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SEPTEMBER 24, 2004
By Sarah Lacy IBM as PeopleSoft's Hero? Hardly Their much-hyped $1 billion partnership has more to do with Big Blue's desire to stay out of business applications Big Blue --a white knight? It's easy to see how industry watchers got carried away with speculation that IBM (IBM ) might be riding to rescue of beleaguered PeopleSoft (PSFT ). On Sept. 22 at PeopleSoft's annual users' conference, the two announced a $1 billion partnership to bundle IBM's middleware with PeopleSoft's applications (middleware connects different applications). After all, IBM is the biggest database rival to Oracle (ORCL ), which recently got the go-ahead from a U.S. District Court judge to proceed with its hostile bid for PeopleSoft, based in Pleasanton, Calif. Such a last-second rescue at IBM's hands would be a great cap to the 15-month Oracle-PeopleSoft Silicon Valley soap opera. Too bad it probably won't happen. No question, IBM doesn't want to see the Oracle takeover happen, largely because it would evenually kill PeopleSoft's products. And with talk of Microsoft (MSFT ) possibly buying German business-app powerhouse SAP (SAP ), IBM needs another independent application provider to work with. It certainly doesn't want Oracle, its chief database competitor, to gain more firepower. MORE TO LOSE? But unlike Larry Ellison & Co., IBM has explicitly said it doesn't want to get into the applications business. It's a strategic decision: By staying out of the fray, Big Blue can support Siebel Systems' (SEBL ), PeopleSoft's, and SAP's applications. Plus, the agreement to partner with PeopleSoft isn't exclusive. IBM has similar deals with SAP and with J.D. Edwards before PeopleSoft purchased it last year. Under the current state of play, if IBM were to turn around and buy PeopleSoft, it would risk alienating SAP -- which as the market's biggest player probably has more revenue potential, analysts say. If IBM did want to purchase PeopleSoft, it likely would have done so by now. Each day the uncertainty continues, PeopleSoft is losing or delaying sales, and hence declining in value. The recent ruling in favor of Oracle didn't help matters. Rather, the IBM-PeopleSoft partnership might be evidence that IBM has no plans to make an offer. Instead, it's showing support for a stand-alone PeopleSoft in the form of the $1 billion agreement. It remains to be seen how beneficial the IBM-PeopleSoft partnership will be, even if it's just that, a partnership. Few details were released: The $1 billion would be spent over five years, every PeopleSoft application would be shipped with IBM's middleware free of charge, and the two companies would market vertical products to telecommunications, finance, and insurance companies. That was the extent of the announcement. No one knows when the $1 billion will start being spent, or where it will come from, whether the money will be shifted from marketing resources or elsewhere. "USUALLY NEVER WORK." Some analysts, like Paul Hamerman, vice-president of market researcher Forrester Research, think the deal plugs a hole for PeopleSoft in obtaining middleware from IBM, while helping Big Blue stay out of the applications business. But few analysts share PeopleSoft CEO Craig Conway's enthusiasm at the user conference, where he declared "it is the most ambitious announcement ever from PeopleSoft and IBM." In techdom, "partnership" often means little more than a marketing agreement. "They usually never work," says Brad Rebeck, analyst with CIBC World Markets. "They're usually not exclusive, and they don't have enough skin in the game. Each vendor is still out to sell their own product." No wonder investors yawned. PeopleSoft stock ended the day of the announcement down 21% at 19.32. IBM traded 1.6% lower, closing at 84.31. CONVENIENT TIMING. The deal, and the white knight speculation, could provide a psychological boost for longtime PeopleSoft customers, prompting them to pull the trigger on purchase decisions again. Analysts point out that these types of agreements don't get thrown together in a matter of weeks and that a user conference is exactly the venue that frames big-deal announcements. Nonetheless, the timing is incredibly convenient. So score one for PeopleSoft in the PR battle. But don't expect much more to come of this partnership.  Lacy is a reporter for BusinessWeek Online in Silicon Valley
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