KUHN CAPITAL Tuesday, March 20, 2018
Dispatches from the front

Ellison and the Dogs of the DoJ

Larry Ellison's long road to an Oracle/PeopleSoft merger ran through a pack of dogs last week when the Department of Justice said it will seek an injunction to stop the deal on the grounds that it breaches antitrust laws.

In order to make this claim, the DoJ is advancing theories that professors of business strategy would charitably consider “novel”. Specifically, the DoJ claims that Oracle, PeopleSoft and SAP are the only vendors of enterprise applications, and that such applications are defined as having extensive functionality, scalability, and integrated, customizable functions. Given this situation, the government argues, merging Oracle with PeopleSoft would reduce enterprise applications competition to two players, thereby disadvantaging customers. In the DoJ’s world, IBM, Microsoft, Siebel Systems, Lawson, ADP and a myriad of other players are not now, nor ever will be, enterprise applications vendors.

Then there’s the problem of what each word in the DoJ’s definition above means, precisely. For instance, how extensive does something have to be before it’s really, truly "extensive"? Maybe what’s extensive for a $500 million customer is not for a $1 billion customer. Maybe whether a certain enterprise application is extensive depends on the customer's industry sector or the end-user's job function.

If one could quantify the degree to which a software package is extensive, maybe there’d be hope that such an exercise could somehow advance human thought. But of course such terms cannot be quantified, and even if they could be, to what end? By the time we all got around to agreeing on how to define enterprise applications, the products themselves, their market demand and the competitive mix would have changed.

Finally, even if it could be argued that there are only three enterprise applications vendors, how does the DoJ know that reducing the number to two works against customers? Business history amply demonstrates that duopolies that get lazy, intolerably greedy, or otherwise abuse their market, attract new competitors drawn by the outsized profits and by the opportunity to serve dissatisfied customers. And if competition doesn't slay the monopoly, duopoly or oligopoly, then technology will. Watch the carnage that VOIP will wreak on POTS.

In fact, the only "polies" that appear to have destructive staying power are the ones enshrined by the government itself, e.g., cable TV vendors.

To bolster its case, the DoJ is bringing in Microsoft to testify that merging Oracle and Peoplesoft would produce an anti-competitive duopoly since it, Microsoft, has no plans to enter the enterprise applications market. So tell us again why Microsoft was discussing merger plans wtih SAP last year?

The government is also soliciting the testimony of Peoplesoft, SAP, and IBM to support the duopoly claim. Is is possible that these companies are motivated to testify by the opportunity to bring a competitor low rather than by civic duty?

On this point, recent Oracle antitrust trial testimony provided by a BearingPoint consultant boomeranged on the DoJ: as Reuters reports, he stated that "it's pretty clear" both Microsoft and IBM plan to move into the enterprise space.

After years of hugely wasteful anti-trust action financed by the taxpayer and littered with the corpses of failed litigation over IBM, AT&T, Microsoft, etc., it should be obvious even to government bureaucrats that the only way to free markets of monopolistic domination is to let them be free.

As a specific example, the market’s inexorable drive toward open source alternatives to Microsoft will in the end give consumers more choice than any army of DoJ lawyers.

Ryan Kuhn

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