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.

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