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Instant Insight |
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Oracle: Muddying the Gene Pool Judge Vaughn Walker of the Federal District Court in San
Francisco has ruled that Oracle can go ahead with its proposed $7.7 billion
hostile takeover bid of PeopleSoft. Net/Net Throughout the takeover drama, Ellison has argued that his efforts to acquire PeopleSoft are part of a larger trend toward consolidation in the software market. On this point we agree with Ellison: the market will most certainly see a reduction of numbers in coming years as companies merge, are acquired, or simply shut down from lack of market interest. Such is the nature of any maturing industry: the number of participants shrinks over time as the remaining players grow in size. The history of the automotive industry is a perfect blueprint for what will continue to occur in the software ecosystem. Where we disagree strongly with Ellison is the means by which this irresistible path of consolidation should happen. In nature, evolution occurs at its own pace, with variations appearing randomly. Those that help an organism thrive in its ecosystem tend to be selected and continued in the gene pool; those that do little or nothing for the organism tend to disappear over time. In the end, the organism has adopted many of the gradual mutations so that it can find a prosperous niche within its ecosystem. Its adaptations meet the demands of its ecosystem. In our mind, consolidation of markets should be allowed to occur organically as well. Companies whose adaptations do not help them prosper within their ecosystem – or market – will eventually find themselves in a position to be acquired or go out of business altogether. Companies whose adaptations allow them to thrive in the market will do so, sometimes with the assistance of cherry-picking strategies or products from those that failed to fully capitalize on a good idea or service. In this natural course of consolidation the remaining competitors evolve to meet the needs of the marketplace. Those innovations with real value persist in the marketplace even through the act of consolidation while those without merit are tossed from the market gene pool. Ellison proposes to buy a competitor and shut it down, and in this way he claims to be complying with the natural order of a consolidating market. We would argue this is more akin to genetic engineering. Such a forced alteration, in our mind, does not allow the vendor gene pool to mature in a fashion that meets the needs of the market ecosystem. By simply tossing PeopleSoft out of the market, its sizeable collection of market adaptations will be lost and evolution thwarted. Ellison believes that he is speeding up the pace of market evolution and that he’s doing a good thing. We would respond with; “Haste makes waste.” Our take is that this is clearly a situation where the
letter of the law does not necessarily create a desirable result, potentially
opening the door to a rash of predatory acquisitions. While this saga is far
from over, this latest ruling would seem to tilt the odds of the takeover
happening to Oracle’s favor and PeopleSoft stockholders should begin
considering their options. We are not stock or financial |