Customers hold key to PeopleSoft’s future

PALO ALTO: PeopleSoft Inc. customers have backed the software maker's efforts to fend off a $6.3 billion hostile takeover bid from Oracle Corp. and analysts said they expect customers to play an even more important role as the battle rages on.

"There is no question that they're going to apply a lot of pressure on the vendors involved to make sure that their voices are being heard and that their investments will be protected for a long time to come," said Albert Pang, director of enterprise applications research at IDC Corp.

Nextel Communications Inc., Toyota Motor Manufacturing North America and Domino's Pizza have joined the chorus of customers backing PeopleSoft in advertisements splashed on the pages of major publications in the United States and Europe.

PeopleSoft user groups from such industries as higher education, health care and manufacturing have issued press releases supporting PeopleSoft. Representatives from those groups said they will keep looking to help deflect a takeover of PeopleSoft by the world's No. 2 software maker.

The State of Connecticut, a major PeopleSoft user, sued to block Oracle's bid and promised to assemble a coalition of other states and consumers to back its fight.

"Customer loyalty is a powerful force in software," Summit Analytic Partners analyst Richard Williams said.

Underscoring that point, PeopleSoft recently said second-quarter revenues and profits would be stronger than expected, helped largely by customer acceptance of a novel anti-takeover defense. PeopleSoft promised to rebate users up to five times the value of any software purchased in the quarter if PeopleSoft is acquired.

Many analysts had expected Oracle's bid to disrupt PeopleSoft's sales and cause the company to post disappointing software revenue numbers -- making it more vulnerable to Oracle's advances.

ANTI-TRUST CONCERNS

PeopleSoft, which has rejected Oracle's offer, is racing to close a separate, friendly merger with J.D. Edwards & Co.

Oracle Chief Executive Larry Ellison has said he remains committed to acquiring PeopleSoft and would work if necessary to remove some PeopleSoft directors at the company's annual meeting in June 2004.

Either the J.D. Edwards deal or the Oracle deal would require approval from federal antitrust enforcers, who analysts said would likely seek customer testimony should PeopleSoft and Oracle strike a deal.

"That's where they get a lot of their evidence ... They're the focal point of what we call consumer welfare, what antitrust laws are designed to foster," said Ernest Gellhorn, a professor at George Mason University's School of Law.

Williams and other analysts said PeopleSoft could keep mining its user base for defensive sales for the next couple of quarters. Some analysts worried that contracts with rebate provisions carried discounts that were too steep and could eat into future sales, despite PeopleSoft's reassurances to the contrary.

CLOUT-WIELDING CUSTOMERS

Users of business software that automate operations such as payroll, purchasing and human resources need to work closely with the companies that write such programs, and have organized into groups that wield clout with software providers.

"That really makes it hard for them to take a sideline role to (merger and acquisition) activity that could impact how they run their company," said Joshua Greenbaum, principal of Enterprise Applications Consulting in Daly City, California.

Meanwhile, Oracle has begun its own campaign to win over PeopleSoft customers, reassuring them it would sell additional PeopleSoft products and support the software for a decade.

"They are beginning to soften their tone and their posture right now in order to appease these customers ... They've got plenty of time to cultivate a relationship," Pang said, noting that Oracle would be wise to win the support of key customers like Hewlett-Packard Co, which runs PeopleSoft's application hosting business and is one of its software selling partners.

Meanwhile, Pang cautioned that the noisy public debate does not tell the whole customer story.

"PeopleSoft has more than 5,000 customers. It's not that difficult to find five or 50 that are going to be very vocal in supporting you. With Oracle (customers) you can find the same or more supporting Oracle's approach," he said.

© Reuters