Larry Ellison took the stand yesterday to defend his company's proposed takeover of Peoplesoft. The Oracle CEO told the federal court in San Francisco that competitive pressures from SAP and fear of Microsoft had prompted him to bid for Peoplesoft. "We wanted to be a survivor and a consolidator, and we felt the only way to survive and prosper was through acquisition," he said, demonstrating yet again his instinctive gift for the soundbite.
He reiterated his position that Oracle's proposed acquisition of Peoplesoft will increase competition by forcing other companies to become more efficient in an ever more cut-throat market. In February, the Department of Justice sued to block the bid, saying a PeopleSoft acquisition would result in higher prices, less innovation and fewer choices for customers.
Giving evidence, Ellison said it would be a huge blow for his company if the acquisition was blocked, and it would have been a waste of a "tremendous amount (of time) and energy," when the company could have been pursuing other targets. But even if the court agrees to overturn the DoJ ruling blocking the bid, Oracle will have to navigate the deal through the European Commission.
He confirmed that Oracle was considering other acquisitions as well as its bid for Peoplesoft. These include an "applications services" provider, a "business intelligence" group and an "infrastructure" software maker. Rumours abound as to which companies he is referring to, but it is widely thought that he is eyeing Business Objects, Siebel and BEA Systems, as all three were on a shopping list compiled before Ellison launched his hostile bid for control of Peoplesoft.
The rules of the game
Oracle's position in this trial hinges on a crucial definition: what is the enterprise software market and what consitututes an enterprise software customer? Are there just three important players - SAP, Peoplesoft and Oracle, as Peoplesoft and the DoJ claim? Or is it much bigger, incorporating the likes of Microsoft and IBM, as Oracle and SAP claim? And what about the smaller players, such as Siebel and Lawson: don't they provide effective competition too?
Trouble is, no-one can agree upon a definition of what the enterprise software market is, much to the irritation of the trial judge, Vaughn Walker. Before the trial, he called for a tutorial on the enterprise market, but last week, he admitted that he was still no clearer on key concepts.
Also at stake are competing philosophies of competition. However you carve up the enterprise software applications market, SAP is the leader: it is about the same size as Oracle and Peoplesoft together. The DoJ says that customer choice will be reduced and prices will rise if Oracle is allowed to buy Peoplesoft.
Ellison argues that an Oracle-Peoplesoft combo would provide much stronger competition to SAP, to the benefit of customers. Interestingly, SAP supports this thesis. It says it would have to work that much harder to win deals if up against a bigger competitor. And in this business winning deals from big companies means hefty discounts.
Both Oracle and SAP are obsessed with the looming presence of Microsoft. Oracle thinks Microsoft is already in the enterprise software market - it notes that it fought head-to-head against Microsoft for contracts 94 times in two years. SAP doesn't consider Microsoft a rival - today. But both say it is only a matter of time before Microsoft makes its big move.
Microsoft dismisses such fears. It has its hands full with selling apps to medium-sized business and it says it does not have the sales resources to compete for enterprise apps business. Which may be true. But it does have money, lots of it, and it can afford to buy just about any company it wants, as last year's dilatory takeover discussions with SAP disclosed at the Oracle trial, shows.
Also, Microsoft had mulled over taking a minority stake in Peoplesoft in return for a "modest platform commitment", to help it fend off Oracle, Judge Vaughn Walker heard last week. Which shows that it is a player in this market, even if only as a bank-roller, or as the supplier of SQL Server, a database platform to run enterprise apps on. ®