Microsoft Denies MBS Group Has Enterprise Aspirations

By John Pallatto  |  Posted 2004-06-24

Microsoft Denies MBS Group Has Enterprise Aspirations

SAN FRANCISCO—Microsoft Corp. has no plans to build up its business solutions group into a major competitor in the enterprise applications software market now that it has abandoned any thought of acquiring SAP AG, Douglas Burgum, Microsoft senior vice president testified Wednesday.

It would take too long and cost too much money to build up the Microsoft Business Solutions applications to a scale that could compete effectively with Oracle Corp., PeopleSoft Inc. and SAP, said Burgum, who heads the MBS group.

Burgum was called to testify by the U.S. Department of Justice to support its contention that Oracle, PeopleSoft and SAP are in a league of their own in the enterprise application software market. The DOJ is seeking a permanent injunction against Oracles offer to buy PeopleSoft.

Documents presented in U.S. District Court here showed that Microsoft was so alarmed by the competitive threat posed by Oracles bid to buy out PeopleSoft that it prompted Chairman Bill Gates to broach the idea of a possible SAP acquisition merger with CEO Steve Ballmer and other company executives the weekend after Oracle disclosed its offer.

"Another thought that came to mind is that its time we bought SAP given our own view" that Microsoft needed to respond to Oracles proposed PeopleSoft buyout, Gates wrote in a June 7, 2003, e-mail to Ballmer. Gates also suggested that Microsoft also offer to make a minority investment in PeopleSoft to "bolster their independence."

For more on the Microsoft-SAP merger talks, click here.

Another Microsoft document showed that the company feared that the combination of the Oracle database running PeopleSoft and J.D. Edwards applications on multiple platforms would pose a serious threat to the Microsoft SQL Server database running on the Windows platform. The combined organization "being pro Linux, pro Oracle database would try to drive those SQL numbers to Zero if they controlled those applications," according to the document.

Within 10 days after Gates sent his initial e-mail, Burgum was among a group of top Microsoft executives that included members of the companys Business Development team who were studying the financial and business feasibility of acquiring SAP.

A June 17, 2003, report that circulated among Microsofts leadership on the potential SAP acquisition was littered with stellar constellation names used as code words to thinly veil the main players in the enterprise applications acquisition scenario.

Oracle was Ophiuchus, the "Serpent Bearer"; SAP was Sagittarius; Microsoft was Mensa; PeopleSoft was Pegasus; and IBM was Indus.

The report was distributed with an e-mail from Cindy Bates, a member of the Business Development team, saying that regardless of whether PeopleSoft fended off Oracles buyout bid, "the dynamics of the industry have changed. We should think proactively in determining our own fate, as no doubt the folks in Armonk [N.Y.] are doing." Armonk is home to IBMs corporate headquarters.

Next Page: Was IBM also an SAP suitor?

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Bates e-mail suggests that IBM may also have been a suitor for SAP. "It is probably wise to let Sagittarius know that we would be willing to have conversations with them (with some indication of reasonably aggressive pricing) so that should Indus change its strategy and approach Sagittarius about an acquisition, we would be positioned to have a seat on the table too," Bates wrote.

Microsoft held talks with SAPs leadership about a possible acquisition in the fall of 2003. However, Microsofts ardor for the acquisition faded when the two companies considered the potential difficulties of integrating the two multinational organizations, Burgum testified.

Is the Oracle buyout of PeopleSoft illegal or just predatory? Read what John Pallatto has to say.

Burgum denied persistent assertions by Oracle lead attorney Daniel Wall under cross examination that Microsoft is planning to build up the capabilities of the MBS applications to compete in the high-end enterprise market now that the company has abandoned the SAP acquisition. MBS applications include financial management, accounting, supply chain, human resources and customer relationship management.

Wall cited a Microsoft business presentation that showed that the "footprint" of the Microsoft MBS applications "has expanded significantly" into the "corporate application software" market, which includes organizations with as many as 5,000 employees.

Burgum, however, said that the company is growing in the midrange market, the market MBS applications have always served. Microsoft, he said, has no plans to target the MBS applications at the same size organizations served by Oracle, PeopleSoft and SAP.

Under direct examination by DOJ attorney Phillip Malone, Burgum said a recent MBS reorganization that has him reporting directly to Ballmer isnt part of a plan to expand the focus of the group into the high-end enterprise market.

Nor are the 120 new features and enhancements released this month in the latest version of the Great Plains financial management applications aimed at the high-end enterprise market, he said.

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