Apart from its juicy competitive aspects, last week's announcement by IBM and PeopleSoft to deepen their partnership says a lot about the future of software and the way software companies will do business. Even if the move doesn't turn out to be “the most significant alliance in the enterprise software space” as the companies claimed, it is still pretty darned important.

To recap: starting immediately, PeopleSoft will standardize its enterprise application software on IBM's WebSphere middleware, and the two companies will co-market solutions built on this combined offering. PeopleSoft has committed $1 billion and IBM more than $2 billion to the new platform alliance, which initially will target the telecommunications, banking, and insurance sectors with application/middleware sets that support customer retention, risk management, and distribution management.

The IBM-PeopleSoft announcement demonstrates just how significant e-commerce and enterprise interoperability are becoming to enterprise software, which is morphing to resemble a set of composite applications that operate more and more like managed services built on component architectures. This is a trend we pointed out just last week in this space (Taking the Measure of the U.S. IT Service Economy) and have had confirmed by a number of readers who in some cases have seemingly been surprised to learn that their own business models are moving in this direction.

The new alliance is also noteworthy for its lack of exclusivity, as PeopleSoft and IBM both will continue to partner with the likes of BEA, Microsoft, and Oracle to deliver middleware/application solutions to key industries. This is further evidence that – as we predicted in our Forecast for '04 back in November – vendors are being forced to move more rapidly from point-solution to platform sales and to opt for functional convergence in order to serve a more demanding set of enterprise customers – even if that means sleeping with the enemy.

If so, then the timing of the announcement was exquisitely coincidental. It was barely two weeks ago that a federal district court judge ruled that the Department of Justice had failed to prove its antitrust allegations against Oracle, effectively allowing it to move ahead with its nearly $8 billion bid for PeopleSoft. Industry watchers can be forgiven for wondering out loud whether this alliance is the precursor to an IBM acquisition, a fate almost certainly more welcome to PeopleSoft management – and possibly to its partners and customers – than a hostile grab by Ellison & Co.

For all the coverage it has received, this “white knight” scenario may never come to pass, and to hear Buell Duncan tell it, will never come to pass. Duncan is IBM's general manager of ISV and developer relations and was quoted in eWeek (September 24, 2004) as saying, “IBM is not in the applications business. We don't have any intention of getting into the applications business.”

But just for the sake of discussion, where would such a merger fit into IBM's long-term brand strategy if it did come to pass? PeopleSoft's capabilities would mesh nicely with IBM's Rational brand, but PeopleSoft's own efforts to brand its customer experience have succeeded so well that it might prosper as an independent IBM software division on its own, nailing down a corner of the enterprise application market that Big Blue to date has been unable to address. (And let us not forget that there was a time – roughly two decades ago – that the company was the world's largest software provider.) Meanwhile, IBM could continue to focus its core product development on middleware, where it already has a decided edge on its competitors.

In the meantime, the deepening of the relationship between IBM and PeopleSoft validates several of the industry trends we see emerging, and sets the stage for a potential redrawing of the overall market map. We give it two years to play itself out; what say you? Contact Us for More

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