Peoplesoft Inc. Business Information, Profile, and History

Company Perspectives:

Increasingly we have found that our customers don't choose a software product. They choose a software company. Our customers select PeopleSoft because they like us and because they trust us. Along with product quality and service excellence, we have always put a premium on integrity--it's part of who we are and how we do business.

History of People Soft Inc.

PeopleSoft Inc. is a global leader in enterprise application software, serving more than 4,000 customers in the fields of customer relations management, human resources management, financial management, and supply chain management, along with a slew of industry-specific concerns. Clients include small- and medium-sized businesses as well as some of the largest companies in the world. After enjoying explosive growth during its first decade of existence, PeopleSoft's pace of expansion slowed over the last two years of the 20th century, as increased competition and Y2K concerns reduced demand for its products. During that period, however, the company rededicated itself to providing cutting-edge, Internet-based software applications in an effort to recapture market share and reignite growth.

The Origins of PeopleSoft

Dave Duffield and Ken Morris are the progenitors of PeopleSoft. Both software developers had been working at Integral Corp. before jumping ship to start their own company. In fact, Duffield had founded Integral in 1982 and served as its chief executive until 1984. Integral started out providing consulting services but later moved into the lucrative market of mainframe computer software. Duffield was credited with helping to grow Integral into a $40 million (in sales) producer of human resources applications for use on mainframes.

By the mid-1980s, after taking Integral public, Duffield had effectively lost control of the company that he had founded. That loss of authority ultimately would cause Duffield to jump ship. The conflict arose when Duffield took an interest in the burgeoning personal computer networking industry. At the time, mainframes were still the dominant platform for large and mid-sized companies, and Integral had profited handsomely by chasing that big market. But early on Duffield recognized the potential of personal computer networks (dubbed client/server systems because the PCs were linked to a server system). He believed that Integral should shift its focus away from mainframes and toward client/servers, which he viewed as the wave of the future.

Integral's board of directors disagreed with Duffield, so he decided to leave the organization. He even offered to sign a no-compete agreement with Integral in return for one year's salary, which would have kept him from competing with Integral in the human resources software industry. Integral's board foolishly rejected the offer, and Duffield started a new company that he called PeopleSoft. Duffield took fellow Integral employee Ken Morris with him, and together they began designing human resources software geared for client/server systems. In 1988 Morris and Duffield introduced the first high-end human resources software application ever designed for a client/server system.

Although PeopleSoft's first program was greeted by a willing market, the tiny firm was strapped for cash. To fund the start-up, Duffield took out a mortgage on his home; he and Morris tapped the nest egg to fund the development of their first program. That effort generated revenues of about $200,000 in 1988, the company's first year of sales. Significantly, the company scored a major coup in 1988 when it landed Eastman Kodak as its major customer. That gave a much-needed boost to PeopleSoft's bottom line.

Kodak, like many other corporations in the late 1980s, was beginning to realize the advantage of the client/server approach. A company could purchase a number of relatively inexpensive PCs, network them through a more expensive server, and have a system with capabilities similar to a mainframe. The obvious advantages were much lower costs and, in many cases, increased flexibility. At the same time, PeopleSoft's human resources software became a valuable tool for companies that were reorganizing and cutting costs during the recession of the early 1990s. Thus, as the client/server industry took off and PeopleSoft's innovative human resources program became known, sales shot up. In 1989 PeopleSoft generated an impressive $1.9 million in sales. That figure exploded to $6.1 million in 1990, about $420,000 of which was netted as income.

Funding Woes Lead to IPO

Despite big sales and profit gains, cash was short. PeopleSoft was trying to hire new staff, buy new computer systems, market its existing software, and develop new products--all on a shoestring budget. To make matters worse, Integral Corp. (where PeopleSoft's success had not gone unnoticed) was forcing PeopleSoft to spend money in court. In 1990 Integral and a San Francisco-based company called Tesseract Inc. filed separate lawsuits against PeopleSoft, claiming it had obtained proprietary trade information from them. They even sought injunctions to halt the sale of PeopleSoft products. A San Francisco judge denied the injunction requests and PeopleSoft was able to settle out of court in 1991, but only after expending significant legal fees from its tight budget.

Duffield, despite the cash drain, was not about to give up control of his company again to outside financiers, and he was able to secure a $1 million line of credit from a bank. That helped to offset some costs, but he needed more. In 1991 Duffield sold 11 percent of his company for $5 million to Norwest Partners, a venture capital firm. He used much of that cash to update the company's systems and also to help fund development of a new client/server program for financial management applications. In addition to the $5 million, PeopleSoft enjoyed net earnings in 1991 of $1.9 million from sales of $17.1 million.

By 1992 PeopleSoft was growing at a seemingly exponential pace. Its human resources applications were selling like hotcakes and it was gearing up to launch its awaited financial management programs. To fund the growth, Duffield finally decided to take the company public. In November 1992 PeopleSoft made its initial public offering, which brought $36 million into its coffers. Investor enthusiasm sent the stock's price cruising 64 percent higher than the original offer price on the same day. Six months later PeopleSoft netted a fat $50.4 million with a second offering. The wary Duffield still managed to keep about 50 percent ownership in the company. 'We waited four years,' Duffield said in the April 1993 issue of Diablo Business, adding, 'We didn't want to give away a big part of the company, and we didn't.'

By 1992 PeopleSoft was controlling about 40 percent of the entire high-end market for human resources programs--some of PeopleSoft's human resources applications priced out at $600,000 or more. Because a plethora of companies were hopping into the client/server game by that time, however, the enterprise was banking on its freshly introduced financial applications to help it sustain rapid growth. The financial software industry was crowded with competitors, but PeopleSoft had staffed its programming department with some heavy hitters, and it believed that its experience in the client/server industry gave it an edge. Although financial program sales contributed only a few million dollars to PeopleSoft's revenue base in 1992, company sales and profits spiraled upward to $31.6 million and $4.8 million.

Duffield had hoped that his financial programs would eventually account for as much as one-half of company sales. The software was welcomed by the market and seemed to be living up to Duffield's expectations by late 1993. The line of financial programs was expanded to include applications for general ledger accounting, asset management, and accounts payable/receivable management. When sales from that line kicked in during 1993, revenues and profits vaulted to about $58.2 million and $8.4 million. Interestingly, that sales figure approximated the 1992 revenues for Integral, the company that Duffield had started and left six years earlier; soon, PeopleSoft would leave that mainframe software company in the dust.

An interesting sidebar to the PeopleSoft story during the late 1980s and early 1990s was the Raving Daves, a rock band made up of PeopleSoft employees. Named after the company's chief executive and founder, the Raving Daves provided insight into the quirky but effective culture at PeopleSoft. PeopleSoft was loosely structured and efficient. Employees were empowered to make important decisions and nobody had a secretary or receptionist--even Duffield answered his own telephone. The environment was designed to spawn creativity and innovation, as evidenced by the formation of the Raving Daves (a group of eight musicians and singers who were full-time PeopleSoft employees). The group became the centerpiece of the company's image advertising campaign in 1995.

Expansion in the Mid-1990s

PeopleSoft's unique management formula combined with the growth in client/server systems in 1993 and 1994 and propelled the company to prominence. The client/server market mushroomed, in fact, at a much greater rate than most analysts had predicted. PeopleSoft controlled a whopping 50 percent share of the entire human resources software market by 1994. By that time a horde of former mainframe software developers began leaping head first into the client/server market. But PeopleSoft benefited from what was known as 'clean technology,' meaning that its applications had been written specifically for client/server and had not been converted from a mainframe environment.

By 1994 PeopleSoft's client base had broadened to include corporate giants like Hewlett-Packard, Advance Micro Devices, Rolm, and Pacific Bell, among many others. Furthermore, overseas interest in the company's programs was proliferating. Exports jumped to about $1.6 million in 1993, with customers buying from as far away as Australia, France, England, and South America. Buoyed by increasing demand at home and abroad for PeopleSoft's human resources applications and, in particular, its financial applications, Duffield began considering new markets. He planned, eventually, to lead PeopleSoft into client/server software markets in manufacturing, health care, education, and government, to name a few.

The first new market that Duffield tried to crack was the giant manufacturing sector. Specifically, PeopleSoft began chasing manufacturers of automobiles, electronics, and consumer durables in 1995. The manufacturing market offered massive growth potential for the company, as client/server software sales to that segment were then growing at a rate of 78 percent annually (compared with a still-healthy 38 percent for the financial software market). Duffield believed that success with manufacturing software would allow PeopleSoft to quadruple its revenues within two years. To meet that challenge, PeopleSoft brought on board leading manufacturing software veterans like Roger Bottarini and Chris Wong.

Because of its ambitious foray into manufacturing software, PeopleSoft again was looking for funds to fuel the growing enterprise. Rather than sell off more of the company, Duffield cleverly arranged to have the project funded externally. PeopleSoft entered into a joint venture with its old financier, Norwest Venture Capital. Norwest fronted the development capital and PeopleSoft contributed the intellectual property (such arrangements had been pioneered in the capital-intensive biotechnology industry). As a result, PeopleSoft, which owned 49 percent of the venture, was able to get the program up and running much faster at much reduced risk.

Growth Accelerates, Slows in the Mid- to Late 1990s

By the mid-1990s, PeopleSoft controlled roughly 20 percent of the U.S. client/server packaged software market and continued to enjoy tremendous growth and profitability. From a respectable $175 million in 1992, PeopleSoft's sales more than tripled to $575 million by 1994. Net income rose from $8.4 million to $14.55 million over the same period. By 1995, the company had offices throughout North America and Europe, as well as in Singapore, South Africa, Brazil, and Australia.

PeopleSoft's expansion continued in 1996, when it purchased the Red Pepper Software Company, a provider of supply chain management programs. PeopleSoft also was recognized by Fortune magazine that year as one of the fastest growing companies in America (as it had been in 1994 and 1995, and as it would be again in 1997). Net income for 1996 jumped to $35.9 million.

Another banner year for the company was 1997. It formed two new independent business units (IBUs)--Service Industries and Communications, Transport, and Utilities&mdashø complement its seven pre-existing ones (which focused on financial services; health care; higher education; manufacturing; the public sector; retail; and the U.S. federal government). PeopleSoft also completed three strategic acquisitions--of Campus Solutions, Inc., Salerno Manufacturing, Inc., and TeamOne, LLC--that bolstered its Student Administrative Application suite of software. In addition, PeopleSoft launched an international version of its popular Human Resources Management Suite, as well as one of a widely used financial application suite. These offerings were capable of supporting operations in French, German, Spanish, and Japanese, and English. Most important, though, 1997 marked PeopleSoft's fledgling venture into cyberspace, when it inaugurated a pilot program to allow users to access several of the company's popular software programs over the Internet (a venue that would become increasingly essential to the company's operations in the coming years). PeopleSoft's total revenues that year exploded to nearly $816 million, and net income skyrocketed as well, to $108.2 million.

The year 1998, however, marked the end of PeopleSoft's streak of annual 80 to 90 percent growth increases that dated back virtually to the company's inception. The shock waves generated by the Asian economic crisis of 1997, coupled with heightened competition in the industry and a widespread shift in corporate procurement policies away from new software acquisition in favor of Y2K remediation measures, resulted in a comparative slackening of demand for PeopleSoft's wares (although revenues increased nearly 61 percent in real terms, to $1.3 billion). Undaunted, the company used the period as an occasion to streamline its operational structure, condensing its IBUs into three overarching divisions: the Product Industries Division, which handled the company's manufacturing, retail, communications, transportation, and utility businesses; the Services Industry Division, responsible for operations in the health care, financial services, and service industry sectors; and the Government and Higher Education Division, which dealt with the academic, public sector, and federal government markets. In addition, PeopleSoft expanded its eBusiness offerings in 1998 in anticipation of future market needs. The company also rolled out its Enterprise Performance Management product, an integrated suite of analytic business software that distinguished PeopleSoft as the first entity able to provide such a wide array of analytic tools across all industries. To cap off its busy year, the company moved into its new headquarters in Pleasanton, California.

Although many of the same factors that slowed revenue growth in 1998 persisted even more strongly in 1999 (the year even witnessed the first layoffs in company history and revenues increased a comparatively paltry 25 to 30 percent), PeopleSoft made some important advances during the course of the year. Early in the year, PeopleSoft introduced e7.5, a program designed to become the backbone of all of the company's subsequent eBusiness initiatives. This was also the first program to bring real Internet functionality to PeopleSoft's software options. A few months later, the company introduced PeopleSoft 8, software that offered 100 percent Internet-based technologies and applications. The year saw a significant change in the company's management personnel as well. In May 1999, Craig A. Conway joined the company as president and chief operating officer. In September, he was named chief executive officer, displacing company founder Duffield. Duffield, though, remained intimately involved with PeopleSoft's operations in his continued capacity as company chairman. Conway quickly led PeopleSoft in its acquisition of Vantive Corporation, a leading customer relations management (CRM) firm with a thriving Internet presence. This union positioned PeopleSoft as the only major enterprise software company able to offer both CRM products and a full range of back-office applications, all with full Internet accessibility.

In early 2000, PeopleSoft moved to extend its Internet advantage when it launched PowerTools 8, the first server-centric platform released by a major enterprise applications company. (A server-centric platform is one for which software need only be installed once on a central server to be able to run on any linked network terminals. This affords a company a greater degree of flexibility in its utilization of a software product.) With innovations such as this, PeopleSoft's prospects seemed promising as it moved into the 21st century.

Principal Competitors: Baan Company; Oracle Corporation; SAP AG.

Chronology

• Key Dates:

• 1987: David Duffield leaves Integral Corp. and founds PeopleSoft Inc.
• 1992: PeopleSoft makes its initial public stock offering.
• 1996: Company acquires Red Pepper Software Company.
• 1999: Craig A. Conway replaces Duffield as PeopleSoft CEO; company acquires Vantive Corp.