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SAN FRANCISCO—SAP is “anticipating a greater amount of competition” if its two main rivals, Oracle and PeopleSoft, are allowed to merge, a company vice president testified Wednesday.
SAP AG is at the top of the North American enterprise application software (EAS) market with a 34 percent share, said Richard Knowles, SAP Americas vice president of operations. Oracle Corp.s takeover of PeopleSoft Inc. would give the combined company a market share of about 38 percent, he said, making it the top seller of EAS.
The EAS market would become “hugely competitive” as Oracle fought to maintain the top spot above SAP, Knowles said.
Oracle called SAP to testify Wednesday to support its view that the EAS market will remain vibrantly competitive even if two of its players merge. The Department of Justice is suing in U.S. District Court here to obtain a permanent injunction against the takeover on the grounds that it would make the market for high-end enterprise application software noncompetitive.
Knowles told the court that SAP is “neutral” on whether the merger should go through. “We are not here for Oracle or PeopleSoft,” he said. SAP sent a representative to testify only because it was called into court by Oracle, he said.
The merger would revitalize Oracle as a competitor because it would give it access to the PeopleSoft sales force and to additional technology, Knowles said. Overnight, he said, Oracle would become “a database company that is back in the applications business.”
Under cross-examination, lead DOJ attorney Claude Scott questioned SAPs neutrality in the case. He asked Knowles if he was aware that SAP officials had made statements to European Union regulators that were favorable to the Oracle-PeopleSoft buyout.
He also asked whether Knowles had heard that SAP CEO Henning Kagermann had criticized the DOJs definition of high-end and midrange markets for enterprise application software. Knowles said he wasnt aware of all of the various comments SAP executives may have made concerning the Oracle bid.
Scott asked Knowles whether it was true that SAP believed that a the combination of Oracle, PeopleSoft and J.D. Edwards would be a “formidable competitor” in the high-end enterprise applications software market. Knowles suggested that it wasnt his role to provide an opinion on SAP competitive-market intelligence.
When Scott referred Knowles to earlier deposition testimony that suggested he had voiced the view that the merger would make Oracle a formidable competitor, Knowles said it was “my opinion, not SAPs opinion.”
Echoing statements from both PeopleSoft and Oracle earlier in the trial, Knowles said PeopleSoft was prepared to offer huge discounts off list prices to win sales deals. Oracle presented an internal SAP document showing that the company was willing to approve an 81 percent discount to win a sales contract with Halliburton Energy Services Corp.
SAP was willing to consider 100 percent discounts for the initial software licenses if it gave the company an opportunity to build a continuing relationship that would generate revenue from consulting services and add-on software sales, Knowles testified.
SAP also views Microsofts business solutions group as a growing competitive threat, Knowles acknowledged. Oracle presented an SAP e-mail, titled “these guys are here,” stating that SAP could expect to see Microsoft competing for sales in SAPs market. The message suggested that “immediate containment of Microsoft in the business solutions space” should be a top priority.
Testimony will continue Wednesday afternoon with the long-awaited testimony, requested by the DOJ, of Doug Burgum, head of Microsoft Business Solutions.
Editors Note: This story was updated to include testimony by SAP America executive Richard Knowles under cross-examination by the Justice Department.
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