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Lets cut to the chase: What exactly have we learned after the first week of the DOJ-Oracle trial?
Microsoft made overtures to SAP. Yes, Microsoft, which told the DOJ it had no intention of entering the market for large enterprise software anytime soon, confessed that it had cozied up to SAP last year to discuss a possible merger.
The deal didnt come to pass—the size of it, after all, would dwarf an Oracle-PeopleSoft combination and send antitrust regulators through the roof—but it provides what most consider to be clear evidence that Microsoft was being—ahem—”disengenous,” shall we say, with the DOJ.
Oracle discounts its software by as much as 70 percent. Keith block, Oracles executive vice president, admitted in videotaped testimony that the company cuts software costs by as much as 70 percent when the competition is fierce enough to warrant such aggressive pricing tactics.
In addition, as eWEEK.com Enterprise Applications Center Editor John Pallatto reported from the trial floor, Oracles former senior vice president of North American application sales, Paul Ciandrini, said in videotaped testimony that in one case where PeopleSoft and Oracle were going head-to-head—for a deal with Hallmark Corp. that Oracle eventually won—price quotes that started around $2 million wound up getting slashed to about $1.2 million.
Thats a huge discount off the list price. Its good to know that Oracle will go to such extremes.
But will that insight into Oracles sales tactics be usable if Oracle manages to acquire PeopleSoft? Will there be competitive instances where Oracle is pushed to the wall to the same degree as PeopleSoft evidently achieved? Therein lies the nub of the trial, but in the meantime, it sure cant hurt to know how far the company can go.
Next page: IBM, Microsoft and Siebel are eyeing the enterprise applications market.
Eyeing the Market
IBM, Microsoft and Siebel may be planning to enter the Big Threes market. According to news reports, a consultant testified that Microsoft, IBM and Siebel are on track to enter the human resources and financial software markets.
“Its pretty clear theyre coming,” said Perry Keating, senior vice president at the consultancy BearingPoint, according to an article by Reuters.
IBM is on record as having said the company has no such plans, and Microsoft of course categorically denies its interest.
As eWEEKs Renee Boucher Ferguson writes in her analysis of the news, the testimony may seem to undermine the DOJs assertion that there are only three players in that sphere, but that depends on the timing of the entrants.
As Ferguson notes, the vendors would have to enter the market within the next two years in order to impact competition, according to antitrust guidelines.
Why J.D. Edwards couldnt compete. As former J.D. Edwards chief financial officer Richard Allen testified, the company spent nearly $1 billion and close to a decade trying to make its software suitable for big buyers.
Of course, the two sides put entirely different spins on this, with the DOJ contending that J.D. Edwards experience shows how difficult it is to enter this space, and Oracles attorney charging that it was merely post-Y2K spending doldrums that hampered J.D. Edwards success.
Users and analysts concur that J.D. Edwards failed to make the leap to big businesses. Forrester analyst Paul Hamerman told me that J.D. Edwards resulting product, OneWorld—a product thats now under PeopleSoft auspices as EnterpriseOne—does indeed lack scalability and has gaps from a functional standpoint, particularly in HR and financial applications.
For example, the HR application lacks a recruitment component—an “essential part” of an HR product for enterprises whose businesses span the globe, Hamerman noted.
Why didnt J.D. Edwards manage to beef up that software? Don Abens, senior J.D. Edwards business analyst at Emerson Process Management and president of the Central Texas J.D. Edwards User Group, told me that both the DOJ and Oracle are right in their take on that issue.
But Abens brought up a third cause that neither side addressed: Namely, J.D. Edwards put technical limitations on itself by trying to make both big enterprises and its existing midmarket customers happy with the same product.
“What most other companies did when they went to client-server [architecture] was they threw away the old [code] and wrote a whole new system,” Abens said.
“JDE wrote a new front end and maintained the old, so you could migrate and co-exist. That put a lot of limitations on what they could do. It was great, and the entire customer base loves them for it, but it did limit their growth in the high end.”
Next page: The markets voting for an Oracle win.
Market Votes for Oracle
Win”> The market is voting for an Oracle win. PeopleSoft stock went up 8 percent this first week of the trial, closing at $18.75. As the San Jose Mercury News noted, that bumps up the price closer to Oracles current bid of $21 per share.
Its a heck of a lot healthier gain than the Nasdaq composite index, the Mercury News pointed out, which gained just 1 percent over the same timeframe. It makes sense that the markets willing to up its bid for PeopleSoft price if it thinks that the price will eventually hit $21.
(Click here for the Mercury News article “More Investors Think Oracle Will Win,” which requires free registration to view.)
Judge Vaughn Walker is confused. The presiding judge in this case still hasnt figured out the difference between the midmarket and the market above it, as we can see in the questions he posed to Richard Allen.
(Click here for the Mercury News article “Ex-Edwards exec supports U.S. case,” which quotes Walker. Free registration is required.)
Walker is still evincing skepticism about whether theres a clear distinction between the needs of big enterprises and the midmarket.
Unless the DOJ manages to convince the judge that there is indeed what Walker is calling a “membrane” that separates midmarket vendors from making it into the big time, we might all want to start thinking about buying up some PeopleSoft stock, because Oracle just might pull this off.
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eWEEK.com Associate Editor Lisa Vaas has written about enterprise applications since 1997.
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