PeopleSoft-IBM: waiting for the beef

We predicted the PeopleSoft-IBM middleware alliance back in July in one of our Research Notes published to the Wall Street crowd on First Call:

PeopleSoft could attempt to accelerate the modernization of its multiple lines of application middleware by engaging in a strategic platform alliance with IBM, possibly sealed by a minority equity investment from Big Blue. The core of such a deal would be a multi-year redeployment of PeopleSoft’s application portfolio to WebSphere J2EE infrastructure, similar to what Siebel is now undertaking for Siebel 8. It would also entail a push to standardize DB2 as the preferred database for PeopleSoft customers (virtually ousting Oracle from new deals, while leaving a secondary role for Microsoft SQL Server) and increased promotion for PeopleSoft’s existing but little noticed Linux versions. It could even offer customers the option of using the IBM-sponsored open source Eclipse development environment as a tool for customizing PeopleSoft apps or building new add-on modules.

But now that the announcement has been made, we have to ask: where’s the beef? The statements issued by PeopleSoft and IBM so far are extremely short on substance, which is a sure sign that the two sides have not settled on anything like a detailed road map for their alliance, but have agreed to hold hands in public for a while in order to buy time. IBM lost little time distancing itself from Craig Conway’s claim that the deal would involve a joint investment of $1 billion.

Careless observers might think the deal means all of PeopleSoft’s applications will be ported to IBM’s WebSphere. Although that’s certainly a long term possibility, nothing suggests it will happen any time soon. PeopleSoft’s flagship Enterprise portfolio is a byzantine patchwork of modules built over many years using the vendor’s own development environment and runtime middleware, PeopleCode and PeopleTools. It also incorporates assorted third party components such as BEA’s Tuxedo transaction monitor as well as a web page server, which can be BEA WebLogic or IBM WebSphere. Most of the installed base runs on Oracle, not IBM DB2. Add to this two other, completely different ERP product lines inherited from JD Edwards, one built in the proprietary IBM OS/400 environment (World) and the other built on a traditional Unix-Windows client-server architecture (EnterpriseOne). Porting all this to WebSphere and J2EE would be a gigantic undertaking, far too risky and expensive to contemplate in PeopleSoft’s current embattled circumstances.

What the announcement really boils down to is something far more limited, but nonetheless interesting. As we read it, PeopleSoft’s true aim is to deploy WebSphere in parallel to its own older middleware to respond to the roaring success of SAP’s Netweaver integration stack. Our survey work over the past few months shows that the SAP installed base is much more active at present than the PeopleSoft installed base. And the reason is Netweaver. SAP customers are not only migrating slowly but surely from R/3 to MySAP, which requires the Netweaver platform. They are also using it to tie their sprawling and chaotic non-SAP app portfolios into the ERP backbone or into the ERP-based data warehouse. PeopleSoft’s IBM alliance is pitched at large accounts that may be running both SAP and PeopleSoft apps, and that – absent a credible middleware strategy from PeopleSoft – are increasingly tempted by SAP’s siren call of “come integrate with me”. PeopleSoft’s argument seems to be: if you’re going to put all your integration eggs in one middleware basket, better it be IBM’s than SAP’s.

Bottom line: PeopleSoft’s IBM alliance is an expedient fix to the app vendor’s fear of being pushed out of complex large account deals by the superior breadth of SAP’s offering. We don’t think customers will see a whole lot of new software coming out of the deal any time soon. But it could be a compelling talking point for PeopleSoft sales reps to take into big-ticket RFP negotiations.

Meanwhile, despite the recurrent but silly “IBM as white knight” rumor which we believe is utterly unfounded (IBM is not going to wreck its far larger relationship with SAP by bidding for PeopleSoft against Oracle), the WebSphere alliance does nothing to solve Craig Conway’s most pressing problem, which is called Larry Ellison. We think there are one or two major surprises that Conway may have up his sleeve. More on that in a later post.

PS: Another obvious but little remarked upon consequence of the deal is to put both BEA and Microsoft squarely in their place as also-rans in the enterprise application middleware sweepstakes. There are now only two contenders who count: IBM and SAP.

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