Case Study: Oracle and PeopleSoft, et al

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Oracle’s pursuit of PeopleSoft had drawn a lot of attention to the software industry.  Which companies have the better cost control performance?

 

PeopleSoft has shown a very consistent relationship between revenue and operating expense.  1999 was a bad year, however, and 2000 and 2003 were also a little high.  (There were some one-time legal-related charges in 1999 and 2000, and 2003 had charges related to the takeover attempt.)

 

Oracle also had a long, consistent relationship, through 1999.  Its performance appeared to be a little better than PeopleSoft’s.  Starting in 2000, however, a remarkable change occurred.  Costs increased less than expected for the increase in revenue in 2000 and 2001, and 2002 and 2003 costs were drastically lower than their revenue would suggest.  This is a major cost control improvement.  It remains to be seen if 2001-2003 are indicators of a new long-term relationship that would represent an ongoing performance gain.

 

Interestingly, while this improvement was not seen in PeopleSoft, it does appear for SAP.  While not as dramatic, SAP shows the same hook-pattern as Oracle.  This suggests there is some marketplace factor involved.  It also suggests PeopleSoft and Oracle are not in the exact same marketplace, since PeopleSoft did not show signs of this change.  Could this have been of use to Oracle in the anti-trust trial?

 

Note how closely SAP and Oracle track each other as revenue increases.

No picture of the software industry would be complete without Microsoft.  Microsoft showed a similar but somewhat better relationship through 1998.  1999-2001 had unusually low cost for their revenue levels compared to prior years, but cost returned to the old levels (or even higher) in 2002 and 2003.

 

 

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