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  • Thursday, December 30, 2004

    Oracle takes control of PeopleSoft

    Oracle announced yesterday that PeopleSoft shareholders have tendered about 75% of outstanding shares and that Oracle has designated four new PeopleSoft board members to replace four that have resigned.

    Oracle takes control of PeopleSoftThis gives Oracle effective control of PeopleSoft.

    Oracle has issued a press release with more details. But I think the visual impact of the tweaked PeopleSoft web site says it all.

    Update, Dec. 31. Looks like Oracle can't wait to get started. According to an SEC filing by Oracle, four PeopleSoft executives are out the door: co-president and CFO Kevin Parker, co-president Phillip Wilmington, chief marketing officer Nanci Caldwell, and general counsel James Shaughnessy. Taking their places are four executives from Oracle: Safra Catz and Charles Phillips as co-presidents, Harry You as CFO, and Daniel Cooperman as general counsel.

    Related posts
    PeopleSoft CEO Duffield resigns

    Wednesday, December 29, 2004

    Hugh Hewitt's new book on blogs

    Hugh Hewitt has written a new book, Blog, and I ordered a copy earlier this week. Hugh lately has been promoting the concept of "open source journalism," by which he refers to informal networks of weblogs that provide an independent alternative and counterweight to the mainstream media.

    Although many people think of blogs mainly as forums for political commentary, blogs also have significant implications for the business world. I wrote earlier this month that, just as open source journalism is becoming an alternative to the mainstream media, so also "open source research" is becoming an alternative to the paid research firms such as Gartner Group and Forrester. Of course, the research firms have a different view: see the related posts below.

    I may have more to say on the subject after I read the book. In the meantime, you can order a copy direct from Amazon. Or, read Glenn Reynold's (Instapundit) review of the book.

    Related posts
    Research firms face threat of "open source research"
    Death of IT research firms greatly exaggerated

    Tuesday, December 28, 2004

    PeopleSoft CEO Duffield resigns

    PeopleSoft today made known, via an SEC filing, that founder and CEO David Duffield resigned his position last Tuesday, Dec. 21. The move was expected, since Oracle had already indicated that none of PeopleSoft's board members would have a role in the company once the Oracle's acquisition of PeopleSoft was complete in early January.

    There does not appear to be a press release on Duffield's resignation, but here's a short Reuters report.

    Related posts
    Oracle, IBM, Microsoft battle for technology infrastructure of PeopleSoft customers
    IBM is a loser in Oracle/PeopleSoft deal
    Oracle reaches out to JDE user group
    Oracle: no plan to spin off JDE product lines
    Ellison outlines direction for PeopleSoft and JDE product lines
    PeopleSoft's final gift to customers
    Oracle/PeopleSoft: deal is done

    Monday, December 27, 2004

    Gartner buying Meta Group

    As further evidence of a consolidation trend in the IT research industry, Gartner today announced that it is buying competitor Meta Group. The offer price of $10 per share values Meta at about $162M and is more than 54% above Meta's closing stock price last Thursday. In 2003, Meta had $122M while Gartner had $858M.

    In my opinion, part of the reason for the consolidation trend is the increasing quantity and quality of analysis available through what I call "open source research." Read the related posts below for more details.

    Related posts
    Research firms face threat of "open source research"
    Death of IT research firms greatly exaggerated

    Friday, December 24, 2004

    Sterling Commerce moving into supply chain apps by acquiring Yantra

    Sterling Commerce, one of the biggest names in e-commerce and EDI infrastructure, is acquiring Yantra Corp., a move that expands Sterling's reach into the supply chain execution space.

    So, who is Yantra? It's a supplier of distributed order management and supply chain fulfillment applications involving multiple trading partners. In other words, Yantra is a good solution for companies that take orders in one location and then fulfill them dynamically from a choice of multiple fulfillment centers, channel partners, and carriers, either within the same organization or from outside trading partners. Yantra has some big name customers in the retail, wholesale distribution, logistics and manufacturing verticals, such as Best Buy, Circuit City, DHL, Dixons, FedEx, Motorola, SYSCO, Target, and Texas Instruments.

    Sterling's acquisition of Yantra gives it a big jump on its strategy to move into the applications space. Sterling will incorporate Yantra as a component in its recently announced Multi-Enterprise Services Architecture (MESA), a service-oriented architecture (SOA) that allows composite applicators to be built from various solutions. According to Sterling, Yantra's products work well as components of MESA. Sterling plans to sell the combined solution under both a traditional software license and as a hosted service.

    ARC Advisory Group, as usual, has good insight:
    While Yantra is an applications company, Sterling Commerce has been an Infrastructure supplier offering integration, EDI, and Data Synchronization solutions. One risk to Sterling is that if traditional supply chain application suppliers see them as a competitor in the Supply Chain Application space, then the partnerships with existing Supply Chain application partners could wither. That is a risk worth taking. The larger infrastructure suppliers have built out their offerings into complete technology platforms with EAI, B2B, Portals, Data management, etc. capabilities over the last few years leaving little room for the specialists in those areas. This has forced companies like Sterling Commerce, SeeBeyond and Vitria to either expand their technology footprint (a risky strategy), or move into some form of applications area. One of the difficulties of the application strategy is in acquiring enough domain specific knowledge to compete (create product, market, sell, and support) with the application suppliers who have supply chain processes embedded within their products. Sterling Commerce has taken a wiser approach and moved strongly into the application space.
    The fact that the Yantra acquisition is key to Sterling's strategy is seen in the price it was willing to pay: $170M in an all cash deal, about four times Yantra's annual revenue, a pretty fat price tag. Furthermore, Sterling may not be finished yet. ARC Advisory thinks that Sterling will be soon doing other acquisitions to fill out its composite applications more fully.

    Related posts
    With hype gone, spending on supply chain connectivity is trending back up
    Wal-mart still pushing its suppliers to Internet EDI

    Wednesday, December 22, 2004

    Oracle, IBM, Microsoft battle for technology infrastructure of PeopleSoft customers

    Now that Oracle has won the battle for PeopleSoft, the battlefield is shifting toward who will own the technology infrastructure that underlies PeopleSoft software applications.

    In one corner is IBM, which has a significant number of PeopleSoft customers, most of which are the former J.D. Edwards customers. These are all of the customers running World (JDE's older iSeries host-based product) and some of the customers running EnterpriseOne (formerly OneWorld, JDE's network-based product). Although EnterpriseOne runs on a variety of operating systems and databases, many of them are former World customers and therefore still prefer IBM's technology. IBM would like to keep these as customers, of course.

    In the second corner is Microsoft, which has a significant number of PeopleSoft users of its operating systems (Windows 2000/NT) and database (MS SQL Server). Microsoft would like to keep these customers, and it also wants PeopleSoft customers running other operating systems and databases to migrate to Microsoft's own applications or those of its partners that use Microsoft technology. Microsoft VP Bill Veghte last week wrote a letter to PeopleSoft customers making exactly these points.

    "Migration to another ERP solution, including Microsoft Business Solutions, SAP and other partner ERP solutions on the Microsoft platform, are additional options available to PeopleSoft customers seeking greater clarity around technology direction and platform alignment," Veghte said. "The Microsoft platform continues to gain momentum as the platform of choice for industry-leading ERP vendors."

    A good part of Veghte's letter Wednesday focused on getting PeopleSoft customers to consider migrating from IBM AS/400 and mainframe systems to Windows-based servers. Earlier this week, Microsoft launched a marketing initiative with several partners that aims to win over business from customers using AS/400 and IBM iSeries servers.

    In particular, Microsoft also talked about the benefits of switching to Windows for customers that use Oracle's database software on Unix systems.
    And in the third corner is Oracle, which has the advantage of course, because they just bought the entire PeopleSoft customer base. Not that Oracle is taking these customers for granted. For the short term, Oracle has promised to continue support for those PeopleSoft customers on IBM and Microsoft platforms. But it is also making it clear that it intends to offer lots of incentives for those same customers to move to Oracle's database. Last week Oracle sent a letter to PeopleSoft customer groups making these points. Note especially the tepid language employed regarding support for non-Oracle technology, as reported in this article from CNET.

    Oracle will ensure that customers experience very little disruption as a result of the merger; Oracle will work with database rivals IBM and Microsoft to provide support to PeopleSoft customers "as long as working relationships can be maintained"; and Oracle will make upgrades to next-generation products "as straightforward as possible."

    In the memo, Oracle also said PeopleSoft customers that wish to migrate to Oracle's applications and database products can do so free of licensing charges. "This will also include the equivalent underlying database licenses that are required to run the product, if the customer was using an alternative database for the PeopleSoft applications," Oracle said in the memo.

    That offer is making IBM and Microsoft, who sell databases and other technical infrastructure to many PeopleSoft customers, more than a little nervous.
    Historically, PeopleSoft and JDE products have been more platform independent than Oracle's. PeopleSoft and JDE let you choose different hardware, operating systems, and databases. But if you are currently considering purchase of PeopleSoft or JDE products and believe that this platform independence is going to continue, you are mistaken. Oracle will continue to support the various platforms that PeopleSoft customers are currently running--for the time being. But over the long term, it is going to standardize all its products on Oracle's database. I have no doubt about this. That's why it fought so hard to acquire PeopleSoft. In fact, it would not surprise me if, soon after the PeopleSoft acquisition is complete, Oracle refuses to sell any new PeopleSoft deals on anything but Oracle's database.

    Related posts
    IBM is a loser in Oracle/PeopleSoft deal
    Oracle reaches out to JDE user group
    Oracle: no plan to spin off JDE product lines
    Ellison outlines direction for PeopleSoft and JDE product lines
    PeopleSoft's final gift to customers
    Oracle/PeopleSoft: deal is done

    Tuesday, December 21, 2004

    2005 looks good for IT spending

    Forrester's 2005 IT spending survey is out, and the signs are good for corporate IT spending. Specifically, Forrester finds that application software will be the big winner, with 59% of decision-makers surveyed identifying deployment or upgrade of major packaged applications as a priority, replacing security as the top priority from the past year. Some key priorities for decision makers surveyed include:
    • Regulatory compliance. 38% percent consider support for governance, such as Sarbanes-Oxley, a critical priority, while 65 percent said it was a priority.

    • Business intelligence and financial apps. Demand for BI applications is projected to increase 9%. Regulatory concerns and an increasing quantity of data caused BI to retain the top spot in planned purchases. Demand for financial applications also stayed on top in 2005 with 4% growth.

    • Content management could be the next "killer app." Purchase plans for content management increased 15 percentage points from last year, as firms adopt enterprise-wide strategies for managing Web content, documents, records, and digital assets.

    • IT consulting. 69% of companies that identified application upgrade as a priority will purchase consulting help for those projects. Overall, the demand for systems integration services increased 10 percentage points this year, from 34% planning to purchase in 2004 to 44% for 2005.

    • IT outsourcing. Application outsourcing is fueling Forrester's forecasted growth of 9% for the category, with outsourcing for applications maintenance growing 27% in 2005.
    It's not a return to the go-go years of the late 1990s, but it's a positive trend for software and services providers nevertheless.

    Additional details are in Forrester's press release.

    Related posts
    Software buyers turn cheap
    High tech job market perking up
    Corporate IT spending picking up for outside services
    IT budgets: spending less but getting more
    Word on the street: IT spending is up, but not across the board
    Yet more light at the end of the tunnel

    Monday, December 20, 2004

    PeopleSoft's final gift to customers

    It just occurred to me that PeopleSoft may have given one last gift to its customers by throwing in the towel to Oracle before the Delaware court could rule on the legality of its Customer Assurance Program.

    Christine Hurt, law professor at Marquette, notes that Oracle and PeopleSoft came to an agreement just days before a judge in Delaware was to rule on PeopleSoft's poison pill defense. Hurt puts together some hints that the judge may have been inclined to rule against PeopleSoft's poison pill. She's disappointed that we won't have a chance to find out if poison pills might be in trouble more generally.

    But from a customer perspective, the more interesting angle is, how was the judge going to rule concerning PeopleSoft's Customer Assurance Program? Customers aren't so much interested in the poison pill per se; but they would have been very interested in preserving the Customer Assurance Program, which promised huge rebates to recent customers if Oracle reduced support for PeopleSoft products.

    I'm speculating here that perhaps PeopleSoft felt that the judge was going to rule against PeopleSoft's Customer Assurance program. It's pretty clear now that PeopleSoft realized that an Oracle takeover was inevitable and that the only question was price. If so, PeopleSoft would naturally have been motivated to throw in the towel before the judge ruled rather than after, thereby increasing its negotiating leverage and also ensuring that its Customer Assurance Program remained intact.

    Whether it was intended or not, the Customer Assurance program remaining in place is a gift to all PeopleSoft customers. The reason is that it raises the cost to Oracle of reducing support for PeopleSoft products. Oracle has already announced that it is going to develop one or two more versions of PeopleSoft and JDE products, after which it will migrate all of its products to a new unified product line. The presence of the Customer Assurance Program, however, just ensures that down the road Oracle won't short change PeopleSoft customers in the process.

    Related posts
    IBM is a loser in Oracle/PeopleSoft deal
    Oracle reaches out to JDE user group
    Oracle: no plan to spin off JDE product lines
    Ellison outlines direction for PeopleSoft and JDE product lines
    Oracle/PeopleSoft: deal is done
    PeopleSoft trying to shout above Oracle takeover "noise"

    Thursday, December 16, 2004

    IBM is a loser in Oracle/PeopleSoft deal

    One aspect of the Oracle/PeopleSoft acquisition that is not getting enough press is the effect this deal will have on IBM. On one level, the acquisition was about competition in the enterprise applications space: Oracle gaining ground on market leader SAP and growing contender Microsoft.

    But on another, and perhaps more significant level, the acquisition is about pulling through Oracle's database, middleware, and tools, which are a greater part of Oracle's revenue than its applications business. Oracle and IBM are fierce competitors in that segment. And, in September, PeopleSoft aligned itself more strongly with IBM, signing a five year billion dollar deal to incorporate Websphere, IBM's middleware and tools offerings, in sales of its applications, and treating IBM's DB2 as its preferred database.

    Now, with Oracle's takeover of PeopleSoft, the IBM relationship appears to be a dead letter. According to Computerworld, Oracle co-President Charles Phillips said as much in a conference call with reporters yesterday,
    "We don't have a lot of details on the IBM contract," said Phillips. "We're not that interested in adding more IBM to the stack. It's unclear what's been done. We have to take a look at that. Obviously, we have a strong application server we think is better. If [customers] need [J2EE-enabled technology], they can use the Oracle Application Server. With the database, it's hard to say. I would surmise at some point there would be customers who perhaps are using PeopleSoft on DB2, and they'll end up with the Oracle product and database as well."
    According to an article in Internet News, Phillips also said that "he was not privy to the details of the agreement but added he is skeptical that a contract was ever actually signed [with IBM]."

    Phillips' comments yesterday are further indication that over the long run, a key Oracle objective in the PeopleSoft deal is to move both the PeopleSoft and JDE product lines to Oracle technology. It won't happen in the next few years, inasmuch as Oracle has committed to enhance those product lines in the near term. But expect Oracle to begin laying the groundwork to transition them all to Oracle technology by the time the successor product to the lines (Oracle, PeopleSoft, and JDE) is developed, starting in the next three to five years.

    This deal is largely about who will win the war of the technology stack. IBM just lost an important battle.

    Related posts
    Oracle reaches out to JDE user group
    Oracle: no plan to spin off JDE product lines
    Ellison outlines direction for PeopleSoft and JDE product lines
    Oracle/PeopleSoft: deal is done
    PeopleSoft trying to shout above Oracle takeover "noise"

    Tuesday, December 14, 2004

    Oracle reaches out to JDE user group

    Here's an interesting twist. Oracle appears to be making welcoming noises toward Quest, the JDE user group that was shuttled aside by PeopleSoft when PeopleSoft acquired JDE.

    According to an e-mail passed on to me by a reader, Fredrick Pond, Quest President, yesterday wrote in a message to JDE users,
    Early this morning, Oracle contacted the Quest Board of Directors and indicated an eagerness to work with Quest as the unified voice of EnterpriseOne and World users. In a conference call that followed, the Quest board pledged to work with Oracle to ensure that your voice is heard as product and support decisions are made. We will share information about Oracle's direction as specifics are provided, as openly and quickly as possible.
    Reaching out to the Quest group, which PeopleSoft slighted, is a smart move by Oracle. Suddenly Oracle looks like the good guys.

    Related posts
    Oracle: no plan to spin off JDE product lines
    Ellison outlines direction for PeopleSoft and JDE product lines
    Oracle/PeopleSoft: deal is done

    Lawson shows the door to another 75 employees

    Lawson Software announced the second half of a two part cost reduction effort last week, with 75 employees following the 100 that were terminated in September. The latest cuts add another 4% to the 6% laid off earlier. Most of the cuts are in Lawson's implementation services group.

    The St. Paul Pioneer Press, Lawson's hometown paper, has the details.

    Separately, Lawson says that business should pick up now that the Oracle/PeopleSoft drama has ended. Quoted in the Minneapolis Star Tribune,
    "The news [of the Oracle-PeopleSoft deal] does remove the uncertainty we feel has been hampering overall purchasing behavior in the market," Lawson spokesman Terry Blake said. "And we also believe it is good news for Lawson, because it essentially knocks out our No. 1 competitor."
    I never quite understood the connection between Lawson's performance and the Oracle/PeopleSoft battle. Neither do most industry analysts. Either way, Lawson now has one less excuse for its poor performance.

    Interestingly, however, Lawson is refusing to say whether Lawson itself could be the target of an acquisition.
    "We're not commenting on whether we want to remain independent," Blake said. "And I can't comment on whether Lawson is actively negotiating a merger."
    The full story is on the Star Tribune's web site.

    Related posts
    Lawson fires 100, blames Oracle
    Lawson joins earnings disappointment club

    Monday, December 13, 2004

    Oracle: no plan to spin off JDE product lines

    An alert reader pointed me to comments made last week by Oracle President Safra Catz regarding the JDE product line in particular. An article on CRN quotes her comments from a news conference at Oracle OpenWorld in San Francisco last week.
    "We have no intention of spinning off Enterprise One or any of the products," Catz said. "We will bring them in, evaluate the state of the code and bring it, ultimately into a converged product line. We have no intention of spinning them off."
    Catz also emphasized the need to retain the JDE development staff. She said,
    "One reason we've been in a hurry is we've been concerned about the state of the J.D. Edwards intellectual properties," Catz told a packed room of journalists, partners and customers. "We are hearing about a lot of J.D. Edwards resumes on the street -- people being let go by PeopleSoft. And we want to maintain as many folks as we can. Our big worry is the intellectual property and development organization at JDEC, and our hope is it is still in a position where we can maintain it."
    Based on these comments, along with consistent remarks from Larry Ellison in the conference call this morning, I withdraw my speculation about Oracle wanting to spin off the JDE product lines.

    Related posts
    Ellison outlines direction for PeopleSoft and JDE product lines
    Oracle/PeopleSoft: deal is done
    Possible outcomes of Oracle's takeover bid for PeopleSoft

    Ellison outlines direction for PeopleSoft and JDE product lines

    The transcript of Oracle CEO Larry Ellison's analyst call is now available, and there's more definition around the direction that Ellison intends for the PeopleSoft (Enterprise) and JDE (Enterprise One and World) product lines. Because this is a major source of concern for customers and prospects of PeopleSoft/JDE, so I'm going to quote extensively from the transcript.

    First, Ellison indicated that Oracle will develop a "new" version of PeopleSoft and a "new" version of JDE. It appears that these new versions will be an intermediate step toward creation of a future product that merges the three product lines into one. Here's what he said,
    We intend to enhance PeopleSoft 8 and development [sic] a all new version of the PeopleSoft product, PeopleSoft 9. We intend to enhance J. D. Edwards five and develop an all new version of the J. D. Edwards product line, J. D. Edwards 6. We also intend to design and merge PeopleSoft/J. D. Edwards/Oracle application suite with the features necessary to enable easy migration from whatever product you are currently running.
    In his opening comments, Oracle President Charles Phillips indicated that Oracle will continue to support PeopleSoft and JDE customers, whatever technologies they are using. "We will continue to develop the PeopleSoft products," said Phillips. "We will support their existing environments including other database products."

    During the Q&A period, Ellison went into more detail about where expense and headcount cuts would occur and directions for the PeopleSoft and JDE product lines.
    Harry mentioned...approximately $150 million reduction in R&D. Keep in mind that will be split between Oracle and PeopleSoft. So that's not coming out of the PeopleSoft exclusively by any means. That's split, not quite equally but close enough to equally between Oracle and PeopleSoft. On the sales and marketing side, our marketing budgets won't go up very much but however our applications sales force will increase the capacity of our dedicated applications sales force worldwide by approximately 50% and you can conclude what you will about our expectations in our models in terms of how much additional applications we expect to sell. But those things -- those two numbers are rather important. Again, marketing flattish, G&A flattish, sales -- sales force increasing capacity by 50%. And in terms of development we are going to keep the PeopleSoft and J.D. Edwards development teams separate from the Oracle development team for some time to come. They will be working on enhancements, product enhancements to PeopleSoft eight and J.D. Edwards five and they will be developing an all new version of the PeopleSoft product, PeopleSoft nine, and an all new version of the J.D. Edwards products, J.D. Edwards 6. Simultaneously with that we will take some of the very senior designers from J.D. Edwards, PeopleSoft and Oracle and we will be designing a moderate -- a next generation version that merges the features of all three of those suites of products, J.D. Edwards, PeopleSoft and Oracle. But again that product is some ways away and PeopleSoft customers should expect an upgrade from eight to nine before they entertain the idea of moving to the merged products.
    Ellison also gave more details on the timeframe for the new PeopleSoft and JDE versions:
    I think PeopleSoft nine will be coming out -- again, keep in mind we are still at the guessing stages here but it would come out approximately the same time PeopleSoft was going to release PeopleSoft nine. There should be no impact on schedules as to the availability to PeopleSoft nine to PeopleSoft customers or J.D. Edwards six. I'm not even sure there was going [to be] a J.D. Edwards 6 planned by PeopleSoft. So those products will come out, let's say, 18 months from now, approximately -- you know, 12 to 24 months is a safer range. I don't know exactly. And then the subsequent release, if you will, PeopleSoft ten, will likely be the merged product. But we will evaluate if we do -- you know, we are going to be talking to customers, we are going to evaluate doing a PeopleSoft 10 as well. But we are committing to improving PeopleSoft eight, delivering a PeopleSoft nine, and then going through the design process of that merged product. As of right now we would think if the PeopleSoft nine product is in the 12-24 month time frame, the merged product would be, let's say, no earlier than, let's say, 30-36 months out.
    After reading the entire transcript, one point is clear: Oracle is giving no indication at all that it wants to shed the JDE product line, as I speculated earlier. This does remove some uncertainty for the JDE installed base and is enough reason to keep JDE on the short list for companies that are currently shopping for software.

    Related posts
    Oracle/PeopleSoft: deal is done
    Possible outcomes of Oracle's takeover bid for PeopleSoft

    Oracle/PeopleSoft: deal is done

    The drama is over. This morning Oracle announced that PeopleSoft has agreed to the take-over. Oracle had to sweeten the deal, however, to get PeopleSoft to throw in the towel, raising its offer price to $26.40 per share from the $24 that PeopleSoft had rejected as inadequate.

    Today was a good day for Oracle, not only in winning its bid for PeopleSoft, but also in announcing improved quarterly earnings of $815M, which is 32% above the same quarter last year and two cents above Wall Street estimates for the current quarter. Revenue is $2.76B, up 10% from the same quarter last year.

    As a result, Oracle shares are up 9.5% as of this writing.

    Oracle CEO Larry Ellison was on CNBC just now, obviously happy, talking about the boost that the deal will give to Oracle's ability to compete with SAP. He indicated that, yes, there will be layoffs, because there is no need for two CEOs, two CFOs, etc., but that there would be layoffs among Oracle employees as well as PeopleSoft's. At the same time, however, he emphasized that Oracle will be increasing support for PeopleSoft customers.

    Oracle has said that it intends to continue its acquisition program, regardless of whether it was successful in acquiring PeopleSoft. In a conference call earlier today, Ellison indicated that further acquisitions would not be undertaken until PeopleSoft is fully digested.

    What does all this mean for customers and prospects of PeopleSoft? Over the short term, not much. As I have written previously, Oracle is aggressive but it's not stupid. It won't do anything to risk loss of PeopleSoft customers at this point, who are the whole reason that Oracle wanted PeopleSoft in the first place. And, as far as I can tell, there is still the matter of PeopleSoft's Customer Assurance Program, which promises recent clients a massive rebate if Oracle cuts support for PeopleSoft products.

    However, for the long run, Oracle has got to be looking at making changes to PeopleSoft products to align them more firmly toward Oracle's database and tools. Oracle has always viewed the applications business as pulling through its database and middleware products. If I were a PeopleSoft customer and not running Oracle underneath it, I would keep a close eye on Oracle's actions. Again, I don't think there will be any issues short term, but I would factor this concern into my long term plans.

    I would also watch Oracle's actions relative to the former J.D. Edwards product lines (Enterprise One, and World). These products have less of an alignment to Oracle's technology platforms than the main PeopleSoft products (Enterprise) do. I think there is a good chance that Oracle will look to sell the JDE products off in the near future. This would simplify the digestion of PeopleSoft and would offset some of the cost of the acquisition, freeing cash for other deals. But as I have written previously, there are not many parties that would be viable owners for the JDE product lines, except perhaps SSA Global.

    Related posts
    Flash: PeopleSoft shareholders tender majority of shares to Oracle
    Possible outcomes of Oracle's takeover bid for PeopleSoft

    Saturday, December 11, 2004

    Death of IT research firms greatly exaggerated

    Last month I wrote about the threat that IT research firms face from what I called "open source research." But Mark McManus, VP at Computer Economics, an IT research firm, wrote to me with a different view.

    Frank, I have to comment on your post regarding paid research versus "free" Internet research.

    I agree with some of your points, but there is a whole research world regarding IT that cannot be easily found on the Internet. For instance, take our annual Information System Spending study. This is a four-month project and involves interviewing hundreds of senior IT and business executives. It is very expensive to produce and involves a significant amount of analysis. How could that be duplicated for free? I've seen statistics that claim to represent this data, but much of the time this is a self-serving process by the individual or organization that has produced the data. The buyer should beware.

    While there are many good sources of free research data (such as The Enterprise System Spectator), I do not expect that senior IT and business executives will ever consider information retrieved via an Internet search as an alternative to paid, targeted research performed by a reputable (and independent) IT research firm-- especially when major competitive and financial decisions are on the line.

    Another issue your commentary does not clearly address is the analysis capability of major research organizations. More often than not the main reason that end user organizations will go to Gartner or Forrester is not to get statistics, but rather to get their analysis and recommendations. IT managers performing their own research will find many sources to choose from--and many varying points of view. Do you think these extremely busy individuals will really have the time to wade through the page after page of information and do the required analysis they need to make hard technical and business decisions? Maybe in some cases, but I think that is unlikely in most.

    Additionally, our own experience is that companies are using our research capabilities more in the past several months than in the past two to three years. So, even though the Globe article may be correct that "major" research firms are having a difficult time, I think that there other business issues that may be creating their hardship, such as over-extending their research capabilities and areas of expertise. In fact, our research on spending trends indicates that in 2004 more IT organizations increased their research budgets than in 2003 or 2002. The "Googlization of America" may be a minor contributing factor to IT research firm woes, but it is probably not the leading factor.
    The value of aggregating and filtering information
    I've known Mark for several years and appreciate his feedback. In follow up correspondence, I pointed out that in my original post I indicated that in-depth research, such as Computer Economics IT spending studies, or IDC's market share studies, that require significant resources and expense, are impossible to reproduce by individual experts contributing to message boards or writing technology blogs. I also recognize the value that paid research firms provide in filtering and aggregating information so that business and IT executives don't have to wade through it themselves. I pointed out, however, that technology blogs and group blogs (blogs authored by multiple experts) might be able to provide this aggregation/filtering service in a richer way, much like blogs such as Instapundit or Command Post do for news and current events.

    The question of bias
    In follow up correspondence, Mark replied,
    I agree that tech and group blogs can do some filtering, but there is still an issue with bias. How can you (as the recipient) trust the underlying motives of someone who is posting free research and advice? There are certainly unbiased blogs out there, but many are built as a sounding board to support a particular position. Not that research firms haven't shown bias, but generally speaking you can usually get recommendations from an independent research firm that are not heavily tilted to a particular bias.
    Again, Mark brings up a good point, which is the issue of bias. Individual technology experts do have their biases, based on what they've experienced or what technologies and vendors they are familiar with. But I would point out that the paid research firms have their own problems with bias as well. An obvious example is research firms that accept money from technology vendors to produce specific research. I wrote about one such example two years ago: IDC's report on Windows 2000, which was sponsored by Microsoft, which concluded that Windows 2000 had a lower cost of ownership than Linux. Although the report was not totally one-sided, the conclusions of the report, and Microsoft's press release on it, were clearly slanted in Microsoft's favor.

    But a more subtle form of bias is seen in the fact that many of the research firms have technology vendors as major subscribers. This limits how directly critical the research firms can be in their assessment of those vendors. It also influences how effusive the praise is for certain vendors. A blatant example is an Aberdeen report in 2001 that concluded that Linux is less secure than Microsoft Windows. I tore apart Aberdeen's report in a post two years ago, called, Aberdeen: new poster child for sloppy research. Unfortunately, Aberdeen' original report is no longer online, but follow the link in the preceding sentence and see if you agree with me.

    Now, on the whole, I have a great deal of respect for individual research analysts at the major research firms. I've met some of them and find them to be smart, insightful, and hard working. I do not mean to imply that they would deliberately slant their findings in favor of those vendors that are subscribers. But as a whole, because vendors are their clients, you are more likely to find positive or neutral assessments of vendors rather than hard-hitting criticism.

    I heard one vendor refer to the subscription fees that he was paying to the major research firms as "protection." Think about that for a minute. If that's true, it's hard to avoid the conclusion that the coverage of the IT research firms is influenced by which vendors are subscribers to their research services.

    It's similar to the situation with the Wall Street analyst firms. Because many of the investment analyst firms derive revenue from the companies that they research, it's rare to see a sell recommendation from them. In the same way, it's easier for IT research firms to write positive reviews of technology vendors, and to soften critical research to the point that it doesn't offend anyone.

    The gravy train is over
    But back to the big picture. I think that the research firms have to face the fact that there is a great deal of free information available on the Web today that was not as readily available 3-5 years ago. Furthermore, it's a lot easier for business executives today to locate individual technology experts when they need them. Yes, it is still more convenient to call up Gartner or Forrester as a one-stop-shop for all your IT research questions. But it's also expensive. Few companies, except the largest, will continue to shell out tens or hundreds of thousands of dollars every year just to have access to research and analysts.

    The trend to open source research is just beginning, but I think it will develop. Technology blogs and Web-based message forums are not going to put IT research firms out of business. There will always be a need for firms like IDC, Gartner, and Forrester that have the resources and the scale to do difficult original research. But the gravy train is over.

    Related posts
    Research firms face threat of "open source research"
    Microsoft-sponsored study on Win2K vs Linux is NOT all good news for Microsoft
    Aberdeen: new poster child for sloppy research
    Memo to Forrester

    Friday, December 10, 2004

    JDA employees sent packing

    JDA Software group is laying off 167 employees, or 13% of its workforce. Although the cutback might be interpreted as a sign of trouble, it appears that JDA is simply taking the next logical step in consolidating its multiple product lines into its integrated offering (its PortfolioEnabled suite). The cutback hits the development group and consulting services.

    JDA is one of the leading application software vendors focused on retail applications. It's been around since the 1970s, and has been acquiring a number of smaller firms in the retail space over the past six years, including Timera (workforce management), Engage and Zapotec(advertising, marketing, and promotions), Vista (collaborative commerce), J-Commerce (point-of-sale), E3 (inventory optimization), Neovista (data mining), Intactix (retail space management), and Arthur Retail (advanced planning and allocation). With so many disparate products, the company no doubt needs to continue to harmonize its offerings.

    JDA partners with PeopleSoft to fill out its retail offerings with a complete set of ERP applications, such as financials and HR. The company is expected to finish the year at about $210M in revenue, and 0.22 per share earnings. JDA trades on Nasdaq under the ticker JDAS.

    Friday, December 03, 2004

    Welcome 2004 Weblog Award visitors

    If you're new to this site, be sure to check out the post, About the Enterprise System Spectator, for a summary of what this blog is all about, including links to some of the best posts from the past.

    Thursday, December 02, 2004

    I need your vote, again

    The Spectator has been nominated for another award, the 2004 Weblog Awards: Best Tech Blog. (Okay, I'll admit it, I nominated myself).

    If you would like to vote for me for this new award, just hop over to the Best Tech Blog voting site, and vote for The Enterprise System Spectator.

    The rules actually allow you to vote multiple times, as long as it is only once a day. So, if you'd really like to help out, go back every day from now until December 12, when the poll closes.

    Thanks in advance.

    Tuesday, November 30, 2004

    Research firms face threat of "open source research"

    An article in the Boston Globe today says that these are difficult times for research analyst firms such as Gartner, IDC, Forrester, and Meta Group. The article points out that corporate customers are scaling back on their purchase of paid research services. But one point especially caught my eye:
    Today, cost-cutting executives are known to turn to search engines like Google to glean market intelligence on the cheap. "It's part of the Googlization of America," lamented Forrester's [Brian] Kardon. "People expect great content to be available just through a Web search."
    I find this ironic. In the late 1990s, the research firms were trumpeting the threat that the Internet poses to traditional business models. Now the research firms themselves are being threatened by the Internet.

    It's not that the research firms are not using the Internet. They already make great use of the Internet to deliver research content to subscribers. But so do the newspapers. And yet, the newspapers have been facing declining subscriptions for years now.

    The real threat to the research firms is not the Internet as a delivery channel. It's the fact that the Internet is starting to bring together individual experts with business people that need their specific expertise. All that the individual expert needs is a self-publishing platform, such as a public forum (e.g. Slashdot) or blogging tools (e.g. Blogger, Moveable Type, etc.). All that the businessperson needs is a search engine, such as Google or Yahoo. This is the "Googlization of America" that Brian Kardon at Forrester is complaining about.

    I see this every time I post a new article. For example, suppose I write a post on the subject of, say, Walmart's use of RFID. In less than 10 minutes there will be visitors that have been alerted to this post through my XML feed and will start hitting this web site. And, within 24-36 hours, the major search engines will have spidered the post and a second group of visitors will be finding it. If it's a pretty good post, I may then pick up two or three new subscribers to my weekly e-mail version. (Check the right hand column if you'd like to subscribe, by the way).

    Why do I do this for free? Frankly, because the good will and publicity is worth more to me and my firm than anything I could possibly earn by charging a fee to access the Spectator.

    What's happening today is that research firms are facing the threat of what I call "open source research"(1). Just as commercial software vendors, such as Microsoft, are facing competition from free open source alternatives such as Linux, so also the paid research firms are facing competition from new free public sources of technology information, such as public forums and blogs.

    Now, I do not mean to belittle the work of the research firms. I have met a number of analysts, and I think they are smart and insightful. But the point is that, for the businessperson that just wants a piece of information, or a perspective on a certain subject, there are alternatives to paid research. You'll have to dig, and you'll have to take some of it with a grain of salt, but you now have a way to find individual experts without having to buy a whole package of research services.

    Is this the death of paid research? I don't think so. The IT research industry won't disappear, just as there will always be a place, even a dominant place, for commercial software vendors. But it's going to be harder to make money.
    Because of open source research alternatives, research firms are going to find it difficult to charge the same prices that they've been able to charge in the past. They're going to have to give more of it away for free, or for a nominal price, and save premium pricing for the stuff that only a paid research firm can produce, such as market share studies.

    As a result, there is already a consolidation trend taking place among technology research firms, such as Forrester's acquisition of Giga Information Group a couple years ago. As open source research gets better, the trend can only continue.

    Related posts
    Aberdeen: new poster child for sloppy research
    Memo to Forrester
    About the Enterprise System Spectator
    Spectator takes eighth place in TechWeb contest

    Footnotes:
    (1)The concept of "open source research" is analogous to "open source journalism," a term that appears to have been first used in a 1999 article in Salon by Andrew Leonard. "Open source journalism" was more recently used by Hugh Hewitt to refer to informal networks of news-oriented bloggers that in some cases have been out-hustling the mainstream news media in developing breaking stories. I think that a similar trend may soon develop in IT research, or other types of professional research services for that matter.


    Update, Jan 2. Corrected footnote to credit Salon source.

    Thursday, November 25, 2004

    Oracle lawsuit to overturn PeopleSoft defenses will continue in December

    PeopleSoft and Oracle were back in a Delaware courtroom yesterday, in Oracle's lawsuit to overturn PeopleSoft's poison pill defense as well as its Customer Assurance Program. The Customer Assurance Program throws up an additional barrirer to Oracle because it obligates Oracle to pay massive refunds in the event that Oracle reduces support for PeopleSoft products. The judge wants more testimony in December.

    Most observers think that the judge is unlikely to rule in Oracle's favor, setting up the parties for a proxy fight at Oracle's annual meeting in the spring. However, some observers think that the fact that the judge is asking for more testimony indicates that he hasn't made up his mind: a good sign for Oracle.

    But what is most interesting to me is the fact that PeopleSoft wanted the judge to defer the trial until the new year, so that it could close critical fourth-quarter deals without having the judge possibly overturn the Customer Assurance Program.

    This indicates, to me, that PeopleSoft intends to push hard for revenue in the fourth quarter, hoping to exceed analyst estimates and strengthen its case in the event of a proxy fight.

    So, if you are considering an enterprise system purchase, PeopleSoft is no doubt making some great deals between now and December 31--if you are willing to face the strong possibility that your new vendor partner will soon be acquired.

    The San Francisco Chronicle has the latest on the Delaware case.

    Related posts
    Flash: PeopleSoft shareholders tender majority of shares to Oracle
    Possible outcomes of Oracle's takeover bid for PeopleSoft
    Oracle questioning PeopleSoft's revenue recognition policy

    Sunday, November 21, 2004

    SAP increasing dominance in the enterprise software market

    Reader Lewis Marchand wrote to me recently that, in the protracted battle between Oracle and PeopleSoft, the only winner is SAP.
    SAP is clearly the only winner in the short term. While Oracle and PeopleSoft are distracted and confused, SAP is running around gathering up more clients.
    Confirming Lewis's view, a Barrons cover story this weekend (subscription required) has some startling statistics on SAP's continued increase in market share.
    Right now, the company's most impressive growth is coming from the U.S. As Oracle CEO Larry Ellison has carried out a protracted bid to acquire PeopleSoft...SAP steadily has raised its profile in the U.S. business market. It now accounts for 38% of its peer group's U.S. revenue, up from 32% just a year ago. And SAP has told analysts it expects its U.S. share to surpass 50% reasonably soon and then head toward the company's global share.
    According to Barrons, SAP's global market share among the top five enterprise vendors is currently 54%, but it could reach 64% by the end of this year. The only other tech companies with that kind of market dominance are Microsoft and Cisco.

    As a consultant to buyers of software, I don't especially like to see such market dominance by one player. I'd much rather see more competition. On the other hand, sometimes you have to deal with things they way they are, not the way you'd like them to be.

    Related posts
    SAP keeps on keepin' on

    Saturday, November 20, 2004

    Flash: PeopleSoft shareholders tender majority of shares to Oracle

    Midnight tonight (Eastern time) was Oracle's deadline for shareholders to tender their shares, or else it would walk away from its proposed takeover of PeopleSoft. Oracle has just announced that over 60% of shareholders have accepted its bid.

    No, I wasn't staying up late awaiting the results. But I did think to check the news wire, just now.

    Oracle's success does not mean that the battle is over, however. Oracle still needs to overcome PeopleSoft's poison pill defense. An Oracle lawsuit to do so is awaiting decision by a Delaware court, expected this coming week, but most experts do not expect Oracle to prevail. That means that Oracle will need to wage a proxy battle next spring to win control of PeopleSoft's board.

    Of course, at any point, PeopleSoft's board could decide to give in to Oracle. But that's unlikely, based on the board's rejection of Oracle to date. On the other hand, shareholders that have tendered their shares are still free to withdraw their shares. So, this thing still isn't over, by any means.

    Although the outcome is not certain, Oracle is closer to its goal tonight than it was a few hours ago.

    TheStreet.com has a summary of the results of Oracle's tender offer tonight.

    Update, 1:00 p.m. The Wall Street Journal, in its online edition (subscription required), has some interesting analysis of the impact of an Oracle takeover on PeopleSoft customers, specifically customers of the JDE product lines:

    [E]ven if Oracle completes the acquisition, making it pay off may not be easy. Oracle has said it will continue enhancing PeopleSoft's core software, developing an update it calls PeopleSoft 9. But it has been less specific about the EnterpriseOne and World products PeopleSoft acquired through its merger with J.D. Edwards.

    In a survey conducted last week, AMR Research found many PeopleSoft customers have reservations about a merger. AMR Vice President Bill Swanton said 150 customers were contacted, the majority of which used J.D. Edwards products.

    Sixty-three percent said they would stop paying maintenance fees to Oracle either immediately or if Oracle stops enhancing their products, provided they could find maintenance from a third party. Forty-seven percent said they expected Oracle to add no new features to their software, suggesting an unease with the merger.

    "The danger is [Oracle's] maintenance revenue is much less than they are assuming, or the expenses of maintaining the products to ensure renewals are much greater than they are assuming," says Mr. Swanton.
    Last week, I speculated that if Oracle is successful in acquiring PeopleSoft, it might be tempted to sell off the JDE product lines. I've not heard anyone else mention this possibility, but if it is true that a significant number of JDE customers are planning to cut off maintenance, that would give a real incentive to Oracle to sell off those products immediately. Who do I think would be interested in buying the JDE products? See my post last week.

    Related posts
    Possible outcomes of Oracle's takeover bid for PeopleSoft

    Friday, November 19, 2004

    More on the role of Excel in supply chain planning

    If you are following the discussion on "Excel as the poor man's i2," check out the update at the end of the original post (scroll down, below). An executive from i2 has responded, advocating a blended approach.

    Related posts
    Is Excel the poor man's i2?

    Thursday, November 18, 2004

    Making SOX compliance a meaningful exercise

    Last week I wrote that Sarbanes-Oxley compliance efforts are too often a wasted effort. Now I've got some confirmation from a reader on the front lines.

    "Richard" (not his real name) works for a large well-known company that is proudly claiming its compliance with SOX Section 404 (internal controls). But according to Richard, the benefits do not justify the cost:

    Frank, yes, Sarbanes-Oxley is a LOT of work--too much! And no, it doesn't give any additional protection, if you ask me. The internal controls that we've implemented in IT really don't mean much.

    Let me illustrate with one example. Our company has implemented an internal control that says a developer cannot directly modify production data. So now we stand next to the user administrator's desk while he runs the SQL we gave him. He has no idea what he is running, but since it is done under his login it is "SOX compliant!"

    This is a big productivity drain. Two people are now needed to do something that one person could have done before, it is sometimes difficult to coordinate schedules, and frequently the production data mods are time critical. So now everyone is running around like chickens with their heads cut off trying get some simple UPDATE statement executed.

    Well, Congress is full of lawyers and accountants and constantly is lobbied by them as well. So we know who is making money from SOX compliance--the lawyers and the accountants!
    The situation that Richard describes is typical of compliance efforts that focus on the appearance of compliance but not the intent of the regulation. In this case, one must ask, what risk to the business is this internal control intended to mitigate? Apparently, Richard's firm thinks that IT personnel may inadvertently (or deliberately!) corrupt the firm's electronic records. The company has therefore implemented a policy that forbids programmers from running special programs to directly alter live files. However, the procedure allows a user with proper access rights to run the exact same program. But since the user doesn't understand the program, he or she has no way to verify that the program will not corrupt the database. Therefore, this internal control might look good on the surface to an auditor that is not familiar with IT security. But it doesn't mitigate any risk to the firm. Rather, it just creates inconvenience.

    What would be more effective is in this case would be a meaningful combination of protective measures. First, there should access controls to prevent programmers from updating live files, plus a procedure that requires programmers to submit all update programs to a database administrator. The procedure should call for the programmer to submit documentation as to the need for the update along with test results. There should also be a database audit trail produced to record the results of the live update, and a contingency plan in the event that errors are found after the update (e.g. a backup/restore procedure, or other way to back out the changes). These measures would greatly mitigate the risk of data corruption with three types of controls: preventive controls (limiting the update rights of the programmer, separating the duties of the programmer vs. the DBA, and requiring testing of update programs), a detective control (the audit trail), and a corrective control (the contingency plan). Putting a user in the middle of the process adds nothing.

    The trend toward meaningless compliance is not limited to Sarbanes-Oxley. I have written previously about the same problem with FDA regulatory compliance in software validation, where companies spend long hours and generate reams of test results to demonstrate that they have "validated" computer systems that support regulated functions, such as drug manufacturing. Yet the systems are not more trustworthy and reliable when they are finished with their "validation."

    Government is increasing and will continue to increase regulation of business functions in general, and computer systems specifically. Sarbanes-Oxley, HIPAA, and FDA regulations, to name just three, have enormous impact on IT departments. It is tempting to treat compliance as a formality--what is the minimum I need to do to pass an audit? But if we don't focus on the risk to the business and the intent of the regulation, we will just continue to add to the cost of doing business without any meaningful protection.

    Related posts
    Sarbanes-Oxley compliance: too often a wasted effort
    Sarbanes-Oxley spotlights need for controls in IT
    Turning software validation into a meaningful exercise

    Monday, November 15, 2004

    Spectator takes eighth place in TechWeb contest

    Well, the results are in, and this blog came in eighth out of ten finalists for the First TechWeb Network Best Independent Tech Blog Readers Choice Awards. The competition was very tough, with the venerable Slashdot and Groklaw competing, each with tens of thousands of hits every day. So, I'm pleased with the results, even if it means I won't be getting a year's supply of Starbucks (the first prize).

    Check out the "slayer of sacred cows" summary that TechWeb wrote for the Spectator along with some very kind comments from voters:
    It provides information that can be readily used with a little or no further analysis.

    Perceptive and interesting analysis on key issues in the systems world.

    As a consultant in the industry I appreciate the content particularly the behind the scenes comments on industry mergers

    Frank is honest and reputable. Plus he knows his stuff.

    It's one of the few blogs that keeps me coming back. Often, I hear news first from Frank.

    The blog has the latest update on the ERP industry and lot of industry insights.
    Thanks again to all who took the time to vote!

    Related posts
    About the Enterprise System Spectator
    The Spectator makes it to the TechWeb Top Ten
    Vote for me!

    Is Excel the poor man's i2?

    Enrico Camerinelli from Meta Group wrote me this week with a hypothesis that's not going to sit well with the supply chain planning (SCP) vendors.

    In the market for SCP software, it could be argued that the market leader is not i2, Manugistics, or SAP, but Microsoft Excel. Many companies never look at the leading SCP vendors, finding that it's much simpler, easier, and certainly less expensive to simply create an Excel model to plan short term production around one or two key constraints.

    Enrico says that the advantages of using Excel are many:
    • Overall ease of use.


    • Allows the planner to use his knowledge and experience to create a model that is highly relevant and specific to the problem.


    • Allows the planner to quickly generate multiple scenarios.


    • Allows the planner to tweak the results if needed.


    • Allows the plan to be annotated to explain the results or provide clarification.

    The downside, of course, is that an Excel model for supply chain planning is likely to be disconnected from backoffice systems, creating extra work to download or rekey data to the model and to import the results of the approved plan back into the production system.

    So, what do you think? Do you think that using Excel is a viable alternative to buying a costly SCP system? Click on the comments link below and give your view. Or send me an e-mail.

    Update, Nov. 19: Karthik Mani, a VP at i2, saw this post and wrote his own post regarding the advantages and disadvantages of Excel for supply chain planning. He writes,
    Excel has its advantages. Some of them are
    1. Familiar interface. Planners use it every day.

    2. Desktop availability very similar to web, but planners can display a lot more data than can be provided in a standard web based tool.

    3. Very easy configurability for the end user - layout, pivots, filtering, graphs, logical functions, math functions.

    4. Very easy availability of skilled resources to help end users with more sophisticated changes to the engine.
    But Excel based planning also has its big disadvantages
    1. In even medium sized enterprises, multiple people are responsible for coming up with the operational plans (demand plan, staffing plans, production plans, logistics plans etc.) and Excel based planning is very poor at synchronizing those plans.

    2. Excel models will be disconnected from the back office systems leading to painful keying in of master data.

    3. Enterprise has no control over assumptions and logic used in the planning process.

    4. Communication of metrics (this quarter we need to focus on revenues rather than market share and profitability, next quarter we need to focus on market share rather than profitability and revenue) is very tough.
    Karthik thinks that the ideal approach is to marry the use of Excel with a best-in-class SCP solution. As an executive at i2, it's not surprising that this would be his view. But I think it does make a lot of sense. He continues,
    The best in class SCM solutions have now moved to marry the advantages of both of these approaches. Here you have a central data and plan synchronization infrastructure. The front end exposed to the users is Microsoft Excel. Some of the light planning logic can be directly incorporated into the Excel sheet; all of the reasonably sophisticated calculations will reside in engines that will be available to the spreadsheets as web services.
    Read Karthik's post on his weblog.

    Thursday, November 11, 2004

    Possible outcomes of Oracle's takeover bid for PeopleSoft

    It appears that, in eight days, we'll know the likely outcome of Oracle's fight for PeopleSoft. Earlier this month Oracle raised its tender offer to PeopleSoft to $24 per share, from $21, and said that $24 was its best and final offer. PeopleSoft's board rejected it. Now this week Oracle is appealing directly to shareholders, saying that if 50% of PeopleSoft shares are not tendered by November 19, Oracle will walk away.

    What happens if Oracle walks?
    My prediction is that there will be an initial drop in PeopleSoft share price as the immediate prospect of a buyout at $24 disappears, followed by an increase over the next twelve months as PeopleSoft's business gradually improves. In spite of PeopleSoft's earlier claims to the contrary, the threat of an Oracle takeover has been a huge impediment to PeopleSoft license sales. I believe that once the uncertainty about PeopleSoft's future is resolved, there will be a better than expected increase in PeopleSoft license sales. It may take two or three quarters to materialize, as PeopleSoft is put back on short lists, but I think it will be the vendor comeback story of 2005.

    If Oracle walks away, however, there is still the open matter of PeopleSoft's lawsuit in California against Oracle for unfair business practices. I'm not a lawyer, but my layman's opinion is that PeopleSoft has a legitimate claim that Oracle deliberately set out to damage PeopleSoft's business, which would be an "unfair" business practice in California. I base this opinion on evidence introduced in the Delaware lawsuit. See my post earlier entitled, "Oracle confidential information released by court", to see some examples. PeopleSoft is suing Oracle for $1 billion, plus punitive damages, and the case is scheduled to go to trial before a jury in Oakland on January 10, 2005. Now, that will be interesting. Be ready to see more of the dark underbelly of software vendor sales tactics.

    What happens if Oracle wins?
    First, it won't be over on November 19, because Oracle still needs a favorable ruling in the Delaware case. However, let's assume that Oracle is successful there as well and that Oracle takes over PeopleSoft. My prediction is that the impact on PeopleSoft customers will be non-existent. More than anything, Oracle is buying the PeopleSoft's customer base, not its software. Oracle may be aggressive, but it's not stupid. Oracle will not do anything to alienate PeopleSoft customers, even if it succeeds in nullifying PeopleSoft's customer assurance program.

    I'm going to go out on a limb here and make a second prediction that Oracle will quickly spin off the PeopleSoft Enterprise One and World product lines (formerly J.D. Edwards). The bulk of the former JDE's customers are on the IBM iSeries platform (formerly AS/400), and Oracle will have zero interest in maintaining that platform. Selling off that product line will give Oracle some cash back on the deal and fund other acquisitions (e.g. BEA?) that are more strategic to Oracle.

    If Oracle were to sell off the JDE product lines, who would be the buyer? I don't think those products could stand on their own as an independent company (i.e. JDE II). The prospective buyer that makes most sense to me is SSA Global. SSA has been gobbling up distressed iSeries ERP vendors, and the JDE products would fit nicely in that portfolio.

    If that scenario plays out, remember that you heard it here first.

    Update, Nov. 13. PeopleSoft apparently believes that Oracle is likely to succeed in its tender offer: PeopleSoft said earlier this week that it has hired a firm to solicit proxies from shareholders in support of its own slate of directors at its annual meeting next spring, to fight any opposing slate nominated by Oracle. This development means that PeopleSoft's ultimate fate will likely not be known soon. Not a good sign for PeopleSoft license sales.

    Related posts
    Oracle confidential information released by court
    Duffield: PeopleSoft not for sale
    Why PeopleSoft fired CEO Conway
    Oracle questioning PeopleSoft's revenue recognition policy
    Revenue recognition problem in PeopleSoft's refund offer to prospects?

    Wednesday, November 10, 2004

    Sarbanes-Oxley compliance: too often a wasted effort

    CFOs and CIOs are working hard on Sarbanes-Oxley (SOX) compliance these days. In every public company I visit, there are projects underway to audit, design, and test internal controls that back up corporate financial reporting, as required by SOX Section 404. IT departments play a large part in these projects because, in practice, many of these internal controls are implemented in software. The effort is huge, but it's worth the cost if it makes public companies more transparent and accountable to investors.

    But according to Ira Solomon and Mark Peecher at the University of Illinois, the investment is largely being wasted. In a Wall Street Journal article (Nov. 9), they write, "There's not a shred of evidence that the stringent new rules will help protect the investing public."

    According to Solomon and Peecher, there are two problems. First, most of the focus on internal controls is at lower levels of the organization. But the "lootings" that took place at companies such as Enron and WorldCom didn't happen down in the trenches but took place at the executive level, where controls "can be stealthily overridden by C-suite members."

    I pointed out this issue over two years ago in a post entitled, "Memo to Forrester," where I criticized the analyst firm, in part, for promoting sophisticated technology solutions for preventing corporate fraud precisely because they wouldn't address cheating by top management.

    The second problem, which to me is even more significant, is that too many internal controls are focused on historical events rather than forward-looking early-warning signals. Solomon and Peecher write,
    Decreased production quality, for example, can result in unprecedented returns that go unnoticed in the accounting system until many customers begin requesting return authorizations.

    The narrowness of SOX 404 controls also is evident when one reads complaints in major lawsuits against public companies and their auditors. Therein, one often finds allegations that management's business-controls, i.e., their dashboards of key performance indicators, had signaled dangerous changes in their operations. But, management did not publicly disclose these warning lights: a number of key stores were about to close, a home-run drug was about to be excluded from Medicaid formularies, major customers had just walked away, and so on.
    From an IT perspective, I like the authors' focus on controls over the business, rather than just controls over financial reporting. In IT departments that I visit, much of the effort in SOX compliance appears to be narrowly focused on documentation and ensuring that there are adequate policies and procedures around IT security and disaster recovery.

    These areas are important, of course. But I'd like to see more energy spent asking questions like, "What systems can we implement to give management the performance metrics they need to spot problems before they impact they business?" If just a portion of the the millions of dollars spent on SOX compliance was directed toward forward-looking performance reporting, the investment would pay off enormously. Shareholders would receive not only better financial reporting, but better business performance and return on investment.

    Related posts
    Memo to Forrester
    Checklist for Sarbanes-Oxley compliance
    Sarbanes-Oxley spotlights need for controls in IT
    Cost of SOX compliance isn't mainly in new systems
    In spite of relaxed deadline, SOX is giving urgency to some IT initiatives
    Is Sarbanes-Oxley the new Y2K?

    Monday, November 08, 2004

    Functionality is dead

    Erik Keller at AMR continues to hit the mark, in my opinion. In a research note entitled, "Functionality is dead", he makes the case that what software buyers are really interested in these days is not more functionality that they probably won't be used anyway but ease of use.
    [W]hile technological and functional requirements are important, so too are applications that will be embraced by real people. One of the largest problems that enterprise applications have is that they are too hard to use. For such applications, if users can avoid them to get their job done, history has shown that they will. This truth has manifested itself in countless enterprise applications being used the bare minimum, which has made it harder for IT organizations to show a positive return on their investment.
    Keller points to simple applications such as Microsoft's sales force automation product and salesforce.com as examples of simple, easy-to-use applications, especially when compared to complex CRM products such as Siebel's and PeopleSoft's.

    I've often said that a simple application that actually gets used is far better than a sophisticated application that sits on the shelf.

    Related posts
    ERP implementation: putting processes and people first
    Four problems with ERP
    Solving the four problems with ERP
    Business changes needed to ensure enterprise system success
    Executives hesitate to recommend their ERP vendors

    Monday, November 01, 2004

    Manugistics prepping itself for the auction block?

    Speculation is growing that Manugistics may be preparing itself for sale. The latest hint is Manugistics' adoption of a shareholder rights plan, otherwise known as a poison pill, which it said was intended to prevent "unfair takeover strategies." PeopleSoft is currently using its own poison pill defense in its battle to prevent a takeover by Oracle.

    In the case of Manugistics, however, analysts are speculating that the poison pill is intended to give Manugistics leverage in negotiations with prospective buyers, while frustrating hostile bidders.

    Manugistics has had a rough few years. In the late 1990s, it was one of the two or three top names in supply chain management. But license revenue has been dropping since 2000: down 12% in 2001, 20% in 2003, and 3% in 2003, according to Gartner.

    Among possible buyers, the most interesting is PeopleSoft. PeopleSoft, of course, is in the midst of fighting its own takeover battle with Oracle. But acquisition of Manugistics would make PeopleSoft bigger and more difficult for Oracle to acquire, in addition to shoring up PeopleSoft's own SCM offerings.

    Other companies that are mentioned as possible buyers of Manugistics include Oracle, which has said that it will continue its acquisition strategy regardless of what happens with PeopleSoft; Manhattan Associates, which has been particularly strong in the supply chain execution space--combining with Manugistics would fill out Manhattan's offerings nicely; SSA Global Technologies, which already owns EXE, another strong supply chain execution product.

    Related posts
    Who's next in the vendor consolidation trend?
    Leading SCM vendors continue to tank
    Manugistics V7 seeks to deliver profit optimization in small bites

    Sunday, October 31, 2004

    The Spectator makes it to the TechWeb Top Ten

    Thanks to your votes, the Spectator has make it into the top ten for the First Annual TechWeb Network Best Independent Tech Blog Readers Choice Awards. To all of you who voted for me last week, thank you very much!Finalist: TechWeb Best Independent Tech Blog Readers Choise Award

    The next step is a run-off of votes for the top blog. So, if you'd like to help me win $500 of Starbucks coffee and some free publicity, please return to the TechWeb site once more and cast your vote for The Enterprise System Spectator.

    Thanks again.

    Tuesday, October 26, 2004

    Oracle's bid for PeopleSoft cleared by European Commission

    In a decision largely expected, European antitrust regulators today ruled that Oracle can go ahead with its hostile bid for PeopleSoft. That's one more hurdle out of the way for Oracle.

    The remaining hurdles include take down of PeopleSoft's poison pill takeover defense, removal of PeopleSoft's so-called customer assurance program (which gives large payments to recent PeopleSoft customers if Oracle suspends support for PeopleSoft products), and PeopleSoft board approvel (which will probably come down to a matter of price).

    It's not a done deal yet, but it looks a lot more likely than it did three months ago.

    ZDNet has an article on the European ruling.

    Related posts
    Duffield: PeopleSoft not for sale
    Rumor: Duffield in no mood to give in to Oracle
    Another PeopleSoft executive exits
    Oracle confidential information released by court
    Why PeopleSoft fired CEO Conway

    Monday, October 25, 2004

    Build/buy pendulum swinging back toward build

    Ten years ago, many of us thought that the days of companies writing their own software would soon be over. Commercial packages such as SAP and Oracle would become more and more comprehensive and flexible, eliminating the need for much custom code.

    But like so many trends in business, the build/buy decision is a pendulum, and Erik Keller at AMR says that, for many companies, the pendulum is swinging back toward the middle.

    Keller points out three factors that are working in favor the build option:
    1. Open source, which gives companies a cost-effective platform and a cheap starting point for their own application development efforts. Examples include open source content management packages such as Zope, Red Hat, and OpenCms, and ERP/CRM packages such as Compiere, Ohioedge, and Anteil.


    2. Offshore development, which lowers development costs, at least for program coding. I've pointed out in the past that when considering to offshore development, companies need to consider the hidden costs and the risks of offshoring as well as the labor savings.


    3. Web services, which allow custom applications to be more easily integrated with existing systems and commercial packages. Although web services have been touted for several years as the wave of the future, the promise is only beginning to be realized.
    I agree with Keller's general direction. However, I believe that the most companies, especially small and mid-size businesses, would be best served by exhausting the search for commercial software before taking the plunge into custom development. This is especially true with major enterprise level functionality. Custom development has its own set of issues and risks, and unless a firm has a competent internal development organization, or has the in-house expertise to manage a third party developer, it's better not to start down that path.

    Read Keller's whole analysis on AMR's web site.

    Related posts
    Risks of offshore outsourcing
    Productivity risks in offshore outsourcing
    Companies mum on savings from IT offshore outsourcing
    Software buyers turn cheap
    Open source ERP
    Buzzword alert: "open source"

    Sunday, October 24, 2004

    IT wages set to rise

    If you're an IT professional, finally, there's some good news. A Meta Group report forecasts that IT salaries will rise 10-15% by 2007. General economic growth is behind the increase.

    But whether you benefit depends on whether you have the skills in highest demand. Leading the way are training and experience in program management, application development, and networking. Internet skills and Java are also high on the list.

    The demand for application development skills is particularly intriguing, seeing that conventional wisdom views those jobs as moving offshore.

    The stats pertaining to application development are particularly surprising considering the number of those jobs that are being outsourced and offshored to save company's money. Outsourcing is picking up in practice and general acceptance and some of the first jobs to go are those in call centers and those in application development. Many analysts have been loudly warning workers that they need to acquire new skills if application development is all they have on their resumes.

    [Maria] Schafer [of Meta Group] says not so.

    "I think the outsourcing issue has gotten a huge amount of attention, but the reality is that it's a difficult thing to do and to do well," she says. "Clearly, outsourcing has begun to happen and it will increase over time. But fewer companies are doing that than most people believe or that the mass media would have you think."
    Back in March I predicted that the trend to offshore software development would actually result in an increase in related jobs in the U.S.

    Datamation has an article on the Meta study.

    Related posts
    The supply-side argument for offshore software development
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    Saturday, October 23, 2004

    Infor aquires Lilly Software: vendor consolidation continues

    Infor Global Solutions (formerly Agilisys) has just acquired Lilly Software, the latest in its series of acquisitions in the Tier II and Tier III ERP marketplace.

    Just last week I interviewed representatives from Lilly at the APICS International Conference, and I was quite impressed with Lilly's support for constraint-based manufacturing (drum-buffer-rope) and lean manufacturing. But there was no hint in our discussion that privately-held Lilly was about to be acquired. Business must still be tough out there.

    If other vendors have not been paying attention to Infor, they should be. Infor is obviously on a roll, snatching up a series of mid-market vendors almost too numerous to mention. Whether Infor can consolidate these many offerings or rationalize the portfolio is another question. SSA Global and Epicor have adopted similar strategies, SSA larger and somewhat more successfully, Epicor less so.

    I'm waiting for Infor to give some indication of what its strategy is for rationalizing its many offerings.

    Update, Oct. 31. Interestingly, John Moore at ARC Advisory Group appears to have exactly the same perspective on Infor as I do.
    The addition of Lilly, who has struggled recently, should fit nicely within the discrete solution product suite Infor Global offers, in particular, its Lean Manufacturing solution. Unlike fellow mid-market consolidator SSA-Global though, Infor does not appear to have a coherent strategy for bringing its products together, which over time could create a growing cost burden and compromise future R&D and support for its customers.
    Related posts
    Infor acquires process ERP vendor, IncoDev
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    Rumor confirmed: Agilisys is acquiring daly.commerce

    Friday, October 22, 2004

    Vote for me!

    TechWeb is running a competition for "Best Independent Tech Blog Readers Choice Awards," and I've entered this blog into the competition. The ten finalists will get six month's of free publicity, and the winner gets a year's supply of coffee (don't ask me why).

    To vote for me, just hop over to http://www.techweb.com/blogawards/nominate.html, then enter:

    Title: The Enterprise System Spectator
    URL: www.goodtuan.com.cn
    Covers: select "Software"
    I'm Frank Scavo and I approve this message.

    Thursday, October 21, 2004

    Duffield: PeopleSoft not for sale

    PeopleSoft posted quarterly results today that were better than expected. In Q3, PeopleSoft reported record revenue of $699 million, an increase of 8% from the previous quarter and up 12% from the same quarter last year.

    Separately, it looks like the rumor I reported regarding Duffield has turned out to be true.

    PeopleSoft officials also confirmed that Duffield circulated a memo to employees asserting that he "didn't come back here to sell to Oracle."

    "Rather, I'm here to beat Oracle in the marketplace, increase our revenues, re-energize our employees, and deliver greater long-term value to our shareholders," the memo said.
    There's more detail on eWeek.

    Related posts
    Rumor: Duffield in no mood to give in to Oracle
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