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Oracle deal puts Microsoft partner in rival's hands

December 2004

Tuesday, December 14, 2004

Oracle deal puts Microsoft partner in rival's hands


SEATTLE POST-INTELLIGENCER REPORTER Oracle's acquisition of PeopleSoft will create a bigger competitor for Microsoft and put one of the Redmond company's largest industry partners in the hands of a rival.

How seriously does Microsoft take the situation? Just the prospect of Oracle's buying PeopleSoft prompted Microsoft's Bill Gates to contemplate combining his company with German enterprise-software giant SAP last year, according to an e-mail message that surfaced as part of the Justice Department's challenge to the Oracle-PeopleSoft deal.

Ultimately, the merger discussions between Microsoft and SAP were fruitless. However, the Oracle deal reflects the trend toward consolidation in the business-software market, and analysts expect Microsoft to be one of the big companies left standing when it ends.

"To say that this would push Microsoft to potentially make a defensive move would be a bit of an overstatement, but I think Microsoft is always looking at potential scenarios, as we learned in the PeopleSoft situation," said Crawford Del Prete, an industry analyst at research firm IDC. "I think that those due-diligence efforts will continue."

The business-software market is evolving and consolidating in much the same way that the auto and steel industries did, said Ken Marlin, managing partner at New York investment bank Marlin & Associates. Ultimately, a relatively small number of global players are expected to remain. Microsoft, SAP, Oracle and IBM are among those positioning themselves to be acquirers, he said. Through a spokeswoman, Microsoft declined to comment yesterday on Oracle's PeopleSoft deal.

Microsoft entered the business-applications space with the acquisition of Great Plains Software in 2001 and Navision A/S in 2002. Those deals formed Microsoft Business Solutions, which makes customer-relationship management software and other programs for managing back-office business functions.

The Microsoft division primarily targets small- and medium-sized businesses, but as evidenced by its SAP merger talks, there are also signs that Microsoft has designs on the applications market for big enterprises.

Historically, Microsoft has competed head-to-head with Oracle in the database market. At the same time, PeopleSoft's enterprise applications often run in conjunction with Microsoft's infrastructure software, including its SQL Server database program and Windows operating systems for computer servers.

Oracle's acquisition of PeopleSoft creates "an awkward position for Microsoft in part because PeopleSoft is one of its biggest partners," said industry analyst Dwight Davis, vice president with Summit Strategies Inc. However, he noted that Microsoft and Oracle do work together to some extent on a technical level.

"To the degree that Oracle is now enveloping PeopleSoft, it will make it a little more dicey for Microsoft to maintain its historical ties with PeopleSoft as an application provider," he said. "I don't think that the acquisition of PeopleSoft by Oracle is going to burn that bridge entirely. It's just going to make it a bit more difficult."
P-I reporter Dan Richman

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