Oracle-PeopleSoft Deal: Boon Or Bust For Partners?

Larry Ellison has reason to smile. After finally bagging PeopleSoft for around $10.3 billion in December--ending 18 months of hostile-takeover maneuvering and stockholder bellyaching--the Oracle founder and CEO finds himself atop the No. 2 firm in enterprise applications' game. And, in the process, he has gained thousands of new (some say captive) customers to provide a boost to his flagship database sales. But while the ink has dried on the much-hyped PeopleSoft deal, the work has only just begun. Oracle, in effect, is about to combine three distinct companies: itself, PeopleSoft and the former JD Edwards, the midmarket apps firm that PeopleSoft bought in 2003 and, frankly, is still digesting.

Like any MandAmp;A, that will mean taming divergent cultures, reconciling numerous product sets and resolving existing contracts with other vendors, including the major technology alliance PeopleSoft recently signed with IBM. What's more, Oracle now has two sets of partner and customer bases to placate. In particular, the Oracle and PeopleSoft partner ecosystems are in some senses like day and night. PeopleSoft is known as channel-friendly, inspiring devotion among its solution providers, while Oracle, rife with channel conflict, has produced large factions of disaffected partners.

"If you look at PeopleSoft's professional services organization and Oracle's, you could not find two organizations that are more completely different. It's a totally different philosophy," says Brian Coffey, assistant vice president and head of the North American practice for enterprise applications and business intelligence at Satyam, a $500-plus million India-based technology integrator. Coffey says that Satyam competes with both companies for deals, but has found PeopleSoft more willing to work with partners or direct business to them. "Are we going to see Oracle promoting partner-selling? It all depends on how their salespeople are incented," he says. "In that respect, I think the PeopleSoft [deal] helps us rather than hurts us."

Notorious for its poor channel manners, Oracle, under Rauline Ochs, group vice president for North American channels, has tried to polish its image with partners as it aims for more midmarket business. The company has established clearer rules of engagement for its highly aggressive direct sales force, and has begun to allow partners to negotiate discounts with customers directly and to sell into subsidiaries of its 239 largest enterprise accounts. Still, partnering remains a work in progress. The biggest obstacle, according to many, is Oracle's reluctance to compensate its sales reps equally for business done direct and through partners. Many of its IT rivals, including PeopleSoft, already do this, and partners say it helps curb channel conflict.

Deke Johnson, president of Aware Technologies, one of Oracle's largest software resellers and a former Oracle sales executive, says the vendor is moving in the right direction, but compensation neutrality is the linchpin.

"The industry has adopted this as a best practice, and it's high on the priority list across the partner community," Johnson says. "Comp neutrality won't turn the ship [at Oracle]--it will immediately melt the iceberg [in front of it]."

That said, Ochs tells VARBusiness that compensation is only one piece of the puzzle for fixing channel conflict--and it's a "quick fix" at that.

"We are going for the longer-term sales discipline changes around processes, education and field-engagement guidelines," she says, adding that monthly cash rewards for sales reps who work well with the channel are now part of their internal program.

As for the PeopleSoft deal, many existing Oracle partners, including Johnson, welcome it as a new opportunity. Many see it as a means to halt the momentum of SAP, the German apps powerhouse, which benefitted from months of uncertainty that shadowed the Oracle/PeopleSoft deal.

PeopleSoft's partners have more questions and concerns. Chief among them is whether Oracle will continue product development beyond the forthcoming PeopleSoft 9 suite, which it has pledged to support. Some also wonder if they will be allowed to stay PeopleSoft-only resellers if they choose. Many of the former JD Edwards partners have to contend with customers--an estimated half--that have serious jitters and a fierce loyalty to the IBM platform (iSeries, DB2) running their older manufacturing applications. If Oracle insists customers migrate to the Oracle 10 database, partners will likely face pushback from these accounts, according to Mike Dominy, director of enterprise services at Yankee Group in Boston.

Just how much, if any, of PeopleSoft's channel-friendly culture will creep into the Oracle playbook is unknown. If Oracle truly wants to execute on its plan to penetrate midmarket accounts, however, it had better hope some does.