PeopleSoft looks for market direction

PeopleSoft has a good reputation for developing innovative enterprise applications, but the company is struggling to find a convincing marketing strategy to boost awareness of its product set.

The last two years have been particularly tough for the one-time high flyer. A string of poor results, top management clear outs and a focus on moving its packages to an internet architecture have all caused disruption.

And although the US financial and industry analyst communities have talked up the vendor's recent technical achievements, European observers at its annual Europe, Middle East and Africa user conference in Spain last week were less flattering.

PeopleSoft has traditionally emphasised its technological prowess, claiming to have invested an average of 27 per cent of annual revenues in research and development (R&D).

But Craig Conway, the firm's chief executive, acknowledged that "this is a suicidal strategy". As a result, the company now plans to divert around 12 per cent of its total R&D expenditure into its marketing budget in an attempt to raise its profile.

But Conway's remarks need to be seen in context. Last quarter, it reduced its R&D spend to 18 per cent of total sales, but this was not enough to enable it to make an operating profit. The supplier lost $10.1m and this was before taking a $35m hit that resulted from writing off products that had been retired.

PeopleSoft executives agree that the vendor's marketing strategy needs improving, but disagree with Conway as to how it should be achieved. Guy du Bois, who heads the vendor's international organisation, said that 10 per cent of the former R&D budget will be "moved into two equal pots: one sales execution, the other profit. The company has not demonstrated any great marketing capability."

But he did not offer immediate answers to the problem, preferring to emphasise the new internet architecture that forms the basis of the firm's applications and how easy they are to use.

Past glories
History, however, shows that technical innovation is not enough to make a company market leader. PeopleSoft, for example, was one of the early developers of client/server systems, the first enterprise application vendor to come out with demand planning software following its 1997 acquisition of Red Pepper, and the first to talk about developing a technical architecture for trading exchanges.

Buying Red Pepper, and the cost of further developing its supply chain products, is estimated to have cost the company about $500m, but it took PeopleSoft until this year to appear serious about selling such offerings.

A recent league table published by AMR Research indicates that PeopleSoft and its Vantive acquisition have lost ground to every other major customer relationship management (CRM) applications vendor for the period 1999 to 2000, with growth rates of a meagre 25 per cent compared with Siebel Systems' 90 per cent.

But while du Bois acknowledges that Siebel's sales execution strategy is exemplary, he said: "PeopleSoft is much better where there is a complex, legacy-driven implementation requiring integration."

More worrying for the company, however, is Siebel's purchase last year of Janna Systems, a CRM specialist that focuses on the banking sector. This is the strongest signal yet that Siebel intends to attack a traditional PeopleSoft stronghold and a key vertical sector that is driving business-to-business ecommerce initiatives.

PeopleSoft's sales staff also appear to be having trouble explaining the value of some of the company's products. Its business analytics applications that were launched more than a year ago, for example, should be attractive to users because they enable them to measure business value in many different ways, including customer, employee and financial performance. This enables enterprises to pinpoint where they are strong and weak in key business areas.

But prospective customers see the packages as a peripheral financial add-on to the firm's core application suite. "That's how customers are viewing it," said Frederic Bourcier, PeopleSoft's global account manager.

While du Bois agreed, he said: "The smart sales people are leading with these applications. In Australia, ANZ Bank only wanted to take analytics, then once it saw the value, it bought into the rest of our products."

Overseas business
And despite PeopleSoft's claims that it generates 35 per cent of its revenues from international operations, the company finds it difficult to clarify to what extent these deals are signed by non-US based global customers. Citing Daimler Chrysler and Credit Suisse as two examples of European-based users, however, du Bois claimed that "there are 12 unannounced international banking deals" in the pipeline.

But best estimates suggest that the supplier is generating about 25 per cent of its sales from non-US international deals. And although du Bois acknowledges that the company has a long way to go, he points to the recent opening of offices in Italy and Scandinavia as evidence of a commitment to its overseas business.

Analysts, however, believe that PeopleSoft may face difficulties in one of its European initiatives. The vendor plans to extend its eCentre hosted application operations into Europe, and Conway admitted: "We can offer eCentre at a loss because we get the licence revenue anyway."

But reducing prices by restricting functionality does not work for the application service provider (ASP) business model, something to which SAP and Oracle can testify after having changed their policies in this area.

Mike Dodd, director of IT management at Giga, also claims that even if customers buy into the ASP model, some degree of customisation and integration with their own systems will be required.

In Europe, PeopleSoft will work with IBM and Deloitte to provide such services, but Dodd said: "You can bet that all three want the integration work, but I'm not convinced PeopleSoft will be the power in the deals." The vendor, meanwhile, has a large consulting organisation that this year generated $817.6m out of total revenues of $1.14bn.

With so many issues on the table, it would appear that Conway has a lot to think about. While PeopleSoft seems to be on the verge of turning itself around after a difficult year, quite how it will convert this momentum into serious growth is unclear.

Beyond increasing the marketing budget, Conway says he is relying on his eight years of experience at Oracle. "I learnt a few things whilst there," he quipped. But does this mean we can expect to see the company employ tactics based on those of an organisation that Conway famously described as sociopathic? The next year will tell.