Oracle Pre-empts Microsoft Testimony with Profile

SAN FRANCISCO–The Department of Justice rested its case Tuesday with the understanding that it will call Doug Burgum, head of Microsoft Corp.s Business Solutions group as its last witness Wednesday.

Oracle Corp. attorneys foreshadowed Burgums testimony Tuesday by releasing a “competitive profile” of Microsoft that claims that the Redmond, Wash., software giant is a formidable rival in the field of EAS (enterprise application software).

Written early this year, the profile supports Oracles position that the market for ERP (enterprise resource planning) software is so competitive that its hostile buyout bid for PeopleSoft Inc. will not violate antitrust law by limiting customers product choices or allowing Oracle to illegally control prices.

/zimages/3/28571.gifClick hereto read more about Microsofts plans to build up its business solutions group to serve SMBs.

Release of the profile comes on the eve of the long-awaited testimony for the Department of Justice by Doug Burgum, head of Microsoft Business Solutions. Microsoft is expected to support the DOJs position that Microsoft doesnt compete in the high-end ERP market that is dominated by the three largest rivals, Oracle, PeopleSoft and SAP AG.

The release was apparently timed to allow Oracle to put its spin on Burgums testimony a full day before he finally takes the stand. Burgum was originally scheduled to testify on June 16, but scheduling problems delayed his appearance for a week. Oracle officials said they released the report in full Tuesday because it had already been referred to during testimony in U.S. District Court here.

The profile document notes that Microsoft has publicly set a goal of generating $10 billion in enterprise applications by 2010, which will require compounded annual growth of about 50 percent based on 2003 MBS revenue of $567 million. By comparison, SAPs 2002 EAS revenue totaled $4.95 billion while Oracles total revenue from its entire database and application software product line was $9.7 billion.

It also argues that the MBS product strategy is central to Microsofts effort to win wide corporate acceptance of its .Net Web services application development strategy.

Microsofts “Project Green” is an effort to rewrite the four main MBS applications so that they conform to a common code base using .Net technology. “Microsoft needs Project Green to demonstrate the value of its .Net platform,” according to the profile.

Oracles profile contends that Microsoft is already the fifth-largest EAS provider and is in the process of “moving up market” to challenge the leaders. While its Great Plains and Navision product lines are currently marketed to mid-sized companies, “there can be no reasonable doubt that Microsoft will increase its focus on larger enterprises over time,” it says.

/zimages/3/28571.gifClick hereto read why Oracle President Charles Phillips downplayed comments he made about Oracle being part of a back-office applications “oligopoly” that includes SAP and PeopleSoft.

The DOJ rested its case Tuesday after entering stacks of depositions, customer statements and related documents into evidence. By resting today, the DOJ cleared the way for Oracle to call its first witness, Thomas Campbell, professor of business and Dean of the Haas School of Business at the University of California, Berkeley.

Campbell, a former congressman and former director of the Federal Trade Commissions Bureau of Competition, was called to rebut the governments assertion that the ERP software market will become noncompetitive if Oracle is allowed to buy out PeopleSoft.

Campbell rejected the governments theory that the Oracle buyout would drive up prices because customers would not have enough choices if the market was reduced from three companies to two. ERP software customers have too much negotiating skill and power to be at the mercy of the two largest surviving rivals—Oracle and SAP—Campbell argued.

/zimages/3/28571.gifClick hereto read about PeopleSofts assertion that Oracles takeover bid violates antitrust law because it is predatory.

Customers apply their negotiation and buying power even when they choose to talk to two main vendors or even just one, he said.

Customers can always play the “do nothing” card by deciding to rely on their existing legacy or home-grown ERP systems rather than meet the price demands of Oracle or SAP. As a result, the rivals will continue to offer substantial discounts to induce them to buy, he suggested.

He also denied the DOJs contention that the two surviving rivals would have the inherent power to dominate the ERP market to the detriment of customers.

There is no existing economic theory or doctrine that can predict whether a market dominated by two main rivals will become noncompetitive as defined by the federal antitrust laws, he said.

Judge Vaughn Walker questioned Campbell about customers fears, stated in testimony, that they will be harmed if Oracle provides maintenance and upgrades for their existing PeopleSoft ERP installations only for a limited time.

While Campbell contends that software is a “durable good” that can run indefinitely, Walker noted that in the case of human resources management, payroll and financial management software, state and federal tax and employment laws change virtually every year. This requires regular revision and upgrades to keep up with the changes, Walker noted.

Campbell said that customers would be able to get the revisions they need, if not from Oracle then from other “best of breed” solutions as an alternative to Oracle applications.

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