PeopleSoft: High-End Business Apps Are Just A Three-Player Market

A PeopleSoft executive testified that Oracle and SAP are its only real competitors in the high-end business-software market; earlier, Oracle's lawyers said SAP will overrun Oracle if its takeover of PeopleSoft is blocked.
A PeopleSoft Inc. executive testified Wednesday that its sole competitors in the high-end business software market are Oracle and SAP, not the midmarket players that Oracle claims also compete in this market. That came after Oracle's attorneys portrayed its effort to take over PeopleSoft as a matter of survival in the face of SAP's strength in the market for enterprise applications.

"Very very infrequently do I see Lawson (in the RFP process)," Phillip Wilmington, PeopleSoft's executive VP of the Americas, testified during questioning in the antitrust trial concerning Oracle's hostile takeover bid. Wilmington noted that he's found customers to be reviewing Lawson along with PeopleSoft just twice in the last couple of years. "They're not competing in the market I deal with," he said during questioning by a Justice Department attorney. "They don't have the functionality to compete and they play best in the midmarket.'' He added that PeopleSoft also doesn't compete with Microsoft for high-end market accounts, as Oracle has suggested.

Wilmington also attempted to demonstrate through his testimony that SAP is not a viable competitor to Oracle, because the German company's offerings lack the sophisticated functionality necessary to high-end financial customers. He cited, as an example, one of PeopleSoft's banking customers which had a "very challenging business requirement" that required strong reporting capabilities"capabilities that could be found only through Oracle or PeopleSoft, and not SAP.

The PeopleSoft executive's testimony largely consisted of an outline of a software company whose business applications mirror those offered by Oracle, minus the database software. He also listed a number of customer examples in which PeopleSoft and Oracle went head to head in bidding negotiations, with PeopleSoft winning many of the battles.

Oracle attorney Gregory Lindstrom will cross-examine Wilmington on Thursday in what promises to be a grueling morning on the stand. Lindstrom warned Judge Vaughn Walker that he would be citing from 50 documents. "Did I hear you right"5-0?" Walker asked after a long day on the bench. He then convinced a reluctant Wilmington to put on hold his end-of-quarter tasks in order to return to the courthouse in the morning Earlier in the day, Oracle called a witness who is partnering with SAP in order to go after Oracle's largest banking customers. Oracle attorneys are trying to show the court that acquiring PeopleSoft would help it compete against SAP.

Lindstrom focused not only on SAP's growing competitive threat to Oracle in the high-end financial software market, but also on the eventual threat presented by Microsoft during his questioning of Christy Bass, global managing partner of global business solutions for high-end systems integrator Accenture. Lindstrom also probed Bass' knowledge of SAP's plans to step up its competitive strategy against Oracle in the financial software market--specifically, its plan to target the top 20 banks in the United States over the next 18 to 24 months. SAP has partnered with Accenture to develop high-end financial software aimed at the top global banks.

Bass said she believes SAP's market share will increase significantly as a result of this partnership. Additionally, she testified that the industry will see a convergence in the ERP software market where new competitors, including Microsoft, will play. "It's just a matter of time that Microsoft will compete in SAP's space," she said. "They intend to be an ERP-like supplier to the midmarket." The implication is that Oracle must do all it can to stay competitive against new and old competitors, including acquiring PeopleSoft.

Bass testified that SAP has the best chance for success in this market due to its size, cash on hand, global presence and tight alliances with Microsoft and IBM.

Another witness voiced concerns that Oracle will leverage its purchase of PeopleSoft to move PeopleSoft customers onto its database software. Curtis Wolfe, CIO of the State of North Dakota, testified that the significant PeopleSoft ERP software investment he made two years ago, which promised the state a 30- to 40-year lifecycle, could go down the drain if a merger with Oracle occurs. Another blow to his investment, he testified, would be the cost associated with having to move his ERP software from the Microsoft SQL Server database to Oracle's database.

"PeopleSoft and Oracle offer the same product. Logic tells you (Oracle) won't continue to support both, but that they'll emerge to the one that runs on the Oracle database, so those of us running software on a non-Oracle database will suffer," said Wolfe, who oversaw the request-for-proposals process that started with six business software vendors and ended in a bidding battle between Oracle and PeopleSoft.

Wolfe also noted that because Oracle and PeopleSoft knew they were bidding against each other, the proposed price of their financial and higher education software was significantly reduced. "If you look at the different price offerings from the first proposal and then subsequently, you saw the price decrease from $35 [million] to $40 million to $18 to $21 million," he said. "I don't believe you would have seen that price decreasing if they hadn't had competition."

Oracle denies that PeopleSoft customers will be left in the cold. Oracle attorney Daniel Wall told InformationWeek that his company's priority after a merger would be to keep PeopleSoft customers happy, and that Oracle would waive any porting costs associated with moving customers' systems to Oracle platforms. "It's in our economic interest to make these people satisfied Oracle customers so they don't go to SAP," he said. Wall added that the software market is such an "extremely dynamic marketplace," that even though Microsoft owns 95% of the operating system market, it continues to innovate.

The Justice Department is expected to wrap up its case Friday or Monday, according to a spokeswoman. Microsoft is expected to testify on Wednesday.