Oracle's Mr. Nice Guy Has His Hands Full


Charles Phillips produced a sterling record during his 17 years as a Wall Street analyst. Not only was he ranked for nine years running as the top U.S. analyst in the enterprise-software category by Institutional Investor but his monthly surveys of the purchasing plans of 150 leadng chief information officers gained him a heap of credibility with corporations, investors, and captains of the software industry.

That credibility is now being put to the test in a way that Phillips, 44, likely never expected. Oracle hired him away from Morgan Stanley on May 15 as an executive vice-president to improve the No. 2 software maker's relationships with customers. Changing jobs wasn't so unexpected. Phillips had already agreed to accept a position with a venture-capital firm and leave Wall Street when Oracle CEO Larry Ellison contacted him and convinced him to "help reshape the industry," recalls Phillips.

"GETTING YOUR NOSE DIRTY." Little did he know how quickly the reshaping would begin. On June 6, just two weeks after Phillips started his new job, Oracle launched its hostile bid for rival PeopleSoft. Phillips' task: To convince PeopleSoft's customers that it's a good deal for them, too. He says he relishes that challenge, which involves being in the thick of things in the software industry, as opposed to watching from the sidelines. Says Phillips: "Instead of keeping score, you end up getting your nose dirty."

Phillips does have quite a mess on his hands. PeopleSoft customers reacted with public dismay to Oracle's bid. In response to an online survey by market-research firm Meta Group, only 4.6% of 539 PeopleSoft customers surveyed said they would switch to Oracle applications if the merger is completed. The State of Connecticut announced that it will file an antitrust suit to block the combination -- complaining that it would cost $100 million to shift over from PeopleSoft products. And members of the Distributors & Manufacturers' User Group, an alliance of PeopleSoft customers, condemned the potential union. "Where's the win here for the customers? They're just buying market share," says the group's president, Bob Cerny.

Corporate customers hate it when relationships with technology suppliers are stirred up, and their mental inertia is easy to understand. Typically, companies take between six months and nine months to choose between software applications. It can cost anywhere from $100,000 to $10 million to buy the software, and installation can amount to more than twice the purchase price. Then it can take up to a year to install the software and get it running well.

SWEETENING THE DEAL. Oracle tried to put some sugar in the takeover for PeopleSoft's customers. It offered to extend support for PeopleSoft 7, a suite of now-outdated products. PeopleSoft itself had announced that it would stop supporting those products at the end of 2003, in an effort to get customers to upgrade to a new suite, PeopleSoft 8. Oracle also offered to allow PeopleSoft customers to migrate to its Oracle e-Business Suite of applications without paying for the software.

Now, Ellison & Co. is stepping up its campaign to soothe tempers. "We're putting together a broad effort to reach out to all PeopleSoft customers, since our messages haven't been getting through," says Phillips. For starters, Oracle issued an open letter to customers on June 20 pledging to develop and improve PeopleSoft products for at least the next 10 years. Oracle pointed out that it has supported customers of the Rdb database for eight years, since it acquired the product from Digital Equipment.

What happens next? Ellison and Phillips are making their case directly to customers this week at Application World, a trade show for enterprise-software users in London. Then they're moving to Madrid and Rome on a press tour.

FULL SCHEDULE. Phillips has taken an unusual path to the tech-industry executive suite. Before his Wall Street career, the U.S. Air Force Academy graduate spent five years in the military managing computing systems. "I've been a user, analyst, and now a vendor," he says. "I'm probably the only person to have done all three."

Since arriving at Oracle, Phillips hasn't even had a chance to settle into his new office on New York's Madison Avenue. He has been working practically around the clock, visiting investors and customers, and holding strategy sessions with other Oracle executives. His office has little other than a desk and chairs, and only a handful of books have made it onto his shelves, including On Writing Well and Advanced Accounting. This takeover battle may drag on for months, so Phillips' office could keep that spartan look for a very long time to come. By Steve Hamm in New York


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