PeopleSoft is to work with IBM to optimise its applications for use with IBM's WebSphere middleware and development tools. The two companies will also jointly develop software packages aimed at customers in three industries: financial services, telecommunication, and insurance.

PeopleSoft and IBM have worked together before on a number of development initiatives, but PeopleSoft executives said this agreement is their most far-reaching. PeopleSoft CEO Craig Conway said IBM was the company with "the most proven, trusted, tungsten-strength middleware". He also blasted SAP, whose applications compete with PeopleSoft's and whose new middleware platform vies with IBM's. SAP's NetWeaver middleware software is "young, largely acquired, and incomplete," Conway charged.

PeopleSoft and IBM will together invest US$1 billion over the next five years in their joint activities, Conway said. Both will still remain flexible enough to serve customers using other applications or middleware foundations, he said: "Neither company has an ulterior motive. Both companies have been devoted to open architecture from the beginning."

PeopleSoft's move toward embracing IBM's middleware echoes one made by J.D. Edwards & Co. in 2002, before its acquisition by PeopleSoft. J.D. Edwards decided to standardise around IBM and integrate its middleware into its own applications.

The IBM deal is essentially a formalisation of PeopleSoft's existing strategy, said Meta Group Liz Roche. "To a certain extent, they had to announce something to compete with SAP's NetWeaver and Siebel's UAN (Universal Application Network)," she said. "I don't think this is market-changing."

PeopleSoft customers using other middleware for their infrastructure - for example, software from Oracle or Microsoft - will need to find out from PeopleSoft what this deal means to them, Roche said. She didn't expect PeopleSoft would cut off customers on other platforms, but the IBM alliance could siphon off the resources available for supporting products from other vendors, Roche said.

Forrester Research analyst Paul Hamerman backed that view. "I think (PeopleSoft is) working toward a technology poison pill here," he said.

Hamerman sees the deal as a positive one for PeopleSoft. "I think it's a direction that they need to go in," he said. "They have been lagging behind SAP in terms of innovation on Web services."