Analyst Perspective: Oracle Seals the Deal with PeopleSoft

Implications for technology market, enterprises explored

Implications for technology market, enterprises explored

Boston  December 13, 2004  Capping an 18-month drama, Oracle has announced that it successfully negotiated a deal to acquire PeopleSoft for $26.50 per share.

The Yankee Group forecasted the outcome 18 months ago (see June 2003 research note, "Successful Marriage of Oracle and PeopleSoft Will Take Long Courtship and Strong Prenup"). Yankee Group research conducted during the past 24 months provided the basis for our prediction, including research on IT spending and analysis of emerging network and communications technology-based business strategies and processes (see February 2004 research note, "Enterprises Allocate 34 % of IT Spending to Solve Edge Business Problems").

As vendors struggle to understand and develop solutions for technology-enabled business processes at the edge of the enterprise, we expect additional mergers and acquisition (M&A) activity in technology markets. The highest priority process area will be a new breed of supply-chain management called network supply management  outlined in the April 2004 research note, "The 4-Year Supply Chain Technology Vendor Roadmap," which examined additional M&A opportunities and predicted winners and losers.

What Does this Mean to the Technology Market?

  • The overall market for technologies used inside the enterprise is mature. With few exceptions, the opportunity to sell technology used solely within the four walls of a company has passed. Naturally, there will be exceptions by industry, such as healthcare and public sector, and sporadic technology spending driven by regulations or compliance initiatives, such as Sarbanes-Oxley.

  • More M&A will occur in technology markets. Oracle's success means other vendors will execute deals. Numerous vendors are targets, notably Siebel Systems and BEA.
What Should Enterprises Do?

  • Standardize the technology backbone within the enterprise. Most CIOs have the mandate of reducing the complexity and cost of enterprise technologies. Executing standardization strategies enables CIOs to do two things: hold total IT budgets flat while freeing up dollars to fund technology-enabled business initiatives.
Current PeopleSoft customers must evaluate their IT portfolios and look for leverage during negotiations with Oracle. Oracle must minimize defections of PeopleSoft customers. Enterprises running applications from SAP, Oracle and PeopleSoft will have the most clout. SAP has strong applications that compete with all PeopleSoft and Oracle business applications. With the addition of NetWeaver, SAP also competes with Oracle in integration, application server and portal markets.

For a second opinion on the Oracle-PeopleSoft deal, see the AMR Research alert "Oracle Buys PeopleSoft: Let the Healing Begin."
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