PeopleSoft avoids the tech wreck, accelerates expansion

By Michael Liedtke AP Business Writer
Tuesday May 29, 2001

PLEASANTON – Not every high-tech company is filled with anguish and anxiety these days. 

Business software maker PeopleSoft Inc. stands out in contrast to the devastation that has wiped out so many Silicon Valley fortunes. 

PeopleSoft is among a handful of tech companies that exceeded Wall Street’s profit expectations in the first quarter. Its stock has tripled in the past year, creating $8.4 billion in paper wealth at a time when the technology-driven Nasdaq Stock Composite plunged by 31 percent. 

Craig Conway, chief executive of the Pleasanton-based company, isn’t taking time to savor the view. 

Conway is also doing everything he can to prevent PeopleSoft’s 8,000 employees from growing complacent and reverting to the fun-loving, fraternity house atmosphere that once infused the company, house band and all. 

“For company that is doing as well as we are, you would expect to see a little more jubilation, but you don’t,” Conway said. “In part, that’s because my personality is very paranoid. I’m not on medication but I’m very respectful of the competition. We need to wake up every morning believing that someone could catch us if we are not on our toes and on top of our game.” 

Conway, 46, is raising the stakes in Las Vegas on June 4 when he will unveil a new generation of “customer relationship management,” or CRM, software designed to cash in on the rapidly growing demand for products that help businesses use computers to expand and manage their markets. 

PeopleSoft hasn’t made much of a dent in the CRM market since spending $600 million to buy Vantive Corp. 17 months ago, but Conway believes the new product will take because it runs entirely on the Internet, where customers, employees and suppliers can easily access information. 

The company budgeted $30 million to promote the CRM product — about twice as much as it spent advertising a suite of other administrative applications that helped elevate PeopleSoft above other competitors during the past year. 

PeopleSoft is thus taking on the undisputed leader of CRM, San Mateo-based Siebel Systems — a company that is “laps ahead of the competition,” says industry analyst Craig Wood of Merrill Lynch. Both big and small companies have tried to challenge Siebel in this booming software niche, but none have succeeded so far. 

Conway, who worked with Siebel Systems CEO Tom Siebel while both were executives at Oracle Corp. in the 1980s, doesn’t sound intimidated. 

“To challenge someone, you can’t just catch them, you have to pass them and that’s what we do with this product,” he said. “We don’t think we are going to put Siebel out of business, but we do think we will take several points of market share away from them.” 

Siebel Systems executives say PeopleSoft’s CRM software doesn’t break any new ground. What’s more, Siebel Systems views PeopleSoft’s invasion as an opportunity to sell its own software to the roughly 1,000 businesses that use Vantive’s package. 

Switching to PeopleSoft’s next-generation product will require companies to spend more money and tinker with the systems — a combination Siebel Systems believes will make Vantive users more amenable to switching to a different vendor. 

“We see a lot of Vantive customers in our sales pipeline now,” said David Schmaier, Siebel’s executive vice president of products. “So far, (PeopleSoft’s new CRM product) has only helped, not hurt our business.” 

Like PeopleSoft, Siebel Systems’ profit beat stock market expectations during the first quarter. But Siebel Systems had to lay off 800 employees last month — 10 percent of its work force — and its shares have been trading for roughly the same price as a year ago. 

“PeopleSoft was forced to re-examine itself long before dot-coms were forced to re-examine themselves,” said Conway, who made changing the corporate culture a top priority after he took over as CEO in the spring of 1999. 

Before joining PeopleSoft, Conway ran an interactive broadcast network called One Touch Systems, but it was his eight years as an Oracle executive vice president that won him the job. PeopleSoft’s board wanted a veteran leader with previous experience in the technology industry’s ups and downs. 

Until Conway’s arrival, PeopleSoft had pioneered the festive office atmosphere that became fashionable with the rise of the Internet. The company provided free food and drinks, welcomed pets at the office and encouraged Hawaiian attire. 

Founder David A. Duffield, known as “DAD” within the company, even bought instruments and sound equipment for a company band called “The Raving Daves.” 

PeopleSoft’s performance only added to the merriment. Sales of its human resources software seemed to grow by leaps and bounds each year and by April 1998, the stock peaked at $55.94 — a price that PeopleSoft hasn’t been able to reach again. 

The frolicking culture didn’t help later that year when bugs began to show in some PeopleSoft products and corporate customers scaled back orders while focusing on getting their computer systems to recognize the Year 2000. 

Many employees are less enamored with Conway. Some who grew rich from PeopleSoft’s early success didn’t stick around for the turnaround. Others still grumble about Conway’s no-nonsense approach, even though he has pumped value into once-worthless stock options held by most employees. 

Conway, whose PeopleSoft stake is worth $50 million, isn’t about to change a formula that has restored the company’s luster among customers and investors. 

“A year ago, when I talked about the things that we were going to do, I saw a lot of smirks and rolling of the eyes,” Conway said. “Now everyone is listening very closely.”