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6/11/2004
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Government: Oracle-PeopleSoft Would Create Duopoly

Day 4 in the trial to decide if Oracle should be allowed to buy PeopleSoft: Arguing whether there is a mid-market for enterprise apps.

On the fourth day of the Oracle anti-trust trial, the Department of Justice explored J.D. Edwards & Co.'s failure to break into the "high-function" enterprise-software market that is dominated by Oracle, PeopleSoft, and SAP. J.D. Edwards eventually was acquired by PeopleSoft.

The government is trying to support its contention that Oracle's hostile bid for PeopleSoft would result in an unacceptable duopoly.

Under questioning from trial attorney Paul O'Donnell, former J.D. Edwards senior VP and CFO Richard Allen described how in the early '90s, the company tried to extend its software beyond IBM's AS/400 hardware and to expand beyond its traditional mid-market customer base.

But after spending close to a billion dollars and the better part of a decade, Allen said J.D. Edwards abandoned the effort because it didn't have the products and services necessary to satisfy the requirements of bigger buyers.

The heart of the government's case lies in defining those requirements, and by extension, the market for high-function human-resource-management and financial-management apps sold by Oracle, PeopleSoft, and SAP.

Allen offered several criteria to make a determination, saying that large, complex enterprises tended to view software as an investment rather than an expense. He said the apps purchased by big companies are themselves complex in nature, and tend to operate across multiple divisions, places, currencies, and/or languages.

Allen said large companies tend to have sophisticated IT units and employees who usually are specialized in their skills. Mid-market and smaller companies more often employ generalists who are responsible for multiple tasks.

But Judge Vaughn Walker, apparently not satisfied, sought further clarification, saying that he was "trying to discern this boundary, if it exists."

During cross-examination, Oracle attorney Thomas Rosch argued against the existence of such a boundary, citing Cargil and Medtronics, both large, complex companies that were J.D. Edwards customers.

Allen largely resisted Rosch's suggestion that a drop in demand for enterprise software following Y2K had more to do with J.D. Edwards' failure to retool its business than did its inability to compete with Oracle, PeopleSoft, and SAP.

In its trial memorandum, Oracle contends that "virtually every 'large, complex enterprise' already has a modern, fully-functional software solution for its basic financial and human-resources management need." And if the company is correct in claiming that "the near-term market opportunity for [financial and HR apps] is in what is commonly called the 'mid-market,' " there may be more competitors in the mix than the government contends.

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