A number of big PeopleSoft customers, including DaimlerChrysler, Verizon Communications and Cox Communications, expressed alarm over the PeopleSoft takeover as witnesses in a government antitrust suit over the deal.
Executives in charge of information technology at each of those companies testified at the June trial that the merger was likely to raise software prices and cause costly disruptions. None of them returned calls about Monday's deal.
However, PeopleSoft customers should take into consideration that Oracle executives, including chief executive Larry Ellison most recently, have vowed to do right by them, technology analysts say. It would be in the company's interest to honour such promises because of the lucrative software maintenance fees those customers pay.
One Oracle customer offered a sunnier view of the deal. Charles Peters, senior executive vice-president of Emerson Electric, says he looks forward to seeing new products from Oracle as a result of the merger.
"I think it's a positive development," Peters says. "Oracle needs the scale to compete on a global level and keep up the development necessary to provide complete information technology solutions to companies like our own."
Keeping existing customers happy -- whether they use software from Oracle, PeopleSoft or J.D. Edwards -- is job number one for Ellison, says analysts. "The big challenge for Oracle is to keep the PeopleSoft customer base," says Joshua Greenbaum, analyst at Enterprise Applications Consulting. "If those customers start evacuating to higher ground, Oracle's in trouble."
One of the major reasons for Oracle's interest in the merger is the recurring revenue from maintenance fees and upgrades to existing software paid by PeopleSoft customers.
A growing percentage of Oracle's revenue comes from such fees, which are highly lucrative, often producing profit margins of 80 percent to 90 percent. As the growth in new software licence sales slows, Oracle, along with other software makers, will increasingly rely on maintenance fees to fuel quarterly profits.
Rivals weigh in
Oracle fears that some customers may flee to German rival SAP, the largest supplier of business planning software in the world. The company has been a primary beneficiary of the 18-month battle between its two closest competitors, selling itself as the safe and reliable alternative.
SAP still expects that message to hit home with corporate customers, even now that the Oracle deal has turned friendly, SAP spokesman Bill Wohl says. That's because Oracle and PeopleSoft have a difficult task ahead of them as they attempt to merge the companies and their products, he says.
"All of this bodes very well for SAP," Wohl says. "For us, it's business as usual."
In the long run, however, Oracle may prove a much tougher competitor to SAP. In fact, Ellison has repeatedly cast his bid for PeopleSoft as a direct shot at SAP.
