So PeopleSoft is to acquire JD Edwards. But what does it actually mean and what are the industry economics behind the deal? The obvious conclusion is that it\u0092s a defensive move for the two packaged application vendors, a bulking up in order to better compete against the likes of Oracle, SAP, and Siebel.<\/p>\n
RedMonk, however, contends this transaction is more about infrastructure and middleware than applications. We believe that the deal is being driven by IBM\u0092s platform play as much as SAP\u0092s or other packaged app vendor strengths. More on that below.<\/p>\n
The combined entity will have annual revenues of $2.8bn, 13k employees, and 11k customers in 150 countries, which makes it second to SAP in revenue terms and very much a global player. It\u0092s easy to support the SAP-driven consolidation view: <\/p>\n
\u00b7 PeopleSoft primarily sells into the upper echelons of the Fortune 1000, although it\u0092s struggling to sustain growth in the face of implacable opposition from SAP and deferred buying from enterprise customers.<\/p>\n
\u00b7 J D Edwards, meanwhile, has a large installed base in the mid-range manufacturing sector, but is likely to face increasing pressure from Microsoft through Redmond\u0092s Navision and Great Plains acquisitions going forward, and of course a downmarket focused SAP.<\/p>\n
The thing is the packaged apps market is in crisis. Users are increasingly demanding that middleware and integration are built into applications from the ground up – they\u0092re looking for solid flexible infrastructure frameworks first, and packaged application functionality second. This change in user behavior, brought on by wave after wave of hard-to-integrate application purchasing by lines-of-business, is making life very hard for all packaged application vendors. Meanwhile investment in technologies such as portals (to integrate apps) continues apace. This is an environment in which IBM infrastructure, sales and channel strategies and sheer scale are coming into their own.<\/p>\n
PeopleSoft and JD Edwards, in this view of the world, are merging to position themselves as IBM\u0092s preferred application partner. They will not win exclusivity from Big Blue in this context but they can win significant advantage from being Big Blue\u0092s key ISV for packaged apps. IBM doesn\u0092t sell apps—this is a firm commitment to ISVs and customers alike. But it sells everything else. ISVs have to understand that survival means riding on IBM and or Microsoft\u0092s infrastructure coattails.<\/p>\n
Let\u0092s look at the facts. PeopleSoft and JD Edwards, have, more than any other ISVs, aligned themselves with IBM infrastructure and middleware. While Siebel acts like the tough guy, trying to play off integration and enterprise application vendors BEA, IBM, TIBCO, webMethods, and so on through its \u0093universal application network\u0094 initiative, JDE and PeopleSoft have both made unambiguous, far-reaching commitments to IBM middleware.<\/p>\n
JDE, with its AS\/400 heritage, is going back to the future by standardizing on IBM middleware\u0097including DB2, WebSphere, WebSphere MQ, WebSphere Portal, and Tivoli products. JDE, more than any other app vendor in the industry, has tied itself to IBM\u0092s middleware foundations.<\/p>\n
Meanwhile PeopleSoft has also made strong commitments to DB2 and WebSphere. Anyone that thinks Craig Conway, PeopleSoft\u0092s CEO is interested in hedging his bets should look no further than statements he made at the company\u0092s recent Leadership Summit in Sydney, Australia.<\/p>\n
“Running enterprise software on a PC is a known bad thing. It’s like asbestos,” he said. “.Net is a home formula to make your own asbestos. PeopleSoft is absolutely convinced enterprise software should not be resident on PCs.” (source: News.com, May 19th 2003)<\/p>\n
Sounds like a man prepared to bet on an alternative infrastructure right? That infrastructure is IBM.<\/p>\n
SAP is too competitive with IBM to work that closely with Big Blue going forward. The ERP firm may have signed a deal with IBM around DB2, but it\u0092s always kept WebSphere at arms length, and isn\u0092t about to make any concessions in security and user identity management. SAP has its own middleware business, called NetWeaver. That is a queue for IBM to put the pressure on.<\/p>\n
In the shape of the new Peoplesoft\/JD Edwards merger there is a vehicle for doing just that.<\/p>\n
The argument is not that IBM will no longer work with SAP. The two are joined at the hip in many user accounts, and IBM Global Services will largely sustain its agnosticism here. But if SAP wants to sell a portal into its installed base\u0097IBM is going to make sure it has sales people in that account too\u0085<\/p>\n
RedMonk Take<\/p>\n
Through the deal IBM gets an industry leading packaged app player willing to standardize on its infrastructure middleware and servers (JD Edwards is an extremely strong i-series channel partner, while many of PeopleSoft\u0092s biggest accounts run the software on a mainframe). IBM likes this kind of stuff, as it should, and it\u0092s hard to imagine that the combined Peoplesoft-JDE won\u0092t benefit from its willingness to sell just a business logic layer on top of IBM middleware and servers. IBM and PeopleSoft will also work together to drive Linux and next generation Java and XHTML-based clients into the enterprise. At Microsoft’s expense.<\/p>\n
IBM will continue to work with a host of ISVs in industry sectors across the board going forward. PeopleSoft doesn\u0092t have any exclusivity in tha regard. But it does now have increasing advantages of clout and scale. <\/p>\n
IBM is not the competition it\u0092s the environment in which you compete. Craig Conway and JDE CEO Bob Dutkowsky both understand this notion very well.<\/p>\n
IBM just gained itself a useful new partner across a range of industries and infrastructures. Meanwhile life just got harder for Microsoft, Oracle and SAP. Not because of PeopleSoft\u0092s new found scale in itself, but because of the IBM ecosystem implications. This is an infrastructure play, and IBM Software Group will be happy to see it\u0085this is industry consolidation in action, slanted towards Big Blue<\/p>\n","protected":false},"excerpt":{"rendered":"
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