PeopleSoft Documents Raise Competitive Fears About Microsoft

Redwood Shores, Calif.-based Oracle produced the PeopleSoft documents discussing the industry landscape in a continuing effort to chip away at the foundation of an antitrust case filed by the Justice Department and 10 states trying to block Oracle's $7.7 billion bid for PeopleSoft.

The government contends the proposed deal shouldn't be allowed because it would undermine price and product competition in a sophisticated market niche dominated by Oracle, PeopleSoft, and Germany-based SAP.

Antitrust regulators say only those three companies are equipped to meet the complex needs of large U.S. companies that depend on accounting and personnel software to automate many administrative jobs.

Since the monthlong trial began in San Francisco 10 days ago, Oracle has been building a case for a much broader market definition that includes smaller rivals, such as Lawson Software, and an imminent threat from Microsoft, the world's largest software company.

The Justice Department contends neither Lawson nor Microsoft are capable of making business applications software for anything but mid-sized customers with relatively simple needs, but Oracle sought to use the words of PeopleSoft's own executives to contradict that viewpoint.

After Microsoft announced plans in late 2000 to enter the business applications software market with the acquisition of Great Plains Software, PeopleSoft executive Renee Lorton sent an E-mail to one of her bosses with the subject heading, "YIKES."

"This is huge news and should have all of us ... shaking in our boots," wrote Lorton, the general manager of the PeopleSoft division that makes financial-management software.

When it bought Great Plains, Microsoft said it would focus exclusively on selling to smaller companies, but Lorton scoffed at that notion in her E-mail. "I don't buy the claims that they are only targeting the mid-market space," she wrote in her Dec. 21, 2000 E-mail. "As we all know, if (Microsoft co-founder Bill Gates) can't own the market, he doesn't bother."

Phillip Wilmington, an executive vice president for PeopleSoft, downplayed the significance of Lorton's comments during a three-hour cross-examination conducted by Oracle attorney Greg Lindstrom. He emphasized that Microsoft still hadn't made a dent in the business applications software market and suggested that Lorton exaggerated the Microsoft threat in hopes of increasing her department's budget.

"I don't think it's unusual to be alarmist when you are trying to convince someone to invest in your product line," Wilmington testified.

Lorton's fears about Microsoft weren't isolated at PeopleSoft, according to other evidence submitted Thursday by Oracle.

"Of everyone I'm going to mention, I think the biggest long-term threat is Microsoft," said another PeopleSoft general manager, Doug Merritt, in a 2002 company document marked "highly confidential." Later in the same discussion, Merritt said, "Microsoft is deadly serious about the business applications game."

Oracle also produced PeopleSoft documents that identified Lawson Software as a competitor in more than 60 deals involving large customers.

Wilmington nevertheless said he remains convinced Lawson will remain focused on mid-sized customers.

Oracle emerged from the courtroom confident the company had scored points with U.S. District Judge Vaughn Walker.

"It was definitely a strong day for us," Oracle attorney Daniel Wall said. "We have been looking forward to this day because it gave us the opportunity to show what (PeopleSoft's) internal documents are saying about the market instead of the carefully scripted testimony we have been hearing."

Justice Department attorney Renata Hesse said the government remains convinced its antitrust case is "still solidly intact."

"These (Oracle) guys are just doing what good lawyers do, which is nibble around the edges," she said.

Microsoft's designs on the business applications market are expected to come up again before the trial is over. A top Microsoft executive, Douglas Burgum, is scheduled to testify on June 23.

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