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Did PeopleSoft Implode?

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Posted December 14, 2004 By Michael Singer     Feedback

Hindsight being 20/20, critics have begun arguing about what led to PeopleSoft's demise as a solo company.

In the aftermath of the PeopleSoft/Oracle merger, analysts are sifting through PeopleSoft's past for clues that led to its eventual sale.

Nearly 19 months ago, the Pleasanton, Calif.-based company was growing its large-scale contracts while gracefully expanding its Human Resource software business. The No. 2 enterprise application software firm had just purchased the assets of J.D. Edwards and began making moves on market leader SAP .

Now, the company has agreed to sell its business to Oracle for $10.3 billion. While the final price is not chump change, analysts like Enterprise Applications Consulting's Joshua Greenbaum suggest PeopleSoft was not on the road to greatness.

"They had based their future on acquiring J.D. Edwards and entering the manufacturing market, not on product or technological greatness," Greenbaum told internetnews.com. "Their other major initiative at the time, total ownership experience, which promised a better ROI for PeopleSoft customers, looked good in slideware but failed to meet expectations. This was a company that eschewed component architectures and composite applications as marketing concepts that had no validity in the real world."

Greenbaum also said PeopleSoft largely passed on trying to understand and eke out a leadership position in service-oriented architectures .

The other problem cited by analysts was that PeopleSoft was running out of headroom, and by about 2002 and 2003, it became clear that PeopleSoft, like Oracle, needed a larger customer base.

"In order to keep the gears spinning, new license revenue has to be generated in order to keep services and maintenance revenue up," Greenbaum said. "As the top end of the market is already saturated, new license revenue has come from upselling existing customers, something that has a high cost of sales when the existing customers belong to a competitor. So generating enough license revenues means either spending too much money poaching your competitors' customers or having enough customers of your own to upsell to.

"That was part of the reasoning behind the J.D. Edwards acquisition, but, as Oracle later reasoned, J.D. Edwards wasn't enough to keep the gears running. A merger with Oracle actually made a lot of sense under this scenario, however opposed Conway was to the deal for personal reasons."

Some analysts point the finger at former PeopleSoft CEO Craig Conway, who ironically was not even around to see the deal completed.

Conway was fired by PeopleSoft's board of directors a little more than a week after the company's annual partner conference. From the beginning, Conway had been an outspoken critic of Ellison, his former boss, and even admitted to being a publicly combative as a front to protect employees and shareholders. The gamble may have been his undoing, say analysts, since the torch was passed to PeopleSoft Founder and Chairman Dave Duffield to broker a deal with Oracle.

"Some believe Conway should not have rejected the offer on the day it was launched and before the PeopleSoft board of directors had had time to consider it," Melanie Hollands, president of Koala Capital, a hedge fund that focuses on technology stocks, told internetnews.com. "It's interesting as the company also indicated what the revenues would be; it had to because otherwise everyone would have assumed Craig was getting the axe because of a revenue shortfall."

PeopleSoft was dealt another blow in October as Ram Gupta, head of software development, left the company. A company spokesperson did not comment on the departure and declined to say whether the man who helped PeopleSoft broker the IBM licensing deal had resigned or was fired.

Now with the merger wheels in motion, the two companies said they will continue their stated goal of becoming a major powerhouse in the enterprise application software marketplace.

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