PeopleSoft Eyes New Segments For the Government Market

PeopleSoft Eyes New Segments For the Government Market

By Richard McCaffery
Staff Writer

Business software maker PeopleSoft Inc. is stepping up efforts this year to gain market share in the federal government for some of its lesser-known products.

While officials at the Pleasanton, Calif., firm estimate 70 percent of U.S. cabinet agencies use PeopleSoft's human resources software ? its flagship product ? the company wants its supply-chain management and financial products to be just as dominant.

"We want to be No. 1 or 2 in every market segment we go into," Jonathan Klem, vice president of PeopleSoft Federal, told Washington Technology.

PeopleSoft sells enterprise resource planning software, products that help businesses run daily operations from payroll to scheduling training for employees. Its supply-chain management software, for example, can be used to track inventory and order products. Its financial products perform tasks like budgeting, tallying assets and liabilities, and measuring business performance.

One supply-chain management contract the company wants a part of is the Army's $1 billion Wholesale Logistics Modernization Program. The five-year contract to be awarded by the Army Communications Electronics Command is aimed at helping the Army Materiel Command update the way it buys products.

PeopleSoft has been pursuing the contract for nearly eight months, he said, but it's not clear when it will be awarded. However, this effort represents a great opportunity for the company to sell its supply-chain management software to the military, he said.

"It's one of a lot of different initiatives going on in government," Klem said.

To bolster its supply-chain products and better customize them to the government and commercial customers, during the first quarter PeopleSoft teamed with nine software companies that specialize on aspects of supply-chain management. Among those companies are Documentum Inc., Pleasanton, Calif.; CAPS Logistics Inc., Atlanta; and Intermec Technologies Corp., Everett, Wash.

"We think it puts us in a position to be a world-class leader in this market space," Klem said.

PeopleSoft is also expanding its Bethesda, Md., federal division this year, growing from 65 employees to 95 by year's end.

PeopleSoft is among the top 20 largest software companies in the world. It has 4,450 employees and more than 2,500 customers worldwide. Its government customers include the Department of the Treasury, the Environmental Protection Agency, the Social Security Administration and the Navy.

On Aug. 28, PeopleSoft announced deals to sell its human resources software to the Drug Enforcement Agency, Coast Guard, Nuclear Regulatory Commission and the Federal Bureau of Prisons. It also announced a deal to sell its financial software to the Bureau of Labor Statistics. Company officials refused to disclose contract values.

Klem said the company plans to push hard to sell its other products. "We have a lot of work in front of us" as far as selling financial software, he said.

Jonathan Klem

Enterprise resource planning is a fast-growing field. Major players in the industry, companies like Baan Co., Reston, Va., SAP AG, Waldorf, Germany, and PeopleSoft are growing at more than 50 percent annually. PeopleSoft had sales of $841 million last year, up 81 percent from the year earlier.

Despite rapid growth, the company's stock has been hammered since July, falling from near its high of $55.94 reached April 21 to $30.25, where it closed Aug. 27.

Steve Kohn, enterprise software analyst at Soundview Financial Group, Stamford, Conn., shrugged off the decline. "It's all the market. There's nothing wrong with the company," he said.

Kohn said he is telling investors to buy the stock on the strength of the company's management, products and distribution channel. "They're in a great position with all three," he said.

The government market for enterprise resource planning products is expected to more than double, from $984 million in 1997 to $2.2 billion in 2002, according to Input, a Vienna, Va., market research firm. Oracle Corp., another enterprise resource planning competitor, reported that its government ERP division is the fastest growing part of the $7 billion Redwood Shores, Calif., software company.

Klem would not disclose PeopleSoft's government revenues. But one analyst said the company had $28 million in sales to the federal government last year, a figure that should grow to $40 million in 1998.

Klem did say the company has doubled its government sales every year since 1995 when it entered the federal market, and that growth in the government sector must at least keep pace with the company's overall growth rate.

"We want to be above it, equal to it," Klem said.

PeopleSoft officials expect revenues to increase 60 percent in the third quarter, up from $217 million for the same period last year. For 1998, the company expects to top those revenues by as much as 65 percent.

The strategy for PeopleSoft Federal in 1998, Klem said, is to increase market share for the company's financial and supply-chain management software and maintain its No. 1 position in human resources and payroll software.

According to Klem, the government market for financial and supply-chain management software is up for grabs. "I think it's a free-for-all right now," he said.

Klem said he welcomes newcomers SAP ? the enterprise resource planning industry's 800-pound gorilla ? and Baan Co. to the government market. Fresh competition has the government paying more attention to commercial software, he said.

"Our competition is always going to be getting the government to understand how to use commercial best practices," he said.


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