'PeopleSoft top restraint on Oracle'

Spencer Swartz and Michael Kahn

SAN FRANCISCO: More than half of the time that Oracle Corp. has cut prices on its business applications software it has done so in the face of competition from rival PeopleSoft Inc., an economist said in federal court.

The testimony came in support of the U.S. government, which has sued to block Oracle's hostile $7.7 billion takeover bid for PeopleSoft on anti-competitive grounds.

Kenneth Elzinga, a University of Virginia economist and antitrust expert called as a government witness in the trial, said his review of 222 discount forms written by Oracle sales staff showed the biggest reason they sought to lower software prices was because of competition from PeopleSoft.

The testimony came near the mid-point of a four-week trial, which will determine whether Oracle can move forward with its takeover bid.

Oracle lawyers have argued that the discount forms submitted as evidence in the antitrust trial are not representative of the wider competition the company faces.

But Elzinga also said he believed a combined Oracle/PeopleSoft would drive up prices in the enterprise software market even if new players enter the market.

"The adverse effects of the proposed combination are not likely to be prevented by entry of new firms or expansion of existing firms," said Elzinga.

Oracle sales staff cited PeopleSoft and JD Edwards, which PeopleSoft acquired, in more than half the instances in which they sought software discounts, Elzinga said.

SAP AG, the world's biggest business software maker, came in a distant second, he said.

Elzinga said he arrived at his broad conclusions after reviewing several industry reports from companies such as Gartner, an industry research group.

His testimony came one day after Oracle lawyers argued that internal documents from PeopleSoft show the company is concerned that SAP and Microsoft Corp. are joining a wider field of competitors in the business software market.

But Elzinga said he did not believe SAP had a big enough presence in the United States to keep a lid on Oracle's pricing power if Oracle were to merge with PeopleSoft.

Elzinga calculated that for high-function human resource management software, PeopleSoft and Oracle had a combined 69.7 percent share of the U.S. market. SAP accounted for 29.1 percent and newer entrant Lawson Software had 0.8 percent.

For financial management software -- the other application at the core of the antitrust fight -- Oracle and PeopleSoft together made up 47.4 percent of the U.S. market, just ahead of SAP at 38.6 percent.

So, a merged company would result in higher prices because two of the top three competitors would no longer challenge each other to discount price, Elzinga said.

"That push would be gone if the merger were to take place," Elzinga said.

During cross examination, Oracle's lead attorney, Dan Wall, suggested Elzinga had downplayed SAP's influence by concentrating solely on the U.S. market.

As an example, Wall cited an IDC market analysis that showed SAP had 20 percent of worldwide market share for enterprise resource planning applications and license maintenance. Such tools include software to manage financial and human resource activities.

PeopleSoft followed at 7 percent and Oracle made up 5.5 percent of the market, while Microsoft had 2.6 percent, according to the analysis from IDC.

Elzinga also said he believed Microsoft was not becoming a competitor in the segment of the business software market that caters to large businesses and government agencies.

He said he believed Microsoft was more focused on the segment that caters to small and medium-sized businesses.

(Additional reporting by Lisa Baertlein in San Francisco)

(C)Reuters