM fits into PeopleSoft's "Adaptive Business" vision.

"It is like a beautiful piece of music on the radio with static in the background," Conway said in reference to Oracle's hostile takeover plans. "This [deal with IBM] is one of the most significant enterprise applications alliance in history of the two companies."

Under the terms of the deal, Big Blue and PeopleSoft will together spend $1 billion during the next five years in order to bundle WebSphere middleware in every future shipment of PeopleSoft products at no additional charge to PeopleSoft customers.

The non-exclusive agreement also includes the establishment of a joint development and business process interoperability laboratory, which will allow PeopleSoft to standardize its applications on IBM's infrastructure. This will include core components of WebSphere Portal, WebSphere Business Integration, WebSphere Application Server and WebSphere Studio Application Developer. IBM signed a similar agreement with JD Edwards before PeopleSoft acquired it.

The two companies have done some initial work in this area under the guise of Linux, but the long-term goal of the 70-plus-page letter of intent is to extend the relationship with advanced WebSphere products being made available from PeopleSoft.

"We're already working with doing a more modular type of architecture," Steve Mills, IBM senior vice president said during a press Q&A later. "It is not just a statement of people doing some tire kicking. There is a broad discussion in the business about how to make software applications more flexible. The good news is that we have the building blocks in place today. The challenge is to make it a smoother process."

Mills said the laboratory is a combination of existing centers in PeopleSoft's hometown of Pleasanton, California and various IBM offices. IBM employees are expected to be co-located to PeopleSoft headquarters to begin the process. The companies will help customers and partners adjust to the open standards-based Web services and service oriented architectures that both companies are adopting.

Best known for its HR and CRM products, PeopleSoft said it is looking to branch out with products formatted for what Conway calls an "Adaptive Business" model. The vision is in the third phase of development, of which the acquisition of JD Edwards was key. The CEO said every PeopleSoft application must be Web-enabled and take on a service oriented application approach. That kind of infrastructure needed a strong middleware layer -- hence the partnership with IBM.

Conway said the joint IBM/PeopleSoft products would be specifically marketed to three key sectors: telecom, financial services and insurance.

"We needed a strong middleware infrastructure partner, and I can't think of any better partner that has a middleware portfolio that is as strong as tungsten steel as IBM," Conway said. "Both companies are experts at what we do and we have eclipsed the competition."

IBM said it also intends to move PeopleSoft toward its Eclipse.org tools environment, which along with WebSphere focuses on standards like J2EE and XML. And while PeopleSoft is very pleased with the IBM partnership, Conway did not discount his company's other partners like HP and Sun.

"HP is one of our closest partners and a close customer but they do not have a middleware layer," Conway said. "Sun has a middleware layer and Microsoft has .NET and we will continue to support customers that are running either."

While the benefits for PeopleSoft are clear, analysts suggest it is unlikely that the alliance represents a significant revenue opportunity for IBM.

"Essentially, the announcement reveals PeopleSoft's strategy in the integration market -- and how it plans to compete with SAP's NetWeaver offering and Oracle's stack of integration technologies," Yankee Group analyst Mike Dominy told internetnews.com.

"A more significant announcement would have IBM becoming a bigger sales channel for PeopleSoft. For example, announcing that IBM was planning to make PeopleSoft its partner of choice in the mid-market and that IBM would bring PeopleSoft into IBM's impressive global mid-market customer base."

James Governor, a principal analyst at IT research firm RedMonk, told internetnews.com his take is that the IBM-PeopleSoft partnership was always going to play out exactly this way and that the Oracle case took PeopleSoft's eye off the IBM Partnership ball.

"We can safely assume that PeopleSoft is going to do everything in its power to encourage customers off the Oracle database," Governor said. "We can also assume IBM and PeopleSoft are now working together to establish financial instruments and poison pills to stop Oracle if they can -- there will be something contractual coming up -- thus [the statement in the release ] 'The companies intend to execute a definitive agreement governing the alliance in Q4 2004.' is a statement which looks for shorthand to say there is far more to this than a 'partnership'"

For now IBM will use PeopleSoft as a semi-permeable membrane allowing Big Blue to make application functionality sales to end users without raising the hackles of its other IT application partners. IBM has said it has no plans to enter the application marketplace, but that is just a definition -- the kind Governor said that might fool the Department of Justice but not Oracle or SAP.

"The fact is IBM was always going to deliver business process components within a middleware framework - kind of like a negative image of SAP, which is moving from monolithic apps that don't talk to one another, let alone other apps, to an integration centric vision called NetWeaver."

Fighting for its Life

The partnership comes in the midst of one of PeopleSoft's most tumultuous times. The company has acquired JD Edwards but has been fending off Oracle's hostile takeover bid for the past 15 months.

While IBM had historically expressed an interest in acquiring PeopleSoft and could still jump in as a higher bidder against Oracle's current $7.7 billion tender offer, Conway and Mills said neither company has an "ulterior motive" beyond serving their customers.

"Have you ever had a bad dream that wouldn't go away?" Conway lamented, referring to Oracle. "But [U.S. District Court Chief Judge Vaughn Walker's] decision means that this saga is going on. Most importantly it means that PeopleSoft will not be acquired by Oracle."

Conway pointed to a possible appeal by the Department of Justice, a pending investigation by the European Commission, PeopleSoft's shareholder's rights plan (the so-called "poison pill") and PeopleSoft's own $1 billion legal defense of the hostile takeover, which has now been delayed until January 10, 2005, as significant hurdles to a takeover.

A spokesperson for Oracle declined to comment on the IBM-PeopleSoft partnership. Oracle's takeover offer expires at the end of the month.

PeopleSoft said it is celebrating its largest conference audience ever with more than 1,500 customers and 900 business partners in attendance at its conference.

And while celebrating PeopleSoft's accomplishments with JD Edwards, Conway also pointed out some of the other difficulties in getting to where it is now. "We had some good intentions not well executed including having so many enhancements and product upgrade releases that customers were confused about which version to go with."

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