CID - Jeffrey Owen Henley (Oracle), Videotaped Deposition Transcript

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22		Q. All right. This will be the deposition of
23	Jeffrey O. Henley taken pursuant to notice issued by
24	the United States. Mr. Henley, would you state your
25	full name for the record, please?

Henley 05-04-04 1 00007 5
1		A. Jeffrey Owen Henley.
2
20		A. My home is 1605 Alisa Lane, A-L-I-S-A, Lane in
21	Santa Barbara, California. My work address is 500
22	Oracle Parkway in Redwood Shores, California.
23		Q. All right, sir. Could you give us a brief
24	description of your educational background?
25		A. I grew up in Southern California, attended

Henley 05-04-04 2 00008
1	college at the University of California at Santa
2	Barbara. Got an economics degree. Then I got a
3	Master's in business administration at UCLA.
4		Q. All right, sir. Approximately when was that?
5		A. I graduated from Santa Barbara in '66 and I
6	got my MBA in 1967.

Henley 05-04-04 3 00009
8		Q. All right, sir. Now could you tell me how
9	long you have been with Oracle?
10		A. Just over thirteen years.
11		Q. All right, sir. So that would take us back to
12	about '91?
13		A. March of '91 I joined.
14		Q. All right, sir. What was your position with
15	Oracle in March of '91?
16		A. The Chief Financial Officer. I have always
17	been the Chief Financial Officer during my tenure.
18		Q. All right. At some point in time you took on
19	the additional title of Chairman of the Board?
20		A. Yes. Very recently. I believe it was January
21	of this year.

Henley 05-04-04 4 00012
3		Q. Just so we're clear on the record, could you
4	describe generally what your responsibilities are in
5	your role as CFO?
6		A. Right. So I have responsibility as Chief
7	Financial Officer of, obviously, all the financial
8	functions. So tax, treasury, controllership,
9	forecasting, so forth.
10		And, as I just mentioned, I also have
11	responsibility for some other administrative
12	functions. So more of a management oversight. We
13	have a Chief Legal Officer, General Counsel. We have
14	a Chief Human Resource Officer. So they run those
15	functions but report through me to the company.
16		So, again, HR, legal. I have a -- there is a
17	function called manufacturing distribution that
18	distributes our software and materials to customers.
19	I have -- we have a leasing business where we perform
20	a leasing function for some of our customers for their
21	technology. So that reports to me, as well.
22		Q. Leasing what?
23		A. Leasing our software. So customers want
24	payment plans, if you will, for buying our
25	technology. So we have a business to help provide

Henley 05-04-04 5 00013
1	financing if they don't care to do it themselves.
2	It's kind of a one-stop shopping idea.

Henley 05-04-04 6 00079 Henley 05-04-04 7 00081 Henley 05-04-04 8 00082
1	compensation because of this relationship?
2		A.They actually have a reseller relationship.
3	So they go to the customers and actually have a right
4	to sell them our database and then send us a royalty
5	for the sale, on those sales, send part of that money
6	back to us.
7		Q. Is that done just in Europe or is that true,
8	also, in the United States?
9		A. I think it's global. I believe it's a global
10	agreement.
11		Q. Do you know how long that relationship has
12	been in place?
13		A. Many years. Many, many years. Maybe as long
14	as I have been here. If not, shortly thereafter. I
15	mean, it's been well over ten years.
21		Q. Do you have a relationship with any other
22	software applications vendor where you have people
23	that work with them to help them maximize their
24	software's interaction with your database?
25		A. Absolutely. We have a number of applications

Henley 05-04-04 9 00083
1	companies who draw upon our resources, if they have
2	questions or want to have training or whatever. So we
3	have a bigger relationship at SAP only because they
4	are so large.
5		So they have asked for more dedicated
6	resources over the years, and we've been happy to do
7	it, because it's to our benefit since they generate a
8	lot of business and generate a lot of Oracle database
9	business. But we make available to -- some form of
10	support to literally any company that wants to run
11	their application on our database.
12		Q. But nobody else has a dedicated team actually
13	at their site?
14		A. I don't know the answer to that. I am not
15	sure.
16		Q. Okay. Does any other application software
17	vendor have a reseller relationship for your database
18	product, other than SAP?
19		A. For our database product. I believe that --
20	again, I don't get involved in the pricing of this,
21	but my understanding is we have an option but now with
22	many ISVs. These are -- SAP would be an independent
23	software vendor, that's the term. Where they give us
24	a percentage of their deal, so we have an option.
25		How many people use that option, I don't

Henley 05-04-04 10 00084
1	know. But if you go out and sell your software for
2	$50,000 to somebody and it runs on our database, you
3	give us X percent of the 50,000 as relating -- as a
4	payment for the fact the database is running the
5	application.
6		So we actually have royalty payments we get
7	from many, many software companies. But SAP is by far
8	the largest. I mean, it's a disproportionate amount
9	of money we get from them.
25		Q. Other than SAP, can you name any other

Henley 05-04-04 11 00085
1	software application vendors who have an arrangement
2	with you where you resell their database product in
3	exchange for a royalty?
4		A. Where they resell our database?
5		Q. Yes.
6		A. I can't name them, but I'm positive there are
7	many. But, again, I'm told that we actually have got
8	a standardized fee deal now where we offer that. So I
9	believe there were a number of maybe small ones. I
10	just don't know. But I just don't know the names.
11		Q. But SAP, as you said, would be probably the
12	biggest?
13		A. Oh, yes, by far, because they are the biggest
14	applications company in the world.
15		Q. Do you have any idea of what volume of sales
16	of your database that they make annually?
17		A. I think they generate royalty payments back to
18	us of over a hundred million dollars a year. I mean,
19	it's enormous. They dwarf any other company in terms
20	of reporting royalties back to us.

Henley 05-04-04 12 00088
18		MR. SCOTT: Q. All right, sir. You have in
19	front of you a document which has been marked for
20	identification purposes as Plaintiffs' Exhibit 35.
21	It's a multipage document, which does not have
22	identification numbers other than on the front being
23	June 10, 2003. This was part of the 4C filings that
24	were submitted to the United States.
25		The document is numbered on the bottom

Henley 05-04-04 13 00089
1	right-hand corner. It's 48 pages in length. The
2	first page says Board Presentation on M&A
3	Opportunities, April 14th, 2003.
4		Do you see this?
5		A. Yes.
6		Q. Is this -- does this document have anything to
7	do with the board meeting that you talked about where
8	M&A opportunities were discussed?
9		A. Yes.
10		Q. And what is the relationship between that
11	board meeting and this document Exhibit-35?
12		A. We periodically have had discussions, so we
13	decided at this board meeting we should update the
14	board and have a discussion about what potential M&A
15	ideas we had.
16		Safra Catz made - led the discussion and
17	presented this package or presented some of these
18	documents to the board in terms of ideas that we had
19	about possible acquisitions.
20		Q. And you are a member of the board?
21		A. That's correct.
22		Q. And were at that time?
23		A. That's correct.

Henley 05-04-04 14 00092
13		MR. SCOTT: Q. And this document, Exhibit-35,
14	was put together by the M&A group that works for
15	Ms. Catz?
16		A. That's my - as well as her. I don't know
17	what role she played, but obviously she probably had
18	some role in terms of this, as well. But she has
19	people in her group that clearly helped her put this
20	together.
21		Q. All right, sir. If you would look at page 3
22	of the document. Again, we're still talking about
23	Exhibit-35 to your deposition.
24		On page 3, there is a chart headed Enterprise
25	Software Competitive Profile. Do you sec that?
Henley 05-04-04 15 00093
1		A. Up here (indicating)?
2		Q. Yes, sir.
3		A. Yes, sir. Yes, I do.
4		Q. Do you recall whether this document was the
5	subject of discussions with the board at the board
6	presentation?
7		A. I don't remember if we showed this particular
8	slide. They got a copy, I believe, of all of this. I
9	don't think we went through every slide. So I am --
10	but, I mean, it wouldn't surprise me if they presented
11	this. But clearly they were exposed to the
12	information.
13		Q. All right, sir. Do you have any understanding
14	of what it means across the top, the Key: No
15	Presence, Not Significant, Player, Competitive?
16		A. Yeah. I think this was an attempt to kind of
17	take all these different areas where we either compete
18	or might want to compete, look across at some of the
19	larger competitors. There is, obviously, other
20	.smaller competitors that you just can't put everybody
21	on the list, and try to give visually some way of
22	saying, here is the landscape. Here is some of the
23	major competitors. Here is kind of where even Oracle
24	plays.
25		But, I mean, there are some areas here where
Henley 05-04-04 16 00094
1	we don't play, but they were still listed because they
2	were areas where we have logically from time to time
3	thought about maybe going next.
4		Q. Well, for example, when you have got on the
5	Key the indication, "No Presence," I take it that
6	would mean that the company that you are referring to
7	on the charts does not have a product?
8		A. Yeah. For instance, IBM - and, again, it's
9	an oversimplified chart. IBM actually does have a few
10	applications, but we don't think that they are
11	material, so we say "no presence."
12		But, typically, they have a big business in
13	implementing other software for Siebold, us. They
14	bought PWC, so they are in the business of
15	implementing Oracle applications.
16		They have an outsourcing business where they
17	run our applications. So, but yes, they don't have
18	any significant play in products per se in the
19	applications space.
20	.	Q. Well, then we've got the presence here, the
21	next key point is Not Significant. So what is the
22	difference then, as you described it, between Not
23	Significant and No Presence on this chart?
24		A. Again, I think the idea is sort of going up
25	the level of importance or amount of presence, at
Henley 05-04-04 17 00095
1	least at the present time. So it's kind of a way to
2	visually say they have something but at least for
3	right now they don't appear to have as much as some of
4	the other people on this chart.
5		Q. Okay. And Player, what does that mean?
6		A. There, again, going up this level that they
7	are clearly more presence than not significant, but
8	they are maybe not fully effective yet. So it's a way
9		of kind of rating the effectiveness of the
10	competition, at least.
11		And, again, this is not meant to be so much
12	perspective as right here now a year ago when they put
13	this chart together. And, again, based on their
14	knowledge. Sometimes we have imperfect knowledge,
15	too.
16		Q. And Competitive, what was meant by that on the
17	chart?
18		A. Clearly, we see them here and now. We see
19	them a fair amount of time. So they are clearly one
20	.of the people we really are battling with right now in
21	the space that we're in, which changes, as well.
22		Again, I'd stress in every one of these spaces
23	there is many other competitors. There is a whole
24	bunch of business intelligence people that weren't
25	displayed on here.
Henley 05-04-04 18 00096
1		For instance, Business Objects, Cognos, I
2	mean, people that are really the major business
3	intelligence players don't even show up on this list.
4	This was meant really just to sort of a give a quick
5	overview to the board without getting into the details
6	of every segment.
7		As you know, the bulk of this related to just
8	a few key people we thought would make sense to look
9	at. In fact, I just saw Business Objects on here. I
10	don't think they are even on this top screen here.
11		Q. But they are listed as one of the --
12		A. Yeah, but they are not on this chart you have
13	been making me go through here. It's clearly not all
14	inclusive chart of all the competitors or people that
15	are competitive or people who are players.
16		Q. All right. So let me ask you to flip over, if
17	you would, in the document to Exhibit-35, page 36.
18		A. (Complies.)
19		Q. All right, sir. Was Lawson one of the
20	.companies, potential acquisition partners, that was
21	discussed at this board meeting?
22		A. I can't remember if we discussed it. I
23	believe we probably would have at least talked briefly
24	about it, I mean, in these meetings, these things
25	trigger a lot of conversation, and so typically you
Henley 05-04-04 19 00097
1	sort of, you know -- but I'm sure we must have at
2	least mentioned it.
3		But, again, the whole pack was here, I just
4	don't remember what degree of discussion we would have
5	had about Lawson. But we wouldn't have put it in here
6	if we didn't think this was something we should think
7	about.
8		Q. All right, sir. Do you know if there were
9	ever any discussions between Oracle and Lawsons
10	regarding potential acquisition?
11		A. I don't know.
12		Q. All right. So looking at the Lawson chart on
13	page 36 of Exhibit-35, under the heading Potential
14	Upside, there is a bullet point which states, "Focus
15	on mid-market services sector is complimentary to
16	Oracle's strengths," and then it goes on to say,
17	"Health care is strongest vertical with 21 percent of
18	customer base. Others include retail, 12 percent,
19	professional services, 8 percent, financial services,
20	. 8 percent, and public sector, 6 percent." Do you see
21	that?
22		A. I do.
23		Q. Do you recall any discussions regarding Lawson
24	having a focus on mid-market services sector?
25		A. Again, I don't remember the discussion but, I
Henley 05-04-04 20 00098
1	mean, it's ironic. I mean, clearly we misuse terms at
2	Oracle. When you talk about health care, clearly some
3	of their health care customers are hardly small
4	customers. Mayo Clinic Center, enormous, enormous
5	hospital chain.
6		So we mix all kinds of terms here. But I
7	don't remember exactly what we would have discussed
8	about Lawson in the meeting.
9		Q. So is it your testimony that the use of the
10	term "mid-market services sector" in the presentation
11	to the board on potential acquisition products is
12	somehow inaccurate in describing Lawson?
13		A. I am saying that to use the word "mid-market"
14	and to put in below it health care is a vertical does
15	not imply that the only health care customers we serve
16	are mid-market customers. And, again, the whole word
17	mid-market, my experience in this industry is
18	everybody has a definition, differing definitions of
19	what mid-market means.
20	.	But if the term, I think, generically means at
21	some point something smaller than large is what they
22	call. I don't know where you break that off.
23	Everybody has different definitions. Then I would
24	submit that Lawson sells lots of health care
25	organizations that are clearly not small or that are
Henley 05-04-04 21 00099
1	medium. They are large health care companies.
2		So that's why I say to me if I were doing the
3	presentation I would have segmented health care off to
4	the side and never implied that that's a mid-market
5	sector.
6		It's just like any other sector. There is
7	some large small hospitals and there are some very big
8	ones. There is big health care chains. So to me it's
9	just a little bit confusing.
10		I am not trying to be critical of whoever put
11	this chart together, but it kind of makes two
12	different points under one bullet point, in my
13	opinion.
14		Q. Do you recall any discussions at the board
15	meeting regarding this part of the study focusing
16	mid-market service sectors and talking about Lawson
17	health care was inaccurate?
18		A. No, I don't. I'm just telling you since you
19	keep asking me about mid-market, I'm just telling you
20	.looking at the chart, thinking about it, I have no
21	idea if we even went through this particular chart at
22	the board meeting.
23		Q. Do you know, are there health care companies
24	that you would consider to be in the mid-market?
25		A. Again, in my definition, which I think
Henley 05-04-04 22 00100
1	everybody has their own definition, even in our
2	company, let alone industry analysts, I would say
3	there clearly are very small hospitals that might have
4	a hundred beds, and then there is very big hospitals
5	that might have 1200, 1500, and then there is
6	something like Mayo that actually has multiple
7	hospitals.
8		So, at some point, you know, one is large, one
9	is small, and what's medium I have no idea. But
10	clearly the hospitals vary in size and scope and all
11	that sort of thing.
12		Q. What is your definition of mid-market?
13		A. I have tended in the commercial side to think
14	of businesses around a quarter of a billion and
15	smaller. But, again, you can interview five people at
16	Oracle, and I bet you they will all give you a
17	different size. Different industry analysts, some
18	people say 500, some people 50.
19		It's a term that I think is meant to be
20	.something less than very large. Then the breakdown is
21	how do you really define that. Everybody has a
22	different definition. At some point, where is this
23	break point?
24		Q. Okay. Do you believe that there is, in fact,
25	though, however you define it, a group of customers
Henley 05-04-04 23 00101
1	that you would define as being in the mid-market?
2		MR. ROSCH: Object.
3		THE WITNESS: I think there are customers that
4	are clearly significantly smaller than large
5	customers, and clearly -- at a minimum much smaller,
6	have many fewer employers and that sort of thing. And
7	then sometimes they are in one country.
8		So sometimes large connotes just an enormous
9	US company versus some small US company, or sometimes
10	large gets even more complicated because they are
11	multi-national.
12		But I think there is clearly small customers,
13	there is medium customers, there is big customers. So
14	as I testified earlier about these break points, you
15	know, we've tended to recognize that there are
16	different kinds of customer needs, price driven, all
17	sorts of things, and so there is classic market
18	segmentation that goes on in our industry in terms of
19	kind of thinking about the differences between
20	customers.
Henley 05-04-04 24 00110
15		MR. SCOTT: Q. Why - do you have any
16	recollection as to why Oracle thought JD Edwards would
17	be a good fit as an acquisition partner?
18		A. Again, the theme has been that we felt that
19	getting a stronger presence in the applications space
20	would be useful to us. So they were in the
21	applications space, along with Lawson, Peoplesoft, a
22	number of other -- Cerner, a number of other companies
23	that are in the package there.
24		So it was really in that spirit that it gives
25	us a bigger presence, a bigger foot print in the
Henley 05-04-04 25 00111
1	applications business.
2		Q. Well, if you would look at page 26 of
3	Exhibit-35.
4		A. Uh-huh.
5		Q. Under the heading Potential Upside, the second
6	bullet point indicates one potential upside of Oracle
7	acquiring JD Edwards is it would be "addition of a
8	strong mid-market presence." Do you see that?
9		A. Yes.
10		Q. Do you recall any discussions about that?
11		A. Whether this meeting -
12		Q. At the board meeting.
13		A. Again, I am not sure. I mean, clearly, we've
14	had discussions, but I don't know at the board meeting
15	if we talked specifically about that.
16		Q. Did you talk to anybody in any context other
17	than the board meeting about JD Edwards adding a
18	mid-market presence to your portfolio?
19		A. I'm sure we have. I mean, JD Edwards had a
20	strong AS-400 base over the years. Clearly, the
21	AS-400 market IBM has huge presence in the AS-400
22	market that's on their hardware. It's clearly been
23	geared more towards either smaller customers or
24	divisions of big companies.
25		But, I mean, it's classically -- you know, IBM
Henley 05-04-04 26 00112
1	had their mainframes and then they had their AS-400s.
2	Classic market segmentation on the part of IBM.
3		JD Edwards had that business and then they got
4	into Unix and some other platforms, and they were
5	selling also to large customers.
6		Q. When you talk about the AS-400 that JD Edwards
7	had a product for, and you said that that was used
8	primarily by smaller companies, what did you mean by
9	"smaller companies" in that context?
10		A. Again, I don't know where you draw the line,
11	but typically either companies of, you know, a few
12	hundred people versus thousands and tens of thousands
13	or divisions of big companies that had chose to use
14	that platform.
15		That platform has been around for years, and
16	there is many, many people who have used the AS-400
17	platform, and JD Edwards built a good business around
18	selling packaged applications on that platform.
25		Q. When in Exhibit-35 it has the phrase that a
Henley 05-04-04 27 00113
1	potential upside is the addition of a strong
2	mid-market presence by acquiring JD Edwards, do you
3	know what definition is used there for mid-market?
4		A. No. Again, I believe that it's the same. I
5	think everybody has got a difference, but in my mind
6	it connotes, you know, smaller to substantially
7	smaller organization size than, very large, large
8	organization size.
9		Q. All right. And the significance of the
10	company's being smaller is what in the context of
11	segmenting the market, as you referred to it?
12		A. Again, to me it's just numbers of people and
13	transactions. It's not necessarily a reflection of
14	complexity or sophistication. It can be that, too.
15	It can be a company that's just real simple and basic,
16	but I don't think that's the big -- the biggest thing
17	is just size, and ultimately budgets.
18		There is a lot of people that actually want --
19	that's why we think we can do better and better with
20	our products if we can hit these price points.
21		It's just you have to be -- you have to figure
22	out a way to hit a certain price point to get smaller
23	organizations interested or have enough budget to be
24	able to take on your products.
25		Q. Is that the rationale behind running out the
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1	-- rolling out the Oracle standard product in Europe?
2		A. That's what I told you earlier. That's
3	correct. It's very much geared towards simplification
4	and ultimately getting to a price point that we can be
5	competitive in smaller organizations.
6		Q. Was the rollout of that product in Europe the
7	first time that you had actually come out with a
8	package of software that was configured in a way that
9	you thought would attract to smaller customers with
10	lower price points?
11		A. It's one of a series of things we've tried
12	over time. We've had an active program in the United
13	States to try to sell to smaller companies. We've
14	organized a separate sales force for a number of
15	years. So there is a variety of techniques we've
16	tried to do to get focus to find different partners
17	who could implement cheaper.
18		The distinction, I would say, with Standard
19	Edition was that in addition to that in Europe we
20	tried to say, okay, we will just sell it to this
21	channel and we will preconfigure a set of apps, and so
22	we will really, really go to the extreme here to see
23	if that will work. And if it works in Europe, then
24	maybe we can make it work in Asia, the Americas, and
25	so forth.
Henley 05-04-04 29 00115
1		Q. You indicated that at some point in time you
2	had a separate sales force aimed at smaller
3	companies. Did I hear that right?
4		A. Oh, absolutely.
5		Q. Do you still have that?
6		A. Effectively, yes.
7		Q. What does that mean?
8		A. Well, we used to have a separate sales
9	management in the United States that we carved out.
10	We said, you people are what we call general
11	business.
12		IBM has used that term over there, so people
13	have all kinds of terms: Mid-markel, general
14	business, whatever. But basically geared towards
15	smaller organizations who had, who are very price
16	sensitive. And so we think that the sales force has
17	to behave differently.
18		They have to learn how to be very nimble, not
19	get involved in long sales cycles so that we can make
20	money with these small companies.
21		We worked with a different set of small local
22	implementers. So then we put the groups back together
23	again a couple years ago. But effectively, the way
24	the sales force in many of the cities works, there
25	still is a general business sales force. They just
Henley 05-04-04 30 00116
1	happen to be all part of one geography now.
2		But you cut through it and there is still
3	managers and all they do and their sales reps is call
4	upon these smaller organizations. We think it's
5	important to be organized that way, because we have to
6	be very nimble.
7		The only way we can make money is we've got to
8	turn a lot of deals and we've got to learn how to use
9	different partners and that sort of thing. So there
10	is a segmentation in the way we think and the way we
11	focus.
12		Q. You say that -- and you just used the term
13	"general business." That talks about the smaller
14	companies that you are hoping to be able to get price
15	points that are attractive for?
16		MR. ROSCH: Objection.
17		THE WITNESS: That's what we called the
18	organization that we at one time had in the US, our
19	general business sales force. We don't call it that
20	anymore, because it's been melded into the regular
21	sales force.
22		But, effectively, that's the way they are
23	still organized in some of these markets. They still
24	have this sort of separate group of people that tend
25	to sell to smaller companies.
Henley 05-04-04 31 00117
1		We also have sales forces that sell to
2	industries. So it's very complex. There is some
3	people that have an industry focus and they may even
4	sell to smaller and large customers, too.
5		MR. SCOTT: Q. But you indicated that the
6	folks that sell to the smaller businesses, the ones
7	that used to be called the general business sales
8	force, have to be more nimble and do a shorter sales
9	cycle so you folks can make money, right?
10		A. Uh-huh.
11		Q. What did you mean by that?
12		A. That when you are selling to some big
13	companies sometimes they -- the sales cycles are much
14	longer, there is many more people involved, and so you
15	get used to a way of selling.
16		You are trained as a salesperson to go through
17	all the steps of selling, and how - you can't afford
18	to do that in these small companies.
19		So we've found that the mentality of a
20	salesperson who had sold to IBM or sold to some huge
21	company was - the way they are prepared, the way they
22	just thought, that it was almost counter intuitive for
23	them to now go out and now call on 20 customers in the
24	course of a year.
25		And we're not the only people, by the way.
Henley 05-04-04 32 00118
1	IBM had a general business sales force. We are not
2	reinventing the wheel here. That's just the way
3	selling works, in general, in this industry.
4		Q. Why would the smaller companies going through
5	the longer sales cycle that you do for the bigger
6	companies with the smaller people result in you not
7	makings sufficient return on those sales?
8		A. Because if you absorb a lot of resources to do
9	a nine-month sale, and you now do the same sale to a
10	small company, by resource, we may have 10 people
11	working on the deal for a large customer.
12		A small customer, you've got two people
13	working half the lime. So the amount of effective
14	people and expense to sell can't be the same when you
15	sell to a small company as a large company.
16		Q. Okay. Is the-
17		A. So a salesperson--just continue.
18		Q. Sure.
19		A. So if you are really selling to a large
20	sophisticated customer sometimes you have to marshal
21	some additional resources, and so the sales rep gets
22	very food at that.
23		A sales rep to sell to a small company has to
24	be a one man band, or a one woman band, and they have
25	got to be nimble and be able to wear a lot of hats.
Henley 05-04-04 33 00119
1	So it's difficult to find people who can do both.
Henley 05-04-04 34 00120
19		Q. Now, is the idea of using this product, the
20	Oracle - I'm sorry. Your product is what, again, the
21	name of it? I have gotten confused now.
22		A. I believe it's called Special Edition.
23		Q. Okay. The Special Edition product in Europe,
24	that was implemented in order to see if that would
25	have attraction, be attractive to smaller companies?
Henley 05-04-04 35 00121
1		A. Yes. The idea is could we hit a price point
2	that would - and could we find, run this through the
3	channel, hit a price point that we could sell it in
4	much greater volume. A combination of
5	preconfiguration, but most importantly giving an
6	exclusive to a new channel to go out and sell this
7	thing in volume.
Henley 05-04-04 36 00145
24		Q. All right, sir. Now, it states here in the
25	first line of the answer part of that on page -- in
Henley 05-04-04 37 00146
1	Exhibit-34 on page 00204472 that, "There is minimal
2	integration risk. It will be clear to customers that
3	the O product is the surviving product." Do you see
4	that?
5		A. Yes.
6		Q. Do you have any understanding of what's meant
7	there by the term "the surviving product"?
8		A. Yes. I testified earlier to you this morning
9	about why this integration risk is far less than the
10	Peoplesoft strategy. So all of the things I told you
11	before supports this statement that he's made here.
12		Q. All right, sir. If you would look over at the
13	next page of the document, the page with the
14	identification number 204473. About two-thirds of the
15	way down the page there is a couple of -- well,
16	actually three questions, all bunched together.
17		"Don't O and P have a lot of overlap already
18	in the customer base? Where's the incremental cross
19	selling opportunity in growth?" And "Does this in any
20	way raise the organic growth of O?" Do you see those?
21		A. Yes.
22		Q. If you would, just again so you've got the
23	context, go ahead and read the answer that goes with
24	those questions and continues over to the next page,
25	and then I will have a couple questions about it.
Henley 05-04-04 38 00147
1		A. (Complies.) Yes, I have read it,
2		Q. All right, sir. The first line of the answer
3	part of it says, "We do have plenty of common
4	customers, which we view as a strong reason to
5	approach this acquisition in the manner we've
6	chosen." Do you see that?
7		A. Yes.
8		Q. Do you have any understanding of what is being
9	referred to there by the term "common customers"?
11		THE WITNESS: Yes. Yes, I think I do.
12		MR. SCOTT: Q. All right, sir. What is that
13	understanding?
14		A. This is a customer who might have Oracle
15	financials or Oracle HR. It might have
16	Peoplesoft/Oracle HR financials. So our market is
17	financials at Oracle and Peoplesoft HR, the same
18	customer. Okay? Or they might have Oracle
19	procurement or Peoplesoft HR, something. So these
20	would be basic customers have both our applications.
21		Q. All right, sir, Do you have any idea of how
22	many such customers there are?
23		A. No.
24		Q. Do you have any idea of whether it's fairly
25	uncommon for one of your customers to also have
Henley 05-04-04 39 00148
1	Peoplesoft applications?
2		A. No, I would not characterize it as uncommon.
3	I think there are many. I just don't know how many,
4	but I think there are many customers that have, for
5	instance, our financials and their HR system. I have
6	talked to a number of customers who do,
7		Q. Have you -- other than talking to customers
8	that have that type of configuration, have you had
9	access to information from withinside Oracle that
10	indicated that there are a substantial number of
11	customers who had both you and Peoplesoft as part of
12	their software applications?
13		A. Yes, statements have been made like that,
14	which I have validated in talking to customers, but I
15	have never seen a precise number. But I agree with
16	the statement. We have plenty of common customers.
17	To what I know, I think that's true.
18		Q. Now, in the accounts where you and Peoplesoft
19	both have a presence, do you know whether or not your
20	sales force tries to sell that customer your product
21	to replace the Peoplesoft products that they have?
22		A. Hum. We are asked sometimes by customers to
23	quote to replace, and then there is times where I
24	suppose we've gone in and tried to displace
25	Peoplesoft.
Henley 05-04-04 40 00149
1		So it happens on either side. Either the
2	customer approaches us or we've heard the customer has
3	some concerns or issues, and we will aggressive -
4	proactively approach them.
5		Q. Do you know whether or not there are
6	circumstances where Peoplesoft has made overtures to
7	customers to displace you from their installed base?
8		A. I assume so. Just like we've done it in our
9	case, I'm sure it's happened with SAP.
10		Q. I'm sorry?
11		A. It happens with SAP. I think it's an industry
12	phenomena. From time to time there is an opportunity
13	to displace another competitor at an account.
Henley 05-04-04 41 00176
9		Q. Now, in Oracle's current plans as they relate
10	to Peoplesoft's products, is it your expectation that
11	there will a new version of Peoplesoft beyond
12	Peoplesoft 8, if you are allowed to acquire the
13	company?
14		A. No. We've been quite clear that that's not
15	our expectation. Our expectation is that we would
16	continue to support the version 8 product for ten
17	years or longer. We would do bug fixes. We'd honor
18	contractual enhancements.
19		We would make minor enhancements. It wouldn't
20	be exactly static. We would try to improve the
21	product and respond to -- but we would not invest
22	large amounts of time on a brand new version, if you
23	will.
24		And, again, we've explained this in these
25	documents in all the briefings we've given. The idea
Henley 05-04-04 42 00177
1	would be we would take some of the best ideas from
2	Peoplesoft developers, marry that with ours, and
3	create a next generation product or version on the
4	Oracle platform.
5		Offer the migration scripts, give the free
6	license exchange. And the ideas would be that
7	customers migrating to the next version of Oracle
8	would get an improved product over version 8. So
9	that's the way they would get the next version. They
10	would get a next improved version on the Oracle
11	platform.
12		Q. Now, if you were -- well, let me back up and
13	be sure I understand what you are saying here. On a
14	going forward basis for the Peoplesoft product you say
15	you will do contractual enhancements? What are they?
16		A. Yes. Yes.
17		Q. What are they?
18		A. Well, if a customer has contracted for a
19	certain piece of functionality or something, we're
20	certainly going to honor the contract. We are not
21	going to tell a customer, well, you have a contract
22	that Peoplesoft agreed to do. We're just kidding, we
23	are not going to honor that. Of course, we're going
24	to honor that.
25		So we're going to take care of the customers
Henley 05-04-04 43 00178
1	and do what's been agreed to in writing for them. We
2	have no idea all the things that have been honored.
3	But inevitably there has been written promises made,
4	and that sort of thing. We have to honor that.
5		Q. Would that be just for that particular
6	customer or is that something you would launch for the
7	whole product?
8		A. To the extent that we build it in the core
9	Peoplesoft product, then that would be available to
10	any customer. Peoplesoft, also, has a consulting
11	business. To the extent their consultants have agreed
12	to build some code or do something around the product,
13	we will have to honor that contract, as well,
14	obviously.
15		Q. All right, sir. Then you said you would do--
16	on the Peoplesoft product post-acquisition you would
17	do bug fixes. What did you mean by that?
18		A. Well, any software products everybody has
19	them, has bugs. So there are defects in the software
20	that occasionally will show themselves and your
21	performance suffers or something happens, and so the
22	developer team has to go in and change some code to
23	make the product work properly.
24		Oracle, SAP, IBM, everybody has -- it's just
25	the way the software industry works. That's one of
Henley 05-04-04 44 00179
1	the reasons people buy maintenance or buy support,
2	because they want to be sure that if there is a bug
3	that shows up in their product and affects their
4	application that the vendor is going to stand up and
5	fix that product for them. So that's what's called
6	support.
7		Q. Right. Then on an ongoing basis
8	post-acquisition, you indicated you would do some
9	other type of enhancements, and I don't remember what
10	the word you used to describe them were. Do you
11	recall what it is or --
12		A. I think I said minor enhancements, within the
13	release number. So, typically, there is lots of
14	little things that you may see that you can do to
15	change the code to, you know, do things, but it
16	doesn't mean you have to build a brand new version for
17	it. Right?
18		Q. Could you give me an example of the type of
19	thing that you are talking about?
20		A. I can talk about our own products. I assume
21	they do it this way, too. But we have a number of
22	things that our customers ask us for. Gee, this
23	application doesn't show something this way. We'd
24	like it to show this way.
25		So, many times we will add that into the
Henley 05-04-04 45 00180
1	software, and it is released in six months or
2	something as part of the current version. So the
3	versions are actually what we call point releases
4	along the way.
5		We've had 10 point releases in the current
6	version of 11 of Oracle, So along the way there is
7	lots of enhancements.
8		So we expect to keep a lot of developers on
9	the Peoplesoft products to fix bugs, but also to make
10	some improvements, make the product better. Again, in
11	the spirit that we want the customers to be happy. If
12	they've got some minor issues and some things that the
13	development team has been in discussions for, and they
14	are not massive things that require a brand new
15	release, we will certainly try to do that for the
16	customers.
17		Q. Well, what type of thing would require a
18	brand new release as opposed to what you've referred
19	to as minor --
20		A. Um --
21		Q. Let me get the question out, just for her
22	sake. What type of enhancements to the product would
23	require a new release as opposed to what you have
24	described as a minor enhancement?
25		A. One would be architectural changes. Sometimes
Henley 05-04-04 46 00181
1	there is changes in the industry, tool sets,
2	architecture. So, for instance, the Peoplesoft 8 was
3	a major architectural release where they went from
4	what was referred to as a client server architect to
5	an Internet architecture.
6		So they did a lot of their screens in a new
7	technology called HTML and so forth. So that is
8	visually different. It requires an architectural
9	change, That's a major change. That's one example.
10		Sometimes it is just - there is a whole
11	series of functionality that is really a major rewrite
12	of the application. So a development team will set
13	aside, dedicate themselves to create a lot of new
14	code, and they will say we're going to put that in the
15	next release, because that's just a major rewrite of
16	this particular application. So those would be a
17	couple examples of what would be included in a new
18	release.
19		Q. Okay. And that's the type of thing you are
20	not planning on doing with the Peoplesoft product
21	post-acquisition?
22		A. That is correct. And to the extent there are
23	inevitable major new requirements, major architectural
24	changes, we will certainly do that in the Oracle
25	platform and then allow customers, as I've described
Henley 05-04-04 47 00182
1	earlier, a very easy way to move to that, so they can
2	take advantage of new architectural change, major new
3	functionality or changes in industry thinking. But
4	wouldn't do it in a new version of Peoplesoft, that's
5	correct.
Henley 05-04-04 48 00224
21		Q. Okay. Now, over what period of time did you
22	believe that Peoplesoft had a competitive advantage
23	over you in the HR area?
24		A, Oh, I think in terms of functionality, I would
25	say for most of the nineties. I think they were --
Henley 05-04-04 49 00225
1	you know, we were trying to play catchup, but it took
2	us a long time. It took us many years.
3		Q. So when you say you were trying to play
4	catchup, do you mean you were trying to duplicate the
5	functional offerings --
6		A. Requirements. Trying to add enough
7	functionality to be able to be head up when you go
8	through a demo, when you go through a scripted thing,
9	I can do this, I can do this, I can do this, I can do
10	this. Right?
11		So clearly -- and it wasn't just HR. We to do
12	it in payroll. We had to build a benefits module. So
13	it's a lot of areas where we've had to make a very
14	heavy investment. And beyond the money, there is a
15	passage of time that it takes to catch up.
16		I'm convinced from everything I know that we
17	are, by and large, very competitive now with them
18	across the board.
19		Q. Why did you spend the money in developing
20	these HR modules to catch up with Peoplesoft?
21		A. Because, again, we believe that many customers
22	want fewer vendors. They want more integrated
23	applications. Not all do, but some do.
24		And so our strategy has been to be able to
25	compete in markets like HR, financials, whatever,
Henley 05-04-04 50 00226
1	because there is a large market, so there is revenue
2	opportunity, but also as a strategy if we can make
3	them all talk together and be integrated, we can offer
4	more of a one-stop shopping kind of opportunity for
5	customers, to lower their costs, to get better
6	information integration, and so forth. So this was
7	part of our strategy.
8		As I testified earlier, we had HR when I
9	joined the company thirteen years ago. The reason we
10	played catchup is we did a poor job in the early years
11	of developing the product. We, frankly, didn't do a
12	very good job. So we brought in a new management team
13	five years into my reign and they basically started
14	over again.
15		But we had long believed strategically we
16	needed to be in the HR space. We just didn't execute
17	well in the early days, so we had to then catch up.
18		Q. So if I got the timing right then, when you
19	came in in '91 you had an HR product but you don't
20	think it was a very effective product?
21		A. I think history proved it wasn't, because
22	people came in and cleaned our clock.
23		Q. And then beginning in '95, roughly, is it five
24	years?
25		A. Roughly. I want to say '95, '96, we hired a
Henley 05-04-04 51 00227
1	new head. It had previously been developed in the UK,
2	and we set up a development team here in the U.S.,
3	kept the UK team. We still have two development
4	centers, but the primary leadership more and more
5	shifted to the U.S. under this new person that we
6	hired.
7		Q. And then how long did it take you, beginning
8	from '95, '96, when you hired this guy, this new team,
9	to the point where you got to the point you thought
10	you had caught up with Peoplesoft and HR
11	functionality?
12		A. It's hard to say. I think within three or
13	four years we were starting to be reasonably
14	competitive.
15		Then the next thing we did was start to
16	segment our sales force. We started adding a separate
17	HR sales force to sort of-- all they did was sell HR,
18	and that also proved to be helpful.
19		So it was a combination of getting more sales
20	focus, once we had a product that was pretty good.
21	Then we started developing new modules. We believe in
22	some of these new modules we're actually ahead of
23	Peoplesoft.
24		Q. If I could point you to Exhibit-38. It says
25	here that you told him that we were behind until
Henley 05-04-04 52 00228
1	recently but have equivalent functionality to HR
2	payroll, self-service, benefits, et cetera.
3		A. Uh-huh.
4		Q. And we're cheaper and we're integrated with
5	our financials, and this is dated 06 -- December 6,
6	2003. Does that help you put a time frame on when you
7	think you got caught up with Peoplesoft functionally
8	in HR?
11		THE WITNESS: Again, when I say "until
12	recently," I didn't try to put a time frame. The
13	point is there is a market perception that still
14	exists today in many people's mind, and many HR people
15	made a decision five years ago on HR.
16		They think Peoplesoft is still better. They
17	did it at Merrill Lynch. They did at Michael Stores.
18	Once we came in and did a demo. Merrill Lynch we did
19	one two years ago. They go, "My God, I had no idea
20	your functionality was so good now." When I say
21	recently, I don't mean yesterday.
22		MR. SCOTT: Q. Sure.
23		A. The point was, people's perception is this.
24	That's not true.
25		Q. Okay. So you developed a product over the
Henley 05-04-04 53 00229
1	course of would you say three or four years that you
2	thought was reasonably competitive?
3		A. Reasonably competitive. But, again, I
4	wouldn't say we had every little bit, but it put us
5	back in the ball games. By the later part of the
6	nineties, we were at least in the ballpark.
7		Today, arguably, we're better in certain
8	cases. So it just keeps getting better. We continue
9	to push along here.
10		Q. So as of today you think you are certainly
11	equal to Peoplesoft in most areas of HR and better
12	than they are in some?
13		A. Yes. Absolutely.
14		Q. But you are still having a problem with the
15	market understanding that you have that functionality
16	in HR available?
17		A. In some cases, absolutely. I think
18	particularly with customers who made a decision
19	several years ago and haven't thought about it since.
20	When we go out and compete on a new transaction, and
21	they don't have any notion, they just come into look,
22	then that's not a problem. It's really more that
23	people had a past perception. That's the challenge.
Henley 05-04-04 54 00240
4		Q. Would it be accurate to state that a
5	general -- that a large company could be considered a
6	general business customer if it has a decentralized
7	management system and therefore runs different
8	divisions independently from the standpoint of the
9	software it uses to support its functions?
10		A. I think that's true, in terms of their usage.
11	I mean, that may not be the way we're organized to
12	sell to them, but in terms of the way they think of
13	themselves, if they are highly decentralized and they
14	have a plant with 200 people and they are
15	making an independent decision, I would consider them
16	more of a small company, because they are really just
17	talking about software to run a small company, even
18	though they might be a part of a big company.
19		Q. Does that happen fairly often, that you have a
20	company that buys independently from different
21	business units?
22		A. Yes, although less so than in the past. There
23	is a trend for large companies to try to get more
24	consistency across their company, but there still are
25	a number of independent decisions made in larger
Henley 05-04-04 55 00241
1	companies where divisions or countries are making sort
2	of independent decisions.
3		But I would say the trend is somewhat less of
4	that than in the past, because it's expensive, because
5	they can't get information shared across the company.
6		So I would say that with the technology, the
7	Internet, all of these things there is more of a bias
8	towards centralization.
9		Q. And over what period of time have you seen the
10	bias towards centralizing software functions within a
11	business having occurred?
12		A. Golly. I mean, I just think that -- I think
13	it's - it's a gradual thing, and it's somewhat driven
14	by changes in technology. It's scaleability of
15	computers, the lowering cost of telecom globally, the
16	Internet.
17		So probably over the last six or seven years,
18	the technical advances, price performance. There has
19	been some barriers removed technically that offer
20	advantage to centralization, but there are still lots
21	of cultural organizational challenges, too, that keep
22	companies making these incremental, you know, local
23	decisions. So there is still a fair amount of local
24	decision-making going on.
Henley 05-04-04 56 00265
11		Q. All right. Well, this one -- let me direct
12	your attention inside of the document maybe to page
13	ORLITF0025994, and there is a slide there that has the
14	heading "Oracle's Data Hub." Do you see that?
15		A. Uh-huh.
16		Q. Are you familiar with that slide?
17		A. I am familiar with the concept. Again, I have
18	seen certain presentations, not delivered by Larry but
19	others, about our data hub. So I certainly understand
20	the concept, but this particular slide I am not sure I
21	have seen before.
22		Q. Fair enough, sir. What is the data hub?
23		A. It is a -- it draws upon our database and some
24	of our application technology and schemas to create a
25	way for customers to bring data from multiple data
Henley 05-04-04 57 00266
1	sources and multiple applications into one place so
2	they can have a unified view about information like
3	customer information, product information.
4		Q. All right, sir. When was that product rolled
5	out?
6		A. We announced the product, I believe, at our
7	Applications World in San Diego. I think it was held
8	this January. So it's a relatively new product that
9	we've announced.
10		Q. And is there a target market for that product?
11		A. I'm not sure. When you say target market --
12		MR. ROSCH: Yeah, objection, ambiguous.
13		THE WITNESS: There is many customers who may
14	want to use this in some form. I mean, there is many
15	customers who don't have all of their information in
16	one place, most customers don't, and there is some
17	that intend to have heterogenous systems, different
18	databases of customers and products and things.
19		So there is a lot of customers that we think
20	will view this as a way to amalgamate information
21	about -- have what we call a single source of truth.
22	But that percentage of that market is out there that
23	wants this or exact target market, I am not quite
24	clear. But certainly we think that this could appeal
25	to a lot of customers.
Henley 05-04-04 58 00267
1		MR. SCOTT: Q. And what organization within
2	Oracle is marketing this product?
3		A. I think actually both of our sales
4	organizations are. Our technology sales organization
5	and our applications sales organization will describe
6	this and be involved in selling this to some degree.
7		It's not clear to me yet, but right now it
8	appears that probably both of them will discuss it.
9	And whether who will actually sell it, I am not sure.
10		Q. Have you seen any sales results from this
11	product?
12		A. I have not. I mean, I think this is -- it's
13	too early to say. We are in an announcement
14	description, people talking about it sort of thing,
15	but I don't think we've actually seen a lot of new
16	sales yet out of this.
17		Q. If you would look at the previous page, the
18	page which has the designation ORLITF0025993.
19		A. Okay.
20		Q. Which has a table or a slide on it that's
21	headed, "We still want your data in one place." Do
22	you see that?
23		A. Yes.
24		Q. Now, whether or not you've seen this
25	particular slide, have you been involved in
Henley 05-04-04 59 00268
1	discussions regarding a homogeneous application
2	environment, i.e, Oracle applications integrated
3	together on an Oracle database being a better solution
4	than the data hub?
5		A. Let me start by saying, we believe, after
6	conversations with many customers -- I certainly have
7	had conversations with many customers - that many
8	customers complain that their information is too
9	fragmented. Their information is in too many places.
10	It's in too many databases.
11		So we have a couple of approaches to help them
12	unify data. One is to use our e-business suite, where
13	you can deploy a lot of our applications and run them
14	all under a single database, and this data hub is an
15	alternative way for customers to integrate unified
16	data without having to deploy all the Oracle
17	applications.
18		So they don't have to use, you know, any or
19	all of the e-business suite to do that. They can
20	simply take advantage of some of the architecture of
21	the e-business suite architecture as well as our data
22	warehousing architecture and migrate that.
23		So there is a couple of approaches we offer to
24	customers to solve what we think is one of the
25	fundamental problems with customers, and that is data
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1	fragmentation.
2		Q. And which way do you get the best information
3	quality?
4		A. We believe that the homogeneous approach is
5	still a more pure way to do this, but it's not
6	realistic for some customers, at least in the short
7	term. So I think what we've said is in a short term,
8	the hub can be a way to bridge this or maybe even
9	forever.
10		So we're not trying to tell customers what to
11	do. We're trying to give them different solutions.
12	But to answer your question again, we think in a pure
13	world it's the single best and cheapest solution is
14	the e-business suite, because it's a little less
15	complicated.
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