DOJ's ERP choice could harm Oracle case

The U.S. Department of Justice's (DOJ's) announcement this week that it chose American Management Systems Inc. (AMS) as its supplier for a pricey software system is likely to complicate its antitrust case against Oracle Corp., according to industry experts.

The DOJ's lawsuit to block Oracle Corp. from acquiring rival PeopleSoft Inc. hinges on its argument that the high-end market for human resources and financial management software has only three vendors able to meet the needs of the largest organizations: PeopleSoft, Oracle and SAP AG. However, the department said Tuesday it will spend up to US$24 million with AMS to replace a patchwork of accounting systems with a modern, department-wide financial system based on AMS' Momentum software.

"I think this is a classic case of the people in procurement proving their leadership completely off the wall," said Josh Greenbaum, who runs a Berkeley, California, enterprise applications consultancy and research firm. "There's absolutely no doubt that there's tremendous competition in the marketplace."

A DOJ spokeswoman declined to comment on the antitrust-case implications of the department's software selection.

The DOJ's procurement process for software to run its under-development Unified Financial Management System predates its case against Oracle. The department decided in 2001 to build a new financial system, and soon after solicited proposals from the list of vendors with software certified by a government coordination group called the Joint Financial Management Improvement Program (JFMIP). Five vendors are currently certified by JFMIP: Oracle, PeopleSoft, SAP, AMS and Savantage Solutions Inc.

The financial-system overhaul project is a lengthy and complex one, and the DOJ expects full implementation to take several years. It was initially scheduled to announce its vendor selection in May 2003 -- one month before Oracle began its PeopleSoft takeover campaign.

After reviewing the proposed deal, the DOJ filed suit in February to block a PeopleSoft/Oracle combination, which it argues would seriously harm innovation and pricing competition in the ERP (enterprise resource planning) market.

"It's entirely possible that Justice can still make its case, but I would submit that this recent purchase of the AMS ERP software could very well be a complication for the government. It's something the DOJ is obviously going to have to explain," said Donald Barnes, a Washington, D.C., antitrust specialist at Porter Wright Morris & Arthur LLP.

"If I were the lawyers at Oracle I would be all over it," said Barnes, who is not involved in the case.

An Oracle spokeswoman declined to comment on the issue.

Lobbying groups seized on news of the DOJ's purchase as evidence that the department's antitrust argument is misguided.

"It takes great hypocrisy to say there is no way a certain company is a competitor in the marketplace, and then to choose that company for your own use," American Shareholders Association Executive Director Daniel Clifton said in a prepared statement. His organization, which has viewed the DOJ lawsuit from the start as an unwarranted expansion of antitrust rules, called on the department to withdraw the suit.

Other government parties to the DOJ's case have their own software skeletons in the data center. The Association for Competitive Technology (ACT) fired off a release pointing out that the state of Michigan uses Lawson Software Inc.'s human resources suite. Michigan's attorney general joined the DOJ's case Wednesday. ACT, which opposes the DOJ suit, does not count Oracle or PeopleSoft as a member but has approached Oracle about joining, according to a spokesman.

In aggregate, the worldwide ERP market is unquestionably diverse: In 2002, leaders SAP, Oracle and PeopleSoft accounted for 39 percent of the market, while more than 50 other vendors made up the remaining 61 percent, according to Gartner Inc.'s estimates. But ERP buyers generally have very specific and individual requirements, and for any given customer, the list of suitable vendors may be small.

The DOJ's focus in its legal action is on one subset of the market, enterprise customers requiring the highest levels of support and software sophistication. The only vendors with the scale and resources to meet those customers' needs are SAP, PeopleSoft and Oracle, according to DOJ legal filings.

Gartner analyst Lee Geishecker said that argument has merit. For any given market segment -- by industry, geography or deal size -- companies generally have as many as a half-dozen suitable ERP products from which to choose. But the tier-one list of vendors that compete globally in nearly every niche and can support customers with very broad needs contains only three names, she said.

"AMS is a great option in the government sector," she said. "Keep in mind that the DOJ decision had nothing to do with the global market."

When the government argues antitrust cases, it tries to narrow the definition of the market while the defendant tries to expand it, attorney Barnes said. He expects the DOJ to use one or both of two likely arguments to defend its own ERP decision.

First, it can contend that its AMS purchase falls outside the market relevant to its case against Oracle. Second, it can try to prove that even if AMS and other vendors compete in that relevant market, an Oracle/PeopleSoft combination would create a company with such heft that the newly concentrated market would be a significantly less competitive one.

"There does appear to be a contradiction," Barnes said. "But that

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