PeopleSoft’s Brilliant Move

PeopleSoft made a brilliant move this week when they announced their strategic alliance with IBM. PeopleSoft is obviously under attack from Oracle. IBM has simultaneously been positioning themselves as the ultimate middleware player via their WebSphere products.

IBM’s software strategy is to be complementary to enterprise application software providers rather than competitive to them. I got an email from IBM’s VC group about the PeopleSoft deal that said “Importantly, today’s announcement remains consistent with the software strategy you have become accustomed to when working with IBM and exemplifies the type of relationship we strive to achieve with our business partners. We remain firmly committed to building best-in-class middleware and leading the industry in platform innovation. Because of our focus on building middleware in an open standards environment, we continue to build relationships with a broad range of partners in the industry. We will continue to openly seek new ways to collaborate with you to develop an ecosystem that delivers profitable returns for IBM and all of our business partners, as well as maximum return to clients for their IT investments. “

With one move, PeopleSoft says another “fuck you” to Oracle, IBM deeply reinforces their position in the enterprise application ecosystem, and the two companies stir up the enterprise application consolidation pot a little more.

I watch this carefully because we have a number of enterprise application investments. One of my infrastructure software companies – Newmerix – provides software to help optimize packaged application change and quality – PeopleSoft is their key partner and they just announced a deeper relationship with them. Our view is that the chaos and uncertainty in the enterprise app market – while bad for customers – is good for infrastructure software companies like Newmerix and – as the ultimately consolidation plays out – good for our companies that can get in the mix before the music stops.

One of my friends and co-board members (an entrepreneur that knows the big players in the enterprise app market well) dropped me a note post PeopleSoft / IBM announcement that said “I think this is a precursor to an acquisition announcement – IBM+PSFT. Then the real consolidation begins – Oracle + Siebel, MSFT + SAP.” Oracle, PeopleSoft, IBM, Microsoft, SAP, and Siebel certainly have an interesting chess game going.

  • there is another constellation that we may need to take into account – lot of portal, EAI, Datawarehousing players and ofcourse BEA – the way these companies get aligned would have significant influence in the emerging enterpise landscape.

  • I truly doubt that IBM would make a move for PSFT. IBM did something very similar with Peregrine Systems during their turmoil with the SEC for misstating earnings. Althougth the core circumstances differ greatly(PSFT vs PRGN.PK), this just seems to be a stragety for IBM to push webshpere and gain additional customers for IBM Global Services in one move.

  • Jeff Nolan

    I have mixed feelings on this, given my obvious bias.

    However, I will say that IBM would do well to proceed very cautiously with regard to any consideration of acquiring PSFT given that they derive a huge amount of revenues from their SAP relationship, which for all practical purposes would evaporate the minute they announced such an acquisition. The MSFT-SAP combo was briefly explored but the regulatory hurdles to make such a deal happen are simply enormous and it’s not likely that the companies would combine well. I would be surprised if Oracle didn’t acquire Siebel, it’s a good fit from many perspectives and Oracle needs the CRM apps bad.

    Finally, with regard to SAP there is very little that can be gained by merging at this point. We’re already taking a big % of business away from the other players, the tea leaves favor us staying right where we are while the other companies flail around… we really do look like the adults in the industry. It’s really hard to make the case that an ORCL/PSFT combo would be competitive to SAP simply because we already beat both of those vendors even when they are discounting up to 90%, in essence giving away their products for the maintenance and services revenue. Oracle needs PSFT, but only because it stems their slide from #2 to #3 in the market, it doesn’t help them beat SAP.

    Feld’s Comments: Good comments Jeff – thx. I continue to be amazed (in a good way) at how SAP just outplays, outmaneuvers, and outperforms Oracle and PeopleSoft. It’s been SAP’s to lose a few times and each time they’ve come out even stronger. You’re affiliated with a great company.

  • Dave Jilk

    What’s your take on this now that Conway was fired?

    Feld Comment: I think the IBM relationship is more important than ever to PeopleSoft and likely unaffected by Conway’s departure. It’s such a large partnership that it had to have had major visibility at the board level. In addition, the NY Times has a good article on this today that asserts there is a special board committee for all Oracle M&A discussion and that Conway, Duffield, and Bhusri are not on it (therefore asserting that all comments that Conway made about the deal are board directed.) There’s also a subtext that the two major factors that caused Conway to get the boot were (a) failure of the JD Edwards acquisition and (b) lack of clear long term technology strategy (which the IBM relationship enhances / helps impact in a positive way.)

  • Courtney Gidts

    I’ve managed to save up roughly $46160 in my bank account, but I’m not sure if I should buy a house or not. Do you think the market is stable or do you think that home prices will decrease by a lot?

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