The question on everyone's lips this week at enterprise application vendor Peoplesoft's annual user conference was whether the company has lost direction or is getting back on track.
Although analysts were largely satisfied that the company is focused on execution, they were unsure about the future of this once hyper growth vendor.
Along with other enterprise vendors, Peoplesoft has taken a pounding in the last six months. Licence revenues have tumbled (see vnunet.com 21 July), it has struggled to execute on good ideas, and it is going through massive internal change.
The appointment of ex-Oracle executive Craig Conway as founder Dave Duffield's heir apparent (see vnunet.com 24 May)has brought a new mood to a company that has a reputation for having fun and sticking close to its customers. Gone is the party atmosphere as Peoplesoft moves to a more professional-looking organisation that is focused on solving customer satisfaction issues as the prelude to revisiting the customer base for new applications.
Road to nowhere
In common with competitors SAP, Baan, Oracle and JD Edwards, Peoplesoft has found it impossible to sustain the 30 and 40 per cent growth levels it enjoyed in the mid-1990s and its share price has collapsed from $50 15 months ago to $14 and going nowhere.
According to Bruce Richardson, vice president of research strategy at AMR, "Peoplesoft needs to post some good numbers next quarter and then sustain it."
But this is a market where differentiation is difficult and where the attention has shifted to new classes of application like customer relationship management - an area in which Peoplesoft has nothing tangible to offer.
Chief operating officer Craig Conway sidestepped questions on this issue, and analysts think this gap leaves Peoplesoft exposed to new competition and with little alternative other than to acquire. According to Chuck Phillips, senior analyst at Morgan Stanley, "PeopleSoft screwed up in the front office - it's way too late to develop."
Jyoti Banerjee, chief executive at Tate Bramald Research, added, "If they choose to acquire, Clarify represents the best fit, but it's hard to see how Peoplesoft is in a position to buy." Clarify's market capitalisation is close on $1 billion and other vendors in the same market expect high values.
Two tiered attack
In the meantime, Peoplesoft is adopting two strategies to take it out of the mire. First, it is making a strong internet play with new applications that tie together front and back office functions. In concept, this is nothing new, but Peoplesoft has made it work across platforms, an advantage no other vendor has in the marketplace. Scott Lundstrom, VP technical research at AMR said, "Technically, they're more open than Oracle, so at an infrastructure level they should be more attractive."
But commentators think Peoplesoft is missing opportunities. Phillips said, "They used to be thought of as leaders, now they're playing catch-up." Scott Lundstrom, vice president of technology research at AMR, added, "They missed a great opportunity to impress the customer base. Instead, they showed 14,000 users a CEO's worst nightmare - surf city."
Still others thought the applications looked messy. One said it was hard to understand why Peoplesoft was showing analytical applications with so much information on screen. "They should have made it understandable. Some users were stunned," said Lundstrom.
Second, Peoplesoft is preparing the user base for an onslaught of new application sales by making sure it is rectifying falling customer satisfaction. Product strategy, customer support and development sections have been drawn together under a single point of customer contact.
Mike Goija, Peoplesoft's executive vice president, products and technology, said, "There is clear accountability and I will be making quarterly status reports on progress against goals to our customers."
Howard Gwin, senior vice president, sales, said he wants to grow the service organisation. "We can win on understanding implementation very well but there could be contracts where there is no Peoplesoft product component. We can get a 30 per cent margin here." Phillips thought this was ambitious but said, "It's not outrageous."
Analysts agreed this is a sensible strategy given the difficulty all enterprise application vendors are having selling licences. But they were concerned at a lack of differentiation and, in some places, lack of depth. Commenting on the ebusiness product discussions, Bruce Richardson, strategic research director at AMR, said, "It was tofu - not an ounce of meat anywhere."
Conway responds by arguing that hosted (ASP) applications could be a new market, and Jonathan Lee, founder of ASP vendor Corio, said, "We have proven the pain of implementation, and application management can be successfully removed in record time." Corio counts Excite as a customer where implementation took less than 90 days.
Fear, uncertainty and doubt
Mark Nittler, vice president, applications strategy, points to the potential for Internet-style applications to provide revenue generation momentum. "The law of diminishing returns in applications means companies are less keen to do more with their investment, but once they understand how revenue can be improved, they become interested."
But there are barriers for Peoplesoft that will be difficult to overcome. Nittler's view requires new thinking within organisations - "There is a fear factor to this, but we're good at understanding those issues and providing ways to manage it."
But at the moment, there is little sense that Peoplesoft is articulating a strategy that will allow it to shine at a time when most analysts agree there is a great deal of uncertainty.
Jim Holincheck, senior analyst at Giga, observed "They're clearly in execution mode at the moment, but I can see that makes sense today." This encapsulated the consensus that overall, Peoplesoft is putting its house in order but we must wait to see the results.
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