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Oracle, DOJ Documents May Lose Seals - InternetNews.
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Oracle, DOJ Documents May Lose Seals

A federal Judge is expected to unseal corporate documents in a trial that could determine if Oracle can proceed with its $7.7 billion takeover bid for PeopleSoft .

As part of a previous pre-trial agreement, only Oracle's legal team and the U.S. Department of Justice have been privy to several documents that contain detailed data on customers, competitive bids on contracts, pricing details, budgets and product information.

But at the start of the trial this week, District Court Judge Vaughn R. Walker noted that Oracle, the DoJ and some third parties have significantly "over-designated" documents as confidential without the proper procedure.

The judge has called a special phone briefing with lawyers today to discuss a motion by several news organizations, including the Associated Press, Los Angeles Times and the San Francisco Chronicle, to admit more evidence as public record. The evidence includes conversations between former U.S. District Judge Charles Legge and third-party companies like Microsoft, SAP and IBM. The meetings centered on how to proceed with the issue of sensitive documents from third parties helping with the DoJ's case.

Already, some juicy tidbits of information have been revealed in court. The biggest being secret merger talks between Microsoft and SAP . Microsoft acknowledged that it initiated preliminary discussions with SAP late last year but has since dropped the issue.

More of Microsoft's corporate strategy may be revealed when Douglas Burgum, senior vice president of Microsoft Business Solutions, takes the stand for the government to talk about the impact of the merger on his company's long-term strategy. Burgum gained increased importance this past week after Microsoft CEO Steve Ballmer re-organized his division.

The directive calls for Microsoft Business Solutions to establish better sales and tighter integration among Windows, Microsoft SQL Server, Microsoft Exchange Server and the Microsoft Office System. It also calls for the division to offer better software packages to enterprise customers and small-to-medium-sized businesses.

Similarly, a government witness this week revealed that both Microsoft and IBM are making moves to offer new products similar to Oracle's Enterprise Resource Planning (ERP) software. A witness for IBM said the company would lose major database contracts but not necessarily in the realm of ERP if Oracle's unsolicited bid for PeopleSoft were successful. The testimony actually discounts the Justice Department's position that there are only three main ERP players in the market: Oracle, PeopleSoft and SAP.

The testimony so far has shed light on other company's strategies. Former J.D. Edwards CFO Richard Allen said in court Thursday that the software maker failed to enter into what the government identifies as the "high-end enterprise market." Allen said his company forfeited the plan after spending nearly a decade and $1 billion on the project. PeopleSoft successfully acquired J.D. Edwards last year.

His testimony is a key plank in the government's argument that new companies would face difficulty competing against a combined Oracle-PeopleSoft and could therefore have little impact on software pricing.

Oracle is not immune to the disclosures. Testimony from top brass revealed sales tactics, including practice of undercutting PeopleSoft's offers to customers to "lowball the price to nowhere." If previously sealed documents are opened, it is suggested that Oracle could also be forced to reveal other potential acquisition targets should the PeopleSoft proposal fall through.

Despite the best efforts of Oracle to pry away from the DoJ's anti-trust claims, Oracle's attempt to take over PeopleSoft still faces many hurdles, including the shareholder rights "poison pill," PeopleSoft's Customer Assurance Program and a potential antitrust challenge from the European Union.

Lessons for Enterprise

In an opinion piece published this week, Paul Hamerman, Forrester Research vice president of enterprise applications, suggests there are many lessons for companies using or considering enterprise application software.

Hamerman proposes that enterprise look with a keen eye how strategies for selling software are being touted. "For example, Oracle has been known to cut its price deeply against a competitor late in a deal, especially when it looks like the competitor has the inside track. Application software has been a buyer's market recently, and this case is not likely to change this situation," he said.

Medium-size customers should take also take note as Hamerman points out that the complexity and cost of large enterprise applications may not be worth the hassle, especially for companies with less than $500 million in revenues.

"[Oracle] contends that since most large companies already own high-function HR and financial applications today, few will be likely to buy these applications during the next several years. What we have found is that most large companies have multiple HR and financial applications from multiple vendors. There is a significant trend under way to consolidate these systems, so numerous license deals remain on the table, as well as some new business remaining for legacy system replacements.

Hamerman also said within three years that the larger, established software companies will derive more than half of their revenue from recurring service contracts for maintenance, hosting and outsourcing, and less than 10 percent of revenue from new software licensing activity.

"What it means is the lines between software and services will continue to blur," Hamerman said in his publication.

As for the state of the tier-1 ERP market... "it's stagnate," Yankee Group Senior Analyst Mike Dominy told internetnews.com. The research firm is only projecting a 0.4 percent increase in spending on core ERP (financials, human resources and manufacturing) this year.

"The mid-tier market is a significant opportunity for ERP vendors," Dominy said. "The challenge facing all the large vendors that have focused on selling technology to large enterprises is one of the sales channel. It does not pay for high-paid sales executives from vendors such as SAP, Oracle and PeopleSoft to sell to the mid-market. These vendors need to form channel partnerships with vendors that have relationships with the mid-market buyers. Developing the mid-market channel takes time. This channel will be a 'beefed-up' version of the VAR channel used by many technology vendors (such as Microsoft) to reach the SMB market."

Dominy also points out that the vendors that have been successful in the mid-market to date have focused narrowly on specific verticals. For example, J.D. Edwards focused on manufacturing and distribution verticals for years. Software provider QAD focuses on certain manufacturing verticals. Lawson focuses in health care and a handful of other verticals.