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IBM, iSeries users looking for next PeopleSoft?

A potential takeover of PeopleSoft by Oracle looms large at IBM and within iSeries shops. While the battle rages on, users put new purchases on hold, but IBM is likely putting plan B into place.

It's no secret that if Oracle Corp.'s bid to buy PeopleSoft Inc. is successful, it will be a huge below-the-belt blow to IBM.

It's unlikely that Big Blue is sitting idly by waiting for the next punch, however. According to some industry observers, IBM almost certainly has plans to find a successor to the Pleasanton, Calif.-based PeopleSoft -- if it comes to that (some don't think it will).

They're still holding their breath to see what PeopleSoft is going to do. Now this deal compounds that.
Yvonne Genovese
research vice presidentGartner Inc.

While IBM is reviewing its long list of independent software vendors (ISVs) and partners, iSeries users remain stuck between a rock and a hard place.

A federal judge's decision late last week ruling in favor of Oracle in its quest to takeover PeopleSoft could have some interesting implications for IBM and iSeries users who run J.D. Edwards (JDE) and PeopleSoft ERP applications. The judge ruled that the acquisition would not create an illegal monopoly in the enterprise software market.

It ain't over till it's over but...

While this most recent ruling doesn't mean it's a done deal, the threat that Oracle will take over PeopleSoft, which purchased JDE just over a year ago, is much more real. Now, users are facing the very real possibility that their ERP apps will soon be owned (then possibly destroyed) by Oracle. IBM is at risk of losing one of its most lucrative ISVs.

"The deal has very significant implications for IBM," said Stephen O'Grady, an analyst with the Bath, Maine-based Red Monk.

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IBM was unavailable for comment.

O'Grady said IBM will potentially have to look for other partners or forfeit all that iSeries ERP business to Oracle, which he doubts IBM would ever let happen.

"IBM is still going to sell a lot of middleware, and even if this deal goes through it won't sink IBM by any stretch of the imagination. But it will hurt them because they'll lose a huge partner."

But don't think for one minute that IBM isn't working on a way out of this situation.

"There's a lot going on in the backroom of IBM boards to figure out how to mitigate this," said Yvonne Genovese, research vice president at Gartner Inc. There's a very good possibility that other second tier vendors, such as SAP, or midrange players such as Lawson or SSA, will emerge to be that next big IBM ISV. Genovese said both companies are already on very solid ground with the iSeries user base. In addition, there are probably companies we haven't even heard much about that could surface, she said.

Vendors in waiting, users on hold

O'Grady said even if a vendor gets tapped, it doesn't make them a PeopleSoft overnight.

"The tactical implications are cloudy," said O'Grady, noting that deals like this take years to be resolved. If the deal does go through, it will be months before the impact reaches end users.

This is not good news for users who are holding onto purchases or, in the case of one user, delaying training.

Daniel J. Kuchar, a senior developer with LP Specialty Products, Troy Mich., is versed in JDE applications. He said it has always been his intention to get trained in using PeopleSoft's OneWorld software. But he said the prospect of a hostile takeover from Oracle makes him reluctant to make the investment.

"Why should I spend big bucks, not to mention my time, learning a product that will undergo massive change ... or be dismantled … if the takeover succeeds," Kuchar said.

The difficulty for JDE users is that there is no clear path as to what the next step should be.

"They're still holding their breath to see what PeopleSoft is going to do," Genovese said. "Now this deal compounds that."

Still, users don't take changing application vendors lightly, and Genovese said they may hold off on a huge upgrade, but they might buy a module, for example.

"Switching software isn't a trivial thing," she said. "We're talking about applications that get ingrained -- you just don't decide to take it out and use something else. This is a long-term decision. They'll be on hold and unhappy [for a while]."

Her advice to users is waiting as long as possible -- anything could happen.

Oracle is not likely to waste much time putting PeopleSoft out of business, said observers. And while Oracle will likely support PeopleSoft for a while, it won't last long.

Hard choices

Eventually, if Oracle gets its way, every customer is going to be faced with having to make a choice -- go with Oracle or go with someone else. Oracle will try to convince PeopleSoft users to convert. IBM will lure iSeries users in a different direction.

"Every customer is going to have to make that decision," O'Grady said. "Oracle is in a position to convert those customers. But it won't be 100% [of the installed base]."

Users waiting for IBM to come to PeopleSoft's rescue, probably shouldn't hold their breath. The possibility of IBM coming in as PeopleSoft's "white knight" is unlikely.

"In terms of IBM buying PeopleSoft -- they couldn't do it," O'Grady said. "In one feel swoop, it would undermine everything they've done in the past few years -- no apps, no competition -- they couldn't justify it to their ISVs and customers. It would be a very difficult thing to make happen."

Let us know what you think about the story; e-mail: Kate Evans-Correia, Senior News Editor

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