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IT Strategy – Big bite to swallow

The voracious appetite of Larry Ellison, chief executive of global software
giant Oracle, knows no bounds. The latest addition to his growing portfolio – 10
acquisitions in the last year – is the $5.85bn (£3.27bn) purchase of customer
relationship management giant, Siebel.

Almost a year to the day after US District Judge Vaughn Walker gave the go
ahead for Oracle’s acquisition of PeopleSoft, Ellison has again gone shopping.

When the deal goes through Oracle will “in a single step”, as Ellison
gleefully puts it, become the number one CRM applications company in the world.

Of course, the irony of his statement is that if Ellison isn’t careful his
company will soon be the only CRM applications provider in the world.

Just days after the acquisition announcement, analysts Gartner released a
research note on what it meant for the industry. “The acquisition could alter
vendor composition in nearly half of the worldwide market share represented by
the top 10 CRM vendors’ licence revenue,” the analyst said.

Based on 2004 estimates Oracle would move 3.5 percentage points ahead of SAP
in terms of worldwide licence sales and gain approximately 20.9% of the total
market share.

Perversely, however, the acquisition could stall the growth of the sector as
current customers take time to work out their strategy.

Experts say that they could go a number of ways, but two are particularly
likely: they could either jump ship to other vendors, or they could sit and wait
for the integration to take shape. Either way Oracle loses in the short term.

Despite this, the acquisition is, on the face of it, a good one. Oracle will
gain 4,000 applications customers and almost 3.5 million CRM users. Siebel will
gain a fast-track into the lucrative European and South American markets.

But Siebel will take the number of CRM products that Oracle has in its
portfolio to four – all of which must be supported. And while the president of
Oracle, Charles Phillips, attempted to allay fears that support for some
products may be scaled down by announcing a lifelong support programme for users
of the company’s products, faint worries will remain.

Everyone knows that following a major acquisition a period of consolidation
follows where potential efficiency drives are recognised. Four separate support
networks, for four different product lines that do essentially the same thing,
could certainly be seen to be inefficient.

Tom Siebel, the chairman of Siebel Systems, has no such worries, however.
“Today is a great day for Siebel Systems’ customers, partners, shareholders and
employees,” he said. “The combination of Siebel applications with the
development capacity of Oracle to enhance our CRM product set assures our
customers’ continuing success.” In the last point he is likely to be proved
correct. Oracle has said it will make the features of Siebel CRM the
“centrepiece” of its Project Fusion CRM, which is the company’s future software

It is certainly very different from Oracle’s hostile takeover of PeopleSoft.
Where Craig Conway, the former CEO of PeopleSoft, who was eventually fired
during the height of Oracle’s takeover bid, would have preferred to stick hot
needles in his eyes than sell to his old adversary, Larry Ellison, Tom Siebel
has clearly taken a different view.

Whether he had his customers best interests at heart, or whether he saw
dollar signs is difficult to speculate on, but clearly personalities did not
have as much influence over the deal as it did with PeopleSoft.

Regardless of motivations behind the acquisition, one thing is certain and
that is that the business software space is a very different beast than it was
just a few years ago. Back then JBOPS was the term used to refer to the top-tier
ERP market. It stood for JD Edwards, Baan, Oracle, PeopleSoft and SAP.

Three of those companies have now become one, a fourth has been swallowed up
by SSA Global (now the third largest ERP vendor in the world, behind SAP and
Oracle), which leaves only Oracle and SAP by name.

Much like the auditing profession has consolidated to such an extent that
Grant Thornton is now a Big Five firm, the software industry is unrecognisable
from what it was just a decade ago.

One can only hope that customers and users aren’t perplexed by the
never-ending consolidation and understand how everything fits together.

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