Oracle vs. PeopleSoft: Shakeup in CRM

SUMMARY

Introduction

This brief will analyze the implications for the CRM industry of a potential PeopleSoft acquisition by Oracle, as well that of J.D. Edwards by PeopleSoft. The benefits and drawbacks of both deals will be outlined from the standpoint of the firms in question, as well as the end-customer.

Scope

• This brief covers the recent bidding war between PeopleSoft, J.D. Edwards, and Oracle from a CRM perspective.
• The acquisition will have implications on the entire CRM market, which will not necessarily encourage short term growth.
• Datamonitor considers the customer perspective, in terms of CRM investment, amid the current competitive uncertainties in the market.

Report Highlights

PeopleSoft's acquisition of J.D. Edwards would enhance both firms' CRM capabilities, and provide PeopleSoft with an entry into the lucrative mid-market.

Oracle's hostile bid places existing PeopleSoft CRM products at risk, and provides Oracle with little opportunity of breaking out of the high-end applications market.

The current volatility related to the Oracle/PeopleSoft/J.D. Edwards proposals will fuel the possibility of further market consolidation, or potentially stifle it at the high-end, with the possibility of slowing the entire CRM marketplace.

Reasons to Purchase

• Learn about the motivational dynamics behind Oracle's recent bid for PeopleSoft.
• Understand how J.D. Edwards and PeopleSoft products and strategies will complement each other over the long term.
• Position yourself for further growth in a volatile market with an uncertain future.

TABLE OF CONTENTS

4 KEY ISSUES FACING ORACLE VS. PEOPLESOFT

• PeopleSoft's acquisition of J.D. Edwards would enhance its own CRM capabilities, and help its expansion into the lucrative mid-market.
• Oracle's hostile bid for PeopleSoft potentially places existing PeopleSoft products at risk.
• The present environment within applications makes industry consolidation a very real possibility.
• CRM investment is less likely, as customers will be apprehensive of the long-term viability of any recently acquired applications.

BACKGROUND

Ongoing saga between industry players and personalities

In June 2002, PeopleSoft and Oracle discussed merging, but could not concur on a structure. Subsequently, PeopleSoft and J.D. Edwards began talks in late 2002, culminating in an offer to acquire J.D Edwards in early June 2003. Days later, in a dramatic move, Oracle CEO and Chairman, Larry Ellison, announced his firm's bid to purchase PeopleSoft for $5.1bn, an offer that was seen immediately as hostile. In an effort to circumvent Ellison, PeopleSoft and J.D. Edwards both filed lawsuits against Oracle, while Ellison upped his tender $6.3bn. This was in the face of an announcement by the State of Connecticut that it intended to pursue an anti-trust injunction against Oracle's bid. The US Justice Department also announced its decisions to investigate Oracle's tender for PeopleSoft. At the time of writing, the war of words between these competing firms looks long from over.

FINANCIAL OVERVIEW

Topline analysis

• Oracle's bid for PeopleSoft may be undervalued, based on PeopleSoft's share performance, and revenue picture, which could prolong its bidding war.
• While J.D. Edwards has a sound cash position, and has posted decent share performance, its revenues have been erratic, as have profit margins.

MARKET STRATEGY

Consolidation within the applications industry

• Oracle's strategy seeks to enlarge its own applications customer base and product development expertise, within the large-scale enterprise customer segment, in face of potential threats from other software providers.
• PeopleSoft's rationale would see them acquire J.D. Edwards, providing an entry into the lucrative mid-market segment, in addition to late-adopters of CRM technology, within an increasingly competitive applications sector.

MARKET IMPACT

Major players repositioning in CRM

• While SAP will position itself as the safe option for CRM customers, Siebel is likely to attempt the same, while risking being acquired by Oracle, should its bid for PeopleSoft fail. Smaller industry players are likely to fold or be bought, while Microsoft is not seen as a major threat to large players in the medium term.
• CRM prices may fall in the short term, as vendors seek to capture customers amid the present volatility, but could rise should competitors start disappearing.

CUSTOMER IMPACT

Customers will be better off with PeopleSoft / J.D. Edwards hybrid

• Oracle has pledged that PeopleSoft applications would be supported for 10 years, and existing customers would have access to additional licenses. However, customers would be faced with a reduction in competition, as well as the melding of two firms with incongruent product and market structures, leading to concern over the long-term viability of PeopleSoft products.
• PeopleSoft and J.D. Edwards both wish to work with each other, and neither's products would be placed at risk by their proposed merger. However, customers of both should be aware of the dangers of a combined entity being acquired by Oracle sometime in the future, as well as a possible reduction in CRM competition.

APPENDIX

• Selected financial and partnership data

DATASETS

• Figure 1: PeopleSoft Share Performance - 12 Months
• Figure 2: J.D. Edwards Share Performance - 12 Months
• Figure 3: 2002 Revenues - J.D. Edwards, Oracle, PeopleSoft: 2002 ($000s)
• Table 1: Strategic Partnerships for J.D. Edwards, Oracle, PeopleSoft
• Table 2: Total Revenues for J.D. Edwards, Oracle, PeopleSoft: 2000 - 2002 ($000s)