PeopleSoft and IBM in billion dollar deal

PeopleSoft will bundle its future business applications with IBM's infrastructure software as part of a billion-dollar technology and marketing agreement between the two companies.

At its Connect 2004 customer conference in San Francisco, PeopleSoft said it will integrate its enterprise applications with IBM's WebSphere middleware line, including IBM's Java application server, portal, and business process integration software.

The two companies will also work to optimise PeopleSoft's applications to run on IBM's DB2 database and migrate PeopleSoft's development tools to the IBM-backed Eclipse open-source development tool program.

As part of the multi-year deal, PeopleSoft intends to ship IBM WebSphere middleware components with its applications at no extra cost to customers. The two companies did not commit to a start date for the bundled offering.

PeopleSoft CEO Craig Conway said his company turned to IBM because it realised it lacked sufficient expertise in middleware, the software plumbing needed to connect business applications. To meet customer's needs, PeopleSoft needed a wide range of middleware infrastructure products, he said.

"This is the most ambitious, most aggressive announcement from IBM and PeopleSoft," Conway said. "Maybe the most ambitions from the enterprise applications business ever."

Conway also said the arrangement was not a skin-deep "press release announcement," noting that the letter of intent alone was more than 70 pages. The two companies will be dedicating people to joint development and expanded sales and marketing efforts, he said.

The companies will bring out tightly integrated products in regular intervals over the next few years, according to Conway and Steve Mills, senior VP in charge of IBM's software business.

Asked whether he was worried about the new partnership being at risk if PeopleSoft is acquired by Oracle, Mills said, "I'm not worried at all. Nobody knows the outcome of what that will be."

When Oracle first launched its unsolicited bid to acquire PeopleSoft, some industry observers speculated that IBM could step in as a "white knight" and buy PeopleSoft, an idea that Mills rejected. IBM's strategy is to partner with application providers and sell the underlying middleware, hardware and services to run those applications.

Analysts said the IBM partnership is not likely to have a large effect on Oracle's ongoing assault, though there is symbolic value to the deal.

"For PeopleSoft, this is an important vote of confidence from their most important partner," said Jim Shepherd, an analyst at AMR Research. "But it doesn't solve the underlying Oracle problem at all."

However, Meta Group analyst Barry Wilderman noted that the partnership could make an Oracle acquisition more difficult because PeopleSoft's applications will be built around IBM's technology, which competes with Oracle's own middleware line.

Martin LaMonica and Alorie Gilbert write for CNET News.com