Oracle Attorney's Take On PeopleSoft Expert Witness

Elzinga, who earlier testified that an Oracle/PeopleSoft merger would result in a monopoly in the U.S., was questioned on why he narrowed his economic research of the ramifications of an Oracle/PeopleSoft merger to the U.S. only, excluding global markets.

"How do the buyers based in the US differ from those not based in the U.S.?" Wall asked, indicating that from a global perspective, there are more than three players in the enterprise resource planning (ERP) market beyond Oracle, PeopleSoft and SAP.

Addressing the question several times in different forms, Elzinga held firm on his reasoning for studying the U.S. market only, stating he sees the U.S. as a market that can become monopolized.

"If Oracle, PeopleSoft and SAP were to merge and they sold in the U.S., they would be able to extract from monopoly ranks to the customers in the U.S., and anything happening in Europe or Australia would not undercut that," he said, meaning the second tier players elsewhere would not offset monopoly effects. Earlier in the day, he said an Oracle/PeopleSoft merger would result in a monopoly in the US.

Wall displayed on screens throughout the courtroom a number of documents from IDC showing worldwide enterprise application revenues of the top 10 vendors; the charts didn't always show Oracle, SAP and PeopleSoft as being among the top players. One document showed SAP having 20 percent market share, PeopleSoft having 7 percent and Oracle having 5.5 percent, with Microsoft at 2.6 percent.

Wall displayed another IDC table showing worldwide human-resources management and payroll processing applications license revenues, with SAP having 11.86 percent, PeopleSoft with 11.29 percent, Automatic Data Processing with 8.56 percent and Kronos, 4.21 percent. In that space, Oracle trailed all players.

"Sure, if you see enough of these documents, whatever is the metric, SAP will come out as No. 1," Elzinga said. He called the IDC documents a "slicing and dicing" of third party and sales figures that might represent categories of sales, but do not necessarily represent market share correctly. He remained unflustered during his three hours and 15 minutes on cross-examination, following about three hours on the stand with the government.

Wall also attacked the professor's credibility, making reference to a number of economic methods used to determine monopolistic characteristics that Elzinga neglected to include. He also asserted Elzinga didn't conduct any interviews pertaining to the case.

Earlier in the day, Elzinga stated to Justice Department attorney Claude Scott that unequivocally, the only players in the high-functionality enterprise software arena are Oracle, PeopleSoft and SAP. And based on SAP's lack of influence on U.S. pricing due to its varying global pricing structure, the only real U.S. players are Oracle and PeopleSoft, he said.

The testimony of the soft-spoken professor, which played out like an economics course lecture, was based on research from Gartner Group, the Big Five consulting firms and his analysis of Oracle and PeopleSoft documents. Elzinga testified for the Oracle antitrust case on the behalf of the government, which expects to rest its case this coming Friday.

"What's driving the discounts for Oracle" where sales people are saying I need to be more aggressive on price to get the account"it's not mid-market, it's not legacy systems, not in-house systems, it's not outsourcers," but fierce competition from PeopleSoft and SAP, he said. He was referring to an internal Oracle sales document showing that overwhelmingly, discount request forms were filled out when PeopleSoft and SAP were named as justification for discounts.

"There's so much price discrimination in this market. Think about the implementations of this merger, and recognize that price discrimination is an operating (tool) used in this market, and see how often these two firms are in head-to-head competition,. Economics teaches us that based on the inverse elasticity rule, customers not price-sensitive will pay higher prices facing only two alternatives rather than three,'' he said.

He cited Gartner Group research, which showed Oracle, PeopleSoft and SAP as the only companies offering highly functional and highly scalable enterprise software to upper market customers with tier 2 players offering solutions only a fraction of the time.

The professor went on to downplay the importance of SAP as a player, supporting Justice's case that Oracle and PeopleSoft are the only players. ``You can't go to SAP and get into a bidding match (referencing prices being charged from one country to another). Prices are not affected by prices charged (by SAP) outside the U.S. or inside the U.S. For those reasons, I see the U.S. as a geographic market that's capable of being monopolized'' if Oracle were the only U.S.-based vendor, he said.

As the Justice Department delivers its final punches to Oracle, which is looking to buy PeopleSoft in a hostile takeover, a Justice attorney told InformationWeek she feels confident the government has presented a solid case against Oracle. Renata Hesse, attorney for the Justice Department said the core points they have made have not been effectively rebuffed by Oracle's defense.

Regarding a PeopleSoft internal memo Oracle introduced into evidence on Thursday, in which a PeopleSoft product manager said she felt very fearful that Microsoft was entering its ERP space, Hesse said, "There's not much significance at all."

She said, "What this (PeopleSoft) person was trying to do was pay attention to the mid-market and make sure she (secured) some funding (in her product area)." She said the product manager writing the couple-year-old memo was also trying to encourage PeopleSoft to buy another mid-market company, which it later did through its acquisition of JD Edwards.

This story courtesy of InformationWeek