One day after Oracle launched its hostile bid for PeopleSoft, Microsoft Chairman and Chief Software Architect Bill Gates sent an e-mail to Chief Executive Officer Steve Ballmer suggesting that Microsoft come to PeopleSoft's rescue.
Microsoft could make a minority investment in PeopleSoft "to bolster their independence," Gates wrote in an e-mail on June 7, 2003. In return, the business application vendor would have to make "a modest platform commitment."
At the time, PeopleSoft had already scolded Oracle's takeover attempt.
Oracle is using the Gates e-mail as evidence in its battle against the U.S. Department of Justice's (DOJ) attempt to block its US$7.7 billion takeover of PeopleSoft. The DOJ has sued Oracle, arguing the merger would stifle competition in the software market catering to large enterprises, resulting in higher prices.
In the same e-mail, Gates told Ballmer "its (sic) time we bought SAP," referring to German business applications market leader SAP.
That Microsoft approached SAP last year about a possible takeover was revealed two weeks ago at the beginning of the trial between Oracle and the DOJ in San Francisco. The talks ended several months ago after Microsoft had decided the deal and the post-union integration would be too risky.
Nevertheless, Oracle argues the move is a sign that Microsoft is a player in the enterprise applications software arena.
Investing in PeopleSoft would be key for Microsoft's SQL Server database business. The company, according to another internal e-mail, was worried that after a takeover by Oracle, it would lose the database business it does with PeopleSoft customers. Oracle would want to sell those users its own database software.
Gates' suggestion for Microsoft to invest in PeopleSoft is the latest revelation in the trial in U.S. District Court for the Northern District of California. The case so far has revealed Microsoft's eying SAP and Oracle's interest in Siebel Systems, BEA Systems and Lawson Software, among other companies.
Microsoft and SAP play major roles in the trial. During testimony on Wednesday, the DOJ sought to blunt Oracle's point that it should be allowed to acquire PeopleSoft because Microsoft is a competitive threat.
Microsoft Senior Vice President Doug Burgum, head of the company's Business Solutions group, testified Wednesday that the company has no plans to sell high-function business applications to large and complex enterprises. "That is not a segment we're catering to," Burgum said.
There are "gaps" in functionality as well as a lack of a direct sales force and consulting organization between Microsoft's products and those provided by Oracle, SAP and PeopleSoft, which are suited for large organizations, Burgum testified.
The DOJ's case hinges on the definition of the market for high-end human resources and financial management applications, which it argues only Oracle, PeopleSoft and SAP can provide. Oracle's argument is that there are several other viable vendors in the segment such as Lawson, American Management Systems Inc. and Microsoft.
On Wednesday, an SAP executive testified that SAP does compete with Microsoft but that it encounters the Redmond, Washington-based rival mostly in smaller deals in the lower end of the market.
Oracle attorney Dan Wall attacked Burgum's testimony. He showed a Microsoft e-mail about a dinner with several large prospects and a slide from a Microsoft presentation that showed plans to sell to companies with over 1,000 employees and technology budgets up to $45 million, beyond what Microsoft describes as the midmarket.
Burgum said that part of the reason Microsoft Business Solutions isn't doing too well is that its products have been oversold in the past. The company is now creating a technical implementation helpdesk for partners to run their customers' specifications by to avoid spending time and money on deals where Business Solutions doesn't fit, he said.
One large customer where the implementation of Microsoft Business Solutions' Axapta product is not going as planned is office supplies maker Esselte Corp., Burgum said. The software is not yet running and the deal may turn out negative for Microsoft, he said. "It is a great way for us to lose money," Burgum said. Oracle had used the Esselte example as an example of Microsoft's moving upmarket.
Nothing more was said in court Wednesday about Gates' suggestion for Microsoft to be PeopleSoft's white knight. However, many more details were presented about Microsoft's overture to SAP, including a June 17, 2003, e-mail outlining a possible Microsoft, SAP combination, which the company called "Project Constellation."
The e-mail refers to companies under codenames, including Pegasus for PeopleSoft, Mensa for Microsoft, Ophiuchus for Oracle and Sagittarius for SAP. Microsoft U.S. Small Business General Manager Cindy Bates said that although PeopleSoft may well thwart Oracle's bid, "the dynamics of the industry have changed."