Are Oracle days numbered?
http://msnbc.msn.com/id/9113677/
PeopleSoft Customer Defections Loom Large
Oracle seeks to quell fears at mid-September Openworld show
By Eric Lai
East Bay Business Times
Updated: 8:00 p.m. ET Aug. 28, 2005
Software giant Oracle Corp. pursued rival PeopleSoft Inc. for a year and a half, all the while making no bones that its goal was to strong-arm PeopleSoft’s 13,000 customers into switching to Oracle’s own business software.
But by the time the $10.6 billion acquisition was finalized in January, Oracle, realizing that customers might flee en masse to rival SAP AG or other software providers - and take billions in annual maintenance and support fees with them - had changed its tune.
Oracle took steps to appease PeopleSoft customers, such as retaining more than 90 percent of PeopleSoft’s programmers and technical support staff and proclaiming that it would support PeopleSoft users for up to a decade without forcing them to switch.
Nine months later, Oracle’s success in its efforts to retain PeopleSoft customers appears to be a matter of perspective. For sure, most PeopleSoft customers have not dumped their software, which manages key functions such as payroll and accounting, yet. Oracle says its retention rate of PeopleSoft customers is “in the high 90th percentile,” according to co-president Safra Catz two months ago.
“I’ve seen a lot of interest in companies to kick the tires but not a lot are making the switch yet,” said Jason Averbook, CEO of the San Ramon consulting firm Knowledge Infusion LLC.
$10 million to switch
One reason is that switching ERP software is a costly, time-consuming process that Averbook estimates would require at least $10 million and three to five years for a midsize to large corporation.
But many firms are taking small steps away from Oracle, such as keeping their PeopleSoft software but switching their source of technical support and maintenance to cheaper, third-party providers such as TomorrowNow.
TomorrowNow, based in Bryan, Texas, was founded in 1998 by a former PeopleSoft executive and acquired by SAP in January. The company is providing PeopleSoft support for more than 100 customers, including 45 firms it has signed up since January.
“We give them twice as much attention while saving them a whole lot of money,” said Andrew Nelson, TomorrowNow’s founder and CEO. Betting on continued growth, Nelson has tripled TomorrowNow’s head count to 100, most of them ex-PeopleSoft employees, since January.
Some businesses are dropping their PeopleSoft software for offerings from Oracle rivals. Enterprise resource planning software market leader SAP says it lured 21 companies away from PeopleSoft in the first six months of this year.
“We have a pipeline of hundreds and hundreds of companies that are thinking about switching,” said SAP spokesman Bill Wohl. “For Oracle to talk about retention rates at this early juncture is almost laughable.”
Fusion not ready for two years, at least
Defections of existing PeopleSoft users could accelerate after Oracle’s four-day Openworld conference that begins Sept. 14 in San Francisco. The 12,000-plus remaining users of PeopleSoft and J.D. Edwards software, which PeopleSoft acquired in 2003, will closely analyze pronouncements by Oracle executives at the conference to weigh their decisions on whether to stay with Oracle.
Oracle is expected to give more details about its still-in-development ERP software, called Fusion, that will purportedly combine the best features of Oracle E-Business, PeopleSoft and J.D. Edwards software.
Fusion, however, won’t be ready until 2008 at the earliest, meaning Oracle must continue to add features to PeopleSoft software.
“The biggest thing that customers are afraid of is that Oracle will tell PeopleSoft customers that for them to upgrade to the latest versions, they will have to switch over to Oracle’s database,” Averbook said. That would be a lengthy and potentially expensive process for the many PeopleSoft users that don’t run an Oracle database.
It could also have the counterproductive effect of driving PeopleSoft users away.
Take Oakland-based AC Transit. The Alameda County public bus service has used PeopleSoft to manage payroll for its 2,500 employees for more than six years. But last year, Tom Sturges, an IT project manager with AC Transit, decided to dump PeopleSoft support.
“Our annual support bills had tripled since we first installed PeopleSoft in 1999,” Sturges said. Also, Sturges said, PeopleSoft was threatening to stop providing AC Transit technical support unless it upgraded the older version of PeopleSoft that Sturges says he was perfectly happy with.
By signing a support contract with TomorrowNow, the cash-strapped transit agency’s bill has dropped 80 percent, Sturges says. Moreover, he is confident that TomorrowNow will support AC Transit’s old software for another decade.
Weaning themselves slowly from Oracle
Other East Bay companies that have turned to TomorrowNow for PeopleSoft support include Pleasanton grocer Safeway Inc., Dublin software vendor Sybase Inc. and Orinda software maker IntraWare Inc.
Even though those companies still use PeopleSoft or J.D. Edwards software and may continue to pay Oracle for software upgrades, their defections hurt Oracle’s bottom line.
The software license business model is a razors-and-blade game: Sell a company a software license at cost in order to make fat profits by providing it maintenance and support afterward. Before it was acquired, PeopleSoft made three-quarters of its $2.8 billion in annual revenue from providing services and maintenance.
Companies spent $8.3 billion last year on ERP software maintenance fees, according to AMR Research.
Other firms are weaning themselves from Oracle by declining to upgrade their PeopleSoft software, keeping up-to-date by buying add-ons from third-party software vendors instead, said Averbook. When the software eventually becomes too out-of-date, companies likely will decide whether to upgrade to Fusion - as Oracle hopes - or to SAP, joining existing East Bay SAP customers such as Crockett’s C&H Sugar Co. Inc., The Clorox Co. in Oakland and San Ramon’s Chevron Corp.
Still others may hold off, waiting for PeopleSoft founder Dave Duffield to unveil his stealth software startup, Workday, which promises to offer low-cost ERP software through the Internet.
Averbook says the lower cost of Workday’s on-demand offering and Duffield’s track record will prove “intriguing” to many companies disenchanted with Oracle.
© 2005 East Bay Business