CXO

Oracle brings out outsourcing witnesses

Attorneys argue that there's plenty of competition for business services software beyond the SAP-PeopleSoft-Oracle triumvirate.

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By Dawn Kawamoto
CNET News.com

SAN FRANCISCO—The range of choices a chief information officer has among enterprise business applications vendors were the focus of Thursday morning testimony in the Department of Justice's antitrust trial against Oracle.

Oracle, seeking approval in U.S. District Court to move forward with its hostile bid for PeopleSoft, brought up the roles of outsourcing and smaller software specialists.

In the morning, Oracle attorneys called Michael Sternklar, an executive vice president with Fidelity and former head of the human resources business with Fidelity Employer Services Co. (FESCo), as its first witness. Sternklar was followed by Ken Harris of Retail.In.Genius, who served as a former chief information officer at the Gap and held other high-level IT positions at Nike and Pepsi.

And in the afternoon, Brian Mearns, personnel service delivery director for Bank of America, took the stand and a videotaped deposition of , senior vice president of Microsoft's server software and other products for small and midsize businesses, reiterated Microsoft's stance that it does not plan to enter the business applications market for corporate customers in the near future.

The role of outsourcing
Fidelity provides business outsourcing services. Sternklar was called by Oracle to demonstrate that companies such as Fidelity compete against Oracle, PeopleSoft and SAP. Business software's Big 3, the Justice Department has argued, are the only significant competitors—meaning that Oracle's acquisition of PeopleSoft would leave insufficient competition. Oracle hopes to persuade Judge Vaughn Walker that Fidelity and a host of other candidates provide enough competition to keep the market viable, if Oracle is allowed to acquire PeopleSoft.

During his testimony, Sternklar said Fidelity competes with other outsourcing companies in about 50 percent of its contract bids. The rest of the time, Fidelity is competing against a prospective customer's plans to address its software needs in-house, with either proprietary software or applications from a vendor such as PeopleSoft or Oracle.

He said the merger would not affect the competitive landscape, given that Fidelity and other outsource companies are in the market, offering a wide range of potential solutions.

Competitive gap
Oracle in the late morning called Ken Harris to the stand. The former Gap chief information officer now runs Retail.In.Genius, which offers consulting in enterprise application systems software. Harris, hired two months ago by Oracle to consult on the case, said vendors who specialize in a particular area are always part of the technology mix at companies. During the trial, Oracle has noted that these more focused vendors provide competition in the market, alongside companies that offer a software package, or one-stop shop.

"Very often, the driver of the deal is one piece out of the whole thing, and it varies from company to company and can change from one year to the next," Harris said.

Listing strategies he has used to pit competing vendors against one another, Harris described one case in which he seated competing vendors in two rooms separated only by a glass partition.

"I had them seated behind the glass walls so they could see each other," Harris said in animated tones.

After hearing Harris' various techniques, Judge Walker asked: "Why would you want PeopleSoft to go away? You would have one less vendor to put in that other room behind the glass wall."

Harris responded that withholding a decision to purchase software from the one vendor left in the room is a "viable" and "effective alternative" for getting the price he ultimately wants.

Hired guns
The judge also took note of Harris' relationship with Oracle, referring to him as a "paid fact witness." When asked outside the courtroom whether the judge's comment may reflect a disregard of Harris' testimony, Oracle's attorney Dan Wall said: "There are a lot of paid fact witnesses in this case. Microsoft's Doug Burgum, PeopleSoft's Rich Bergquist—all have an economic interest in this and were witnesses. (Harris) is an individual with a business to run and he helped us out for two months with our case and should be paid for his time."

Wall said it's common to use witnesses who are paid. But attorney Renata Hesse, chief of the Justice Department's networks and technology division, said the use of paid fact witnesses happens occasionally—when a party has difficulty finding customers willing to testify as witnesses.

Mearns took the stand in the afternoon, outlining how Bank of America decided to outsource its human resources department and the process it undertook. Oracle called Mearns as a witness, in order to show how a large company with complex needs had other choices for its HR software and department, than upgrading its latest version of PeopleSoft.

BofA outsourced the $21.9 million contract to Fidelity, which currently is relying on Oracle software for its HR. The Justice Department contends that outsourcing firms will still need to rely on the technology providers such as Oracle, PeopleSoft and SAP, thus reducing competition if PeopleSoft is eliminated.

As the day wrapped up, Oracle's attorney Wall made a motion for the judge to dismiss the case, a standard legal move by defendants. Wall had to wait for the Justice Department to call its last witness, before it was able to make such a motion. Attorneys in the case expect the judge to wait until the trial concludes before issuing a decision.

Oracle on Friday plans to wrap up the third week of the trial—and its first week of presenting its side of the case—with testimony from Ron Wohl, head of Oracle's applications business, and Safra Catz, Oracle co-president.

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