U.S. v. Oracle Corp.Economic Issues

Dan Wall

Latham & Watkins LLP

Function System Solutions

Ties together disparate Accenture, IBM, Cap Gemini,computing environments EDS, In-House, Others

Performs business SAP, Oracle, PS, Othersprocesses

Runs programs (Java, C), IBM, Microsoft, BEAintegrates multiple programs, Oracle, SAP, JBoss, Othersmanages user security

Stores data Oracle, IBM, Microsoft,(e.g., invoices, orders, Sybase, MySQL, Otherspersonnel records)

Runs logic for hardware Unix, Windows, LinuxMainframe MVS, Others

Hardware on which software IBM, Sun, Dell,applications run HP, Others

Modern Computing Environment

Server Computers

Operating Systems

Database

Application Server

Enterprise ApplicationsSoftware (“EAS”)

Systems IntegrationServices

SUPPLIERS

CUSTOMERS

Financialmanagement

Humanresources

Centralprocurement

Executiveinformation /decision supportsystems

CorporateAdministration

The “Back Office”

EAS Within the EnterpriseCustomer Interface

Product marketing / support Field service & support Order entry Sales management Customer information systems Product configuration

Supply Chain Advanced planning & scheduling Supply chain inventory visibility Warehouse / inventory mgmt Transportation International trade systems

Manufacturing Resource planning Maintenance, repair, operations Engineering/design Product data management Production management

Financial Management Systems (“FMS”) Applications

FM

S A

pp

lica

tio

ns

General ledger (“GL”)

Accounts payable (“A/P”)

Accounts receivable (“A/R”)

Asset management

Treasury management

Travel and expense management

Others …

HR

Ap

plic

ati

on

s

Human resources

Payroll

Time & attendance

Benefits

Compensation

Training

Learning

Performance appraisal

Others …

Human Resources (“HR”) Applications

Industry Verticals

Federal Government

State and Local Government

Education

Healthcare Providers

Financial Services

Retail

Communications

Utilities

Professional Services

Process Manufacturing

Discrete Manufacturing

Agriculture & Mining

Stack Competition

OperatingSystem

Database

MiddlewareSuite

Development Tools

Applications

Consulting Services

Windows

MS SQL Server

.NET

Visual Studio .NET

Partners

Linux

Database 10g

ApplicationServer 10g

Oracle Tools / J2EE

Oracle Consulting

Linux

DB2

WebSphere

Rational / WebSphere

IBM GlobalServices

Linux

MySQL and others

NetWeaver

NetWeaver / J2EE

SAP Consulting

PartnersE-BusinessSuite

MicrosoftBusinessSolutions

mySAP

Partners

Partners

J2EE

JBoss/Apache

MySQL

Linux

Real Competition: The Stack

D5822R

A Non-Starter In FMS

Or In HRMS

Getting to DOJ’s Market

Cut out the “Mid-Market”• DOJ focuses on the very

largest corporations in the world.

• Thousands of large enterprises are excluded from the market – because they indisputably turn to other vendors.

<2000 Companies

10-15,000 Companies

200 Word Market Definition

Price Discrimination A constant DOJ theme, but:

• Price discrimination in the form of different, customer-specific pricing was simply noted, not explained.

• Price discrimination market definition theory was not pursued.

• DOJ never established that having fewer choices translated to unfavorable treatment.

The Secret (Better?) Market

SAP Will Remain the Leading Firm

FMS• SAP Worldwide FMS Revenues: $1.06 billion• Sum of Oracle and PeopleSoft: $673 million

Source: IDC, Sept. 2003 (D5543)

HRM• SAP Worldwide HRM Revenues: $514 million• Sum of Oracle and PeopleSoft: $652 million

Source: IDC, July 2003 (D5815)

“ERP” (EAS Suites)• SAP Worldwide ERP Revenues: $5.0 billion• Sum of Oracle and PeopleSoft: $3.1 billion

Source: IDC, May 2004 (D5572)

“Localized Competition”

Theory

“Reality”(Assuming 3-firm

market)

From Oracle’s Opening Statement

ERP Vendor Market Positioning

Vertical Scope

Cu

sto

me

r S

ize

PeopleSoft

Oracle LawsonLawson

SAPAMS

Microsoft

Sources of Customer Leverage

Lost enterprise bids are very costly.• Variable costs are low; lost revenue is lost profit.

Follow-on business.• More modules, pillars, infrastructure needs.

Reference value.

Control of key information.• They can learn what is important about vendors while

concealing what is important about them.

A credible “do nothing” option.

Nothing Critical Will Change

One or two firms negotiating with buyer.

Buyers with leverage that don’t need to buy at all.

Buyers can conceal their reserve price and vendor preferences.

Seller costs of losing are huge; price discrimination is very risky.

Unchanged

Unchanged

Unchanged

Unchanged

Today Post-Merger

From Oracle’s Opening Statement