Microsoft Stance May Not Help Oracle Vs. DoJ

If Oracle wants help from Microsoft as part of its bid to buy PeopleSoft, then the company may be stuck with wishful thinking.

Microsoft has offered the U.S. Department of Justice a sworn statement that says it has no such plans to enter the same business market as Oracle within the next two years, according to a Reuters report, which cited attorneys familiar with the case.

Such a deposition could be a big blow to Redwood Shores, Calif.-based Oracle, and could help the government’s bid to block Oracle’s bid to buy PeopleSoft for $9.4 billion.

Oracle is trying to prove that it’s hostile play for Pleasanton, Calif.-based PeopleSoft is not anticompetitive, as the has DoJ decided. Oracle is faced with the task of convincing the DoJ that the applications market for large businesses includes more than just the big three of German giant SAP , Oracle and PeopleSoft.

According to the report, the Redmond, Wash. software maker said Oracle could still subpoena Microsoft as part of its legal fight with the DoJ. But a preemptive statement from Microsoft could also be damning.

Oracle and the DoJ refused requests for comment. Microsoft said it had no comment on the report or the statement.

Mike Dominy, analyst in the Business Applications & Commerce practice at research firm The Yankee Group, said such a statement from Microsoft, if it is true, makes sense.

Dominy, who covers the space regularly, told Microsoft does quite well in the small-and medium-sized (SMB) business market for applications and is more likely to expand its customer base in that realm than reaching up to compete with SAP, Oracle and PeopleSoft.

The analyst did allow that Microsoft could run into the “tier-one” applications vendors as it looks to expand its purview in the mid-market, but noted the possibility doesn’t apply to this case because the DoJ has made its decision based on a narrow definition of what the “tier-one” applications market is.

The issue of defining the market for “high-function” applications is a tricky one, but Oracle it seems has found itself at least one major ally: SAP, the company it claims it is trying to better compete with through an acquisition of PeopleSoft.

At $8 billion or so per year in revenues, SAP is the unquestionable 800-pound gorilla in a competitive market. While it has kept quiet about the issue for nearly a year since Oracle issued its first bid, the company recently spoke publicly in favor of an Oracle purchase of PeopleSoft.

Dominy said one obvious reason is that SAP, which is not threatened by any of these companies at this point, would have one less competitor if Oracle consumed PeopleSoft. It would also open the market up for SAP to acquire other companies, he said.

“The other reason is that SAP is likely scared of the DoJ’s narrow definition of the market because it could happen to them and they don’t want to see their business affected,” Dominy said.

The DoJ opposed Oracle’s latest offer for rival PeopleSoft and filed suit to block the deal February 27. Oracle vowed to challenge the DoJ’s suit in court. Shortly after, reports surfaced that Oracle had enlisted Microsoft’s help in providing a broader definition of the market.

While Oracle denied this, Oracle spokeswoman Jennifer Glass did not rule out the possibility that Oracle could turn to Microsoft to help its case.

Oracle’s argument is that Microsoft has been steadily growing its business applications business to the point that it could be expanding from catering to mid-market customers to the larger enterprise, putting itself squarely into competition with SAP, Oracle and PeopleSoft.

However, experts said it is unlikely Microsoft would willingly help Oracle, a fierce rival in the database software arena. Considering the degree of mutual contempt, it would seem logical that Oracle would need to subpoena Microsoft for its case versus the DoJ in the U.S. District Court in San Francisco.

But this may be moot if Microsoft has indeed promised to steer clear of the large applications market for the next two years.

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