January 11, 2006 11:49 AM PST

Oracle-PeopleSoft merger hits one-year mark

And who said it wouldn't last?

After a contentious, protracted courtship, the Oracle-PeopleSoft merger has hit its one-year anniversary mark, with the post-merger marriage going relatively smoothly. PeopleSoft customers have not defected en masse in search of better software applications, and Oracle executives have touted a relatively quick integration of the two former rivals since the deal closed last year on Jan. 7.

But while the operations of the newly combined company have largely moved ahead as planned, the overall success of the merger in its first year has been a mixed bag. The company's stock remains lackluster, and uncertainty still persists as to whether PeopleSoft customers will ultimately adopt Oracle's software once the technologies are integrated into its line of Fusion applications that are slated to hit the market in 2008.

"It's like saying the operation was a success, but we still have to figure out what to do with the patient's third leg," said Bruce Richardson, an analyst at AMR Research. "With the merger, Oracle got operating efficiency, but you have to ask yourself, what else did they get, once the dust settles."

Oracle has been able to retain more than 95 percent of PeopleSoft support customers following the merger, said Jeb Dasteel, vice president of Oracle global customer programs. While the company ideally hoped to hang on to all customers, it set a goal of 94 percent to 96 percent retention, he added.

"We listened to the voice of the customer and helped them with the transition. We've done a good job at keeping a finger on the pulse of PeopleSoft customers as they have migrated to the Oracle environment," Dasteel said.

Before the merger's close, PeopleSoft customers had several looming concerns.

"They were mostly worried about Oracle (bilking) them on maintenance costs," Richardson said. Oracle and other enterprise software makers typically charge customers an annual fee, based on a percentage of the software licensing cost, for upgrades and bug fixes.

Customers were also leery of Oracle discontinuing support and development for the PeopleSoft applications they were running, he added. These software suites can sometimes cost millions of dollars and often require additional assistance from consultants to install, Richardson noted.

"It's like saying the operation was a success, but we still have to figure out what to do with the patient's third leg."
--Bruce Richardson, analyst, AMR Research

That concern was particularly valid, given comments that Oracle's chief executive, Larry Ellison, made shortly after announcing plans to launch a hostile takeover attempt of PeopleSoft. Ellison touted plans to discontinue PeopleSoft products and push customers to Oracle's software.

One PeopleSoft customer noted that there have been few surprises from Oracle since the merger closed.

"It's gone fairly well, even though I'm no fan of Oracle," said Peg Nicholson, former president of PeopleSoft's International Customer Advisory Board. "They took a short amount of time to figure out what they wanted to do, and they communicated that information to us quickly."

As the 2003 ICAB president, she had voiced concerns that the merger would reduce competition and leave consumers with few alternatives if Oracle dropped support for PeopleSoft products.

And while Nicholson, chief information officer at golf ball maker Acushnet, agreed the level of customer support hasn't declined, she noted that wasn't exactly a hard thing to accomplish.

"It's no worse, but it's hard to believe it could have been worse than what we got under PeopleSoft," Nicholson said. "It hasn't gotten better, however."

Customers like Nicholson, however, remain undecided whether they will ultimately migrate to Oracle's Fusion offering.

"Fusion is not expected to be done until 2008, and then customers will evaluate the software through 2010. They're taking a wait-and-see approach," Richardson said.

Rolling out the red carpet
As the merger came to a close last year, Oracle and archrival SAP launched programs to aggressively woo each other's customers.

SAP kicked off its Safe Passage Program shortly after Oracle closed its deal last year, and expanded it in April, offering customers financial incentives to dump any PeopleSoft and J.D. Edwards applications they were concurrently running on their systems. PeopleSoft acquired J.D. Edwards before its merger with Oracle.

In June, Oracle countered with its Oracle Fusion for SAP, or "OFF SAP," program. Like SAP, Oracle offered financial incentives to SAP customers to switch.

Over the past year, SAP has lured 40 customers away from Oracle under its Safe Passage program, said Bill Wohl, a SAP spokesman, including luggage manufacturer Samsonite, which had been using technology from PeopleSoft-owned J.D. Edwards. Other companies that switched included Waste Management and European companies Veka and Yazaki Europe.

"No one believed a flood of customers would move over (to SAP) in the first year...We expect those decisions will take some time," Wohl said. "Instead, we initially focused on customers most likely to convert, and that included PeopleSoft and J.D. Edwards customers who were also running SAP."

SAP has engaged in other offensive moves against Oracle beyond its Safe Passage program, including the acquisition of third-party PeopleSoft support company TomorrowNow within two weeks of Oracle closing its PeopleSoft merger. TomorrowNow, which has been offering support to PeopleSoft and J.D. Edwards customers since 2002, has more than 100 active customers, the bulk of whom signed on after the merger closed, TomorrowNow CEO Andrew Nelson said.

For its part, Oracle says it has competed successfully against SAP in winning new customers.

"We are seeing companies consolidate software vendors and standardize on Oracle," Bob Wynne, an Oracle spokesman, said in a statement. "Companies such as Usina Nova America and Group Voyagers have recently replaced SAP and standardized on Oracle applications. Additionally, new customers such as Gianni Versace, Ingersoll-Rand and Welch Foods continue to select Oracle applications over SAP."

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PeopleSoft Inc., Bruce Richardson, Oracle Corp., merger, Larry Ellison

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How can you ignore Siebel?
With Siebel merger looming, how could a story about Oracle, mergers and CRM completely ignore the Siebel buyout?
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