Oracle Keeps Microsoft Up at Night

SAN FRANCISCO — Fear of Oracle is apparently causing
many sleepless nights over at Microsoft , according to
court testimony Friday.

On Friday, the U.S. Department of Justice wrapped up the second week of its legal
battle to prevent Oracle from proceeding with its $7.7 billion takeover bid
for PeopleSoft . The government hopes its witnesses this
week will convince the judge that there are only three players in
the high-level enterprise resource planning (ERP) software market: Oracle,
PeopleSoft and the German SAP.

University of Virginia Professor of Economics Kenneth Elizinga told the
court that while Microsoft is certainly not on the short list, the Redmond,
Wash.-based software vendor is always thinking of ways to combat Oracle and
its rivals from inching into Microsoft’s business.

Elizinga presented an internal
memo dated January 23, 2002 and titled What Keeps Us Up At Night from Microsoft’s Business Solutions division.
The scorecard review reminds employees that “Oracle, PeopleSoft, SAP
aggressively moving down market increasing pricing pressure (discounting
levels) and creating new channel programs” is a motivator for some
employees to live at their desks for several days in a row.

“What this suggests to me is that Microsoft doesn’t make high-end
software, and that Oracle, PeopleSoft, and SAP are the top three,” said
Elizinga, who also helped the DoJ with its anti-trust case against

In a move
that may signal a thaw between the two companies, Oracle recently
joined Microsoft’s Visual Studio Industry Partner (VSIP) program as a
premier-level partner. A spokesperson for Microsoft declined to comment on the case.

Elizinga also pointed out that outsourcing might be creating a
“hypothetical monopolist,” especially for human resources software, which is
one area that PeopleSoft excels in and Oracle covets.

“There’s so much price discrimination in this market,” Elizinga said.
“Discounts range from more than 20 percent to as much as 90 percent.
Economics teaches us that based on the inverse elasticity rule, customers
not price-sensitive will pay higher prices [when] facing only two alternatives,
rather than three.”

Lawyers for the Justice Department will continue their case on Monday.
More of Microsoft’s corporate strategy in the ERP market may be revealed
when Douglas Burgum, senior vice president of Microsoft Business Solutions
takes the stand for the government Wednesday. Burgum gained increased
importance this past week after Microsoft CEO Steve Ballmer reorganized his division.

Oracle vice president Ken Glueck told that, despite the
government’s best attempts to derail the company’s acquisition plans, the
burden of proof is not convincing. Earlier this week, Oracle showed the
court a PeopleSoft internal memo from a product manager who said she was
“fearful” that Microsoft was entering the ERP marketplace.

One thing that both sides agree is swaying public opinion is the recently
revealed $65 billion merger
between Microsoft and SAP. Microsoft acknowledged that it
initiated preliminary discussions with SAP late last year but has since
dropped the issue.

“This is the heart of the case. It’s been a good two weeks,” said Glueck,
who also pointed out that the financial markets are reacting positively
towards Oracle ever since the Microsoft/SAP news came out at the start of
the case.

Oracle is expected to call PeopleSoft CEO Craig Conway to the stand on June 29 as one of the first witnesses in its defense. Glueck said
that Oracle CEO Larry Ellison would more than likely take the stand at the
end of the four-week case.

Open Documents

In related news, several newsgathering organizations won their efforts to
gain access to previously hidden court documents. On Thursday, the court granted
the press access to 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.

District Court Judge Vaughn R. Walker has noted that Oracle, the DoJ and
some third-party vendors have significantly “over-designated” documents as
confidential without the proper procedure.

“This is a difficult issue for everyone,” Coudert Brothers legal expert
Rob Christopher told “U.S. public corporations like
Oracle, PeopleSoft and Microsoft have important legal and ethical
obligations… but they effectively walk a tightrope from which they can
easily fall off, one way by disclosing information prematurely, or the other
way by withholding sensitive information too long. The bottom lines about
Judge Walker’s plan to unseal documents therefore are that he will unseal as
much as he believes he can after balancing everyone’s legitimate interests;
there almost certainly will be some information that is withheld or not
unsealed; and we, the public, will not know for some time, if ever, what, if
any, role that information has on his ultimate decision.”

And 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.

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