The DOJ and the Business Apps Industry

But it's time for the DOJ's trustbusters to look past the Ellison persona and evaluate the facts as they stand. Having sweetened Oracle's bid twice since June--the latest, in early February, a $26-a-share, $9.4 billion offer--Ellison has signaled that he is indeed serious about acquiring PeopleSoft.

Meantime, the DOJ must take a second look at the apps market it's trying to protect. The DOJ's lawyers argue that the only vendors of influence in the high-end ERP market are SAP, Oracle and PeopleSoft, leaving a duopoly should Oracle's hostile takeover succeed. "Under any traditional merger analysis, this deal substantially lessens competition in an important market," said Assistant Attorney General R. Hewitt Pate.

Perhaps the DOJ needs to move beyond conventional merger analysis, expanding its definition of the competition and this important market. High-end HR and financial applications are no longer the sweet spot of ERP. The action is now in "midmarket" applications, and in CRM, supply chain and other ERP extensions. Plenty of influential vendors besides SAP, Oracle and PeopleSoft play in those areas, including Lawson Software, Sage, Siebel, i2 and Manugistics. And don't underestimate Microsoft's expanding market clout following its acquisitions of Great Plains Software and smaller vendors.

Even if the DOJ limits its analysis to HR, financial and manufacturing applications, it can't ignore the fact that SAP, which now holds only one-quarter of the ERP market, would still command almost twice the share of a combined Oracle-PeopleSoft.

Hands-Off ApproachFor a parallel example of how a competitive market can evolve when left alone, look no further than the database sector, where Oracle and IBM have staked their leadership positions through innovation and acquisitions. In databases as in ERP, Microsoft is clawing its way up from the low end to challenge the Big Two's hegemony. The likes of Teradata (data warehousing) and Versant (object databases) are formidable niche competitors.

Yes, it's galling for Ellison, a protagonist in the government's antitrust case against Microsoft, to now stump for a hands-off approach. Oracle is even leaning on its archrival to disclose its ambitious plans for high-end business applications, to prove to the DOJ that there's far more to the market than three vendors. Microsoft already has said it expects to grow its Business Solutions unit to $10 billion in revenue by 2010, up from $600 million today.

So let the fires of capitalism burn; it's the surest way to clear the business apps market for new innovation and growth. Letting Oracle have its way will disrupt many PeopleSoft shops, but it will also keep SAP on its toes and allow Microsoft, Siebel or some combination of vendors to rise up.

Rob Preston is editor in chief of NETWORK COMPUTING. Write to him at [email protected].

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