U S v Oracle Corp Economic Issues Dan

U. S. v. Oracle Corp. Economic Issues Dan Wall Latham & Watkins LLP

Modern Computing Environment Function Ties together disparate computing environments Performs business processes Runs programs (Java, C), integrates multiple programs, manages user security Stores data (e. g. , invoices, orders, personnel records) Runs logic for hardware Hardware on which software applications run Systems Integration Services Enterprise Applications Software (“EAS”) Application Server Solutions Accenture, IBM, Cap Gemini, EDS, In-House, Others SAP, Oracle, PS, Others IBM, Microsoft, BEA Oracle, SAP, JBoss, Others Database Oracle, IBM, Microsoft, Sybase, My. SQL, Others Operating Systems Unix, Windows, Linux Mainframe MVS, Others Server Computers IBM, Sun, Dell, HP, Others

EAS Within the Enterprise Customer Interface The “Back Office” Corporate Administration § Financial management § Human resources § Central procurement § Executive information / decision support systems § § § 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 C U S T O M E R S S U P P L I E R S

Financial Management Systems (“FMS”) Applications General ledger (“GL”) § FMS Applications § Accounts payable (“A/P”) § Accounts receivable (“A/R”) § Asset management § Treasury management § Travel and expense management § Others …

Human Resources (“HR”) Applications Human resources § HR Applications § Payroll § Time & attendance § Benefits § Compensation § Training § Learning § Performance appraisal § Others …

Industry Verticals § Federal Government § Communications § State and Local Government § Utilities § Education § Healthcare Providers § Financial Services § Retail § Professional Services § Process Manufacturing § Discrete Manufacturing § Agriculture & Mining

Stack Competition Consulting Services Oracle Consulting Partners IBM Global. Services SAP Consulting Partners Applications E-Business Suite Microsoft Business Solutions Partners my. SAP Partners Development Tools Oracle Tools / J 2 EE Visual Studio. NET Rational / Web. Sphere Net. Weaver / J 2 EE Application Server 10 g . NET Web. Sphere Net. Weaver JBoss/Apache Database 10 g MS SQL Server DB 2 My. SQL and others My. SQL Operating System Linux Windows Linux Middleware Suite

Real Competition: The Stack D 5822 R

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 § “ERP” (EAS Suites) • • SAP Worldwide ERP Revenues: Sum of Oracle and People. Soft: $5. 0 billion $3. 1 billion Source: IDC, May 2004 (D 5572) § FMS SAP Worldwide FMS Revenues: $1. 06 billion Sum of Oracle and People. Soft: $673 million • • Source: IDC, Sept. 2003 (D 5543) § HRM • • SAP Worldwide HRM Revenues: Sum of Oracle and People. Soft: $514 million $652 million Source: IDC, July 2003 (D 5815)

From Oracle’s Opening Statement “Localized Competition” Theory “Reality” (Assuming 3 -firm market)

Customer Size ERP Vendor Market Positioning AMS SAP People. Soft Oracle Lawson Microsoft Vertical Scope

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.

From Oracle’s Opening Statement Nothing Critical Will Change Today Post-Merger § One or two firms negotiating with buyer. § Unchanged § Buyers with leverage that don’t need to buy at all. § Unchanged § Buyers can conceal their reserve price and vendor preferences. § Unchanged § Seller costs of losing are huge; price discrimination is very risky. § Unchanged