Documents show PeopleSoft feared Microsoft

The evidence presented in San Francisco federal court contradicted the Justice Department's view that PeopleSoft competes primarily against SAP and Oracle.

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Oracle is attempting a hostile takeover of PeopleSoft, a chief rival in the market for software packages that businesses use to manage payroll, human resources and related functions. The Justice Department is trying to block that move, contending that it would leave Oracle and German rival SAP as the only significant companies in the market--dominating without enough competition. Oracle is arguing that other viable contenders abound.

After Microsoft announced in late 2000 it was buying Great Plains Software, PeopleSoft executive Renee Lorton sent out an e-mail: "Breaking News. Microsoft buys Great Plains. Yikes!" In the missive, addressed to Ram Gupta, she wrote that PeopleSoft "should be shaking in our boots," characterizing Microsoft's move as "a gun at our and Oracle's back."

She also wrote that she didn't buy claims that Microsoft wanted to stay in the midmarket but would move up into the enterprise space, where SAP, PeopleSoft and Oracle sell to large customers. "If (Microsoft Chairman Bill) Gates doesn't want to own the space, he doesn't bother," her e-mail said.

Under cross-examination from Oracle, Phillip Wilmington, PeopleSoft's executive vice president of North American sales, dismissed the e-mail, saying Lorton was alarmist because she was seeking a higher budget for her department. She is vice president and general manager of PeopleSoft's Financial Management department.

Oracle's cross-examination of Wilmington inflicted major damage to the government's case, according to Dan Wall, one of Oracle's lead attorneys. "There is a mountain of evidence of a more vibrant, diverse market than (Wilmington) wanted to acknowledge," Wall said. "His efforts to explain (the evidence) away were rather thin."

A Justice Department official disagreed. "They nibbled around the edges, but I think our case is pretty solidly intact still," said Renata Hesse, chief of the Justice Department's networks and technology division.

In any case, the four-hour Wilmington grilling appeared to be a carefully orchestrated effort on Oracle's part to portray PeopleSoft as a struggling company, vulnerable to attacks from a variety of competitors. Oracle's main justification for a merger with PeopleSoft is that both companies are losing ground to other rivals, including SAP, and that a merger can give them the scale to remain in the game.

The cross-examination provided a peek at the cmentality of software industry executives, in the numerous private PeopleSoft e-mail exchanges and internal memos presented by Oracle.

One of the documents outlines a PeopleSoft campaign to "crush SAP" that was circulated among PeopleSoft's top management last year, Wilmington acknowledged.

In it, PeopleSoft identifies SAP--not Oracle--as its "primary competitor" in the market for high-end human resource and financial management software. It warns that SAP has caught up or surpassed PeopleSoft in human resources applications, a traditional stronghold for PeopleSoft. The paper also notes that SAP had launched a campaign to displace PeopleSoft human resource systems at big companies across North America.

Wilmington testified that he disagreed with many of the views presented in the documents, saying that the authors had overstated competitive threats to motivate salespeople to work harder or to convince superiors to increase their budgets.

In an internal PeopleSoft memo also released Thursday, another executive identified PeopleSoft's chief competition as Siebel, SAP, Oracle and Microsoft. "Of everyone I'm going to mention, I think the biggest long-term threat is Microsoft," said Doug Merritt, who has left PeopleSoft, in the document. Merritt was general manager of the company's human capital management systems division.

Oracle attorneys also displayed documents showing that PeopleSoft competed extensively with Lawson, on deals with companies including defense contractor Northrop Grumman, the state of Arizona, the Federal Reserve Bank, Albertson's, San Diego Public School District, Duke Energy, McGraw-Hill and Williams-Sonoma.

PeopleSoft and the Justice Department have downplayed Lawson as a major competitor in the business applications space.

The trial opened June 7 with the Justice Department presenting its case. Testimony has revolved around representatives of large companies--DaimlerChrysler, Verizon and others--that use the kind of software Oracle and its competitors sell. The government's witnesses have expressed concern that software implementations would cost millions of dollars more in a market without PeopleSoft, and current PeopleSoft customers have said they fear Oracle will stop supporting their software, making expensive new systems a necessity.

Oracle will present its case after the Justice Department finishes. The nonjury trial is expected to last about four weeks.