Vendor eat vendor

Thomas R. Temin

With a bold, though rejected, takeover bid this month, the wily Larry Ellison threw the world of big software vendors into turmoil.

At the moment, it appears that Ellison's Oracle Corp. won't pull off its hostile, $5 billion bid for PeopleSoft Inc. of Pleasanton, Calif. PeopleSoft's board turned back the offer last week.

But Oracle's mere expression of intent, sprung in response to PeopleSoft's own friendly bid for J.D. Edwards & Co. of Denver, set off a chain reaction of poison-pill antitakeover measures, verbal counterpunches in the press and appeals to customers. The issue isn't settled yet.

Corporate battles such as these matter to governments, which are major customers of the companies. For example, both Oracle and PeopleSoft are on the Joint Financial Management Improvement Program vendor list. That list, like many multiple-award contracts, was carefully constructed to leave agencies with a choice. No choice, no competition.

It is ironic that while the federal government is reviewing procurement policies to ensure fair competition among small and disadvantaged vendors, the big boys are busy trying to reduce competition.

Often, the motivation for one vendor taking over another is to fill product-line gaps. But Oracle appeared to want just the opposite'to take products out of the market. The Wall Street Journal reported that Ellison promised to stop development of PeopleSoft products and effectively force customers to move over to Oracle applications.

These products aren't commodities, such as digital cameras or hard drives. To get an enterprise application up and running takes months or years of planning, testing, tweaking and training. It often involves revising longstanding processes. Choosing a financial or personnel system commits an organization to a particular technical direction for years.

Thus one company's promise to spike the installed base of another must give customers pause. Do I buy a new version or hope for the best with this product? Do I switch to the winning vendor?

Takeovers are also a good time for customers to let vendors know what they think. Collectively, the government might have more clout'as a customer'than it thinks.


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