Support and License Revenue Key Drivers in Oracle/PeopleSoft Deal
by Bill Rose, SSPA Founder and Executive Director

Christmas came early for Oracle’s Founder and CEO Larry Ellison as he finally got the company he’s chased for some time – PeopleSoft Inc. Though Ellison had to raise his offer to $10.3 billion ($26.50/share), the acquisition positions Oracle Corp. as one of the world’s largest applications providers.

In the end, PeopleSoft's support and maintenance revenue, and its recurring license revenue, were the keys to extracting value for PeopleSoft shareholders to the tune of $1.1 billion. The acquisition also had a positive impact on Oracle shares, which gained $1.35 immediately following the acquisition. The analyst community seems to agree with the boost in Oracle value and that the final price was a fair one.

With the deal done, there’s still a lot left unclear. Eighteen months ago, it appeared that the Oracle acquisition meant that PeopleSoft applications would be left unsupported with no future development plans. Today, Ellison promises to release new versions of both PeopleSoft and JD Edwards applications though beyond that, plans call for a combined product line taking the best features of each product line.

Ongoing development promises helps support the continued license revenue stream, part of the rationale for the price increase, but what about support and maintenance revenues? Oracle faces the challenge of balancing PeopleSoft customers who will likely demand continued support from a PeopleSoft entity and merging the support organizations to reduce its costs and improve profitability.

How Oracle services and supports PeopleSoft customers in the short-term will have a big impact on the company’s ability to keep the customers it just acquired. If those customers aren’t well-cared for and supported, there are a number of other enterprise vendors who will make attractive offers to bring them into the fold and Oracle will lose future license and support revenue.

Service and support not only drove the valuation of this merger but is a critical element to the success of this acquisition. Oracle wanted more customers and they got them, now they have to make them loyal customers or lose much of the benefit they seem to have gained.

I’d like to know what you think. Please send me an email, brose@thesspa.com. Thank you.

Sincerely,

Bill Rose
SSPA Founder/Executive Director