u.s. v. oracle corp. economic issues dan wall latham & watkins llp
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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