00008
14	BY MR. SCOTT:
15	Q. All right, sir, as I stated earlier, this will
16	be the deposition of the Lawrence Ellison pursuant to
17	Civil Investigative Demand No. 022793.
18	Do you have that in front of you, sir? It's
19	Exhibit 1 to your deposition.
20	A. Yes, I do.
21	Q. Have you had a chance to read through that?
22	A. In a cursory way, yes.

00009
1	Q. All right. So I'll just -- for the record, I
2	will point out to you on the back of it there is some
3	language, too, that's pertinent, which is the authority
4	and -- one of the authorities by which this is being done
5	and some of the laws that govern the taking of the
6	deposition.
7	You might just want to read through that, as
8	well, just to be sure you've got all the language. At
9	least you've had a chance to look at it, as you've said,
10	on a cursory basis.
11	Just let me know when you're finished.
12	A. I've finished.
13	Q. All right, sir. Now, this will be your
14	deposition pursuant to that CID.

00011
3	Q. You understand you are testifying under oath?
4	A. I do
5	Q. And pursuant to the statutes that's printed on
6	the back of the CID, Exhibit 1, to your deposition, in
7	addition to making truthful -- well, as part of
8	testifying under oath, do you understand that if I ask
9	you a question and you have any information pertaining to
10	that question and you say you do not know or do not
11	remember having any information, that would be a
12	violation of the oath?
13	A. Right.
14	Q. All right, sir, now, what's your current
15	position with Oracle?
16	A. I'm the CEO, chief executive officer.
17	Q. And your duties and responsibilities in that
18	position, what are they?
19	A. I'm a senior executive, senior management
20	executive in the company. All the other managers report
21	to me.
22	Q. Who are currently your direct reports?

00012
1	A. Jeff Henley's our chief financial officer; Safra
2	Catz is president in charge of operations; Chuck Phillips
3	is president in charge of our field; Chuck Rozwat is the
4	head of development of our technology products, that's
5	data base products; Ron Wohl is the head of development
6	of our application products; Mike Rocha is responsible
7	for support services.
8	Q. I've seen some references in some of the
9	documents that have been produced to Oracle in the
10	context of this investigation, references to the
11	executive committee.
12	Do you know what that is?
13	A. Yes, I do.
14	Q. Who -- well, first of all, what is the executive
15	committee and, secondly, who is currently on it?
16	A. It's a group of senior managers and that
17	includes all of the people I just mentioned, plus our
18	four heads of field sales on different geographic areas,
19	Sergio Giacoletto in EMEA, Europe, Middle East, Africa;
20	Luis Meizler in Latin America; Dereck Williams in Asia
21	Pacific; and Keith Block in North America.
22	Q. All right, sir, what is the purpose of the

00013
1	executive committee?
2	A. To review the status -- review what's going on
3	in the company and to make plans for our future
4	strategies and our -- and to execute on those plans.
5	Q. All right, sir, now, I've seen in the press
6	recently there's been some change within the company
7	regarding your position; is that right?
8	A. Yes.
9	Q. Could you describe for me what that change has
10	consisted of?
11	A. I used to be chairman of the board of Oracle of
12	the -- about half the time during Oracle's existence,
13	I've been chairman, about half the time I've not been
14	chairman. And Jeff Henley just took over chairman. I
15	believe the board believes a separation of chairman and
16	chief executive is good for our corporate goverments. It
17	also gave us the opportunity to retain Mr. Henley for a
18	longer period of time than we otherwise might have if he
19	just remained as chief financial officer.
20	Q. As a result of this change, you--I take it,
21	you're still on the board?
22	A. Yes, I am.

00014
1	Q. Have your duties and responsibilities, as they
2	relate to Oracle, changed with you having stepped down as
3	the chairman of Oracle's board of directors?
4	A. My management duties haven't changed at all.
5	Q. Did you give up any duties and responsibilities
6	as a result of the change?
7	A. I give up duties as chairman of the board.
8	Q. Which would consist of what, as opposed to what
9	you would just do as a member of the board
10	A. Running the board meetings.

00034
2	Q. All right, sir, are you familiar with, I guess,
3	for want of a better term, an e-mail account within
4	Oracle called "HQ Apps"?
5	A. It's an approval account?
6	Q. Yes.
7	A. Am I familiar? I know it exists.
8	Q. By "approval account," what I meant in the last
9	question was an account where requests for approval of
10	non-standard contract terms or discounts above a certain
11	level are sent for review by people above, for example,
12	an application software, Mr. Block.
13	A. I think there are a lot of different HQ Apps
14	accountants [sic], including approval for purchase
15	requests, just buying a computer. It's basically our
16	approval system that includes all sorts of things that
17	require approval, including any exception to policy,
18	including discounts.
19	Q. So, for example, just to be sure we're clear on
20	where we are on this, if someone in Mr. Block's
21	organization sent up a request for approval of a discount
22	in a transaction dealing with application software that

00035
1	was above a specified amount, it would have to come to HQ
2	Apps for approval?
3	A. I don't know that for a fact, but it has to go
4	to Safra Catz for approval and HQ -- and I believe it
5	likely to goes through HQ Apps.
6	Q. Do you ever approve or been involved in
7	approvals of non-standard contract terms or larger than
8	discounts that are --
9	A. Sure.
10	Q. Let me back up a minute.
11	Do you know what level Mr. Block is authorized
12	to grant discounts to?
13	A. I can get very close.
14	Q. All right. So why don't - what is your
15	understanding of it?
16	A. I think he's at 70 percent right now.
17	Q. I think that's consistent with what he told us
18	at his deposition so.
19	Do you get involved in reviewing and approving
20	requests for discounts that go over that?
21	A. Occasionally.
22	Q. Are there particular types of transactions or

00036
1	circumstances that would lead you to get involved as
2	opposed to Ms. Catz?
3	A. If it's a particularly large transaction, an
4	interesting transaction, we're taking a different
5	structure, we're accepting more liability than what we
6	otherwise might, all of those might cause her to let me
7	know what she's approving. But typically she doesn't ask
8	for my approval, she just informs me that she thinks it's
9	a good idea or she'll want to get some comfort level that
10	I'm aware of what we're doing and I don't disagree.
11	Q. When you say a larger transaction may cause her
12	to come to you, do you have a specific number or range in
13	mind that would cause her to do that?
14	A. $10,000,000.
15	Q. $10,000,000 in license fee or something else?
16	A. $10,000,000 in license fees. But anything --
17	but it might be a smaller deal, if it's a different
18	structure. But in terms of a discount in excess of
19	$10,000,000, she might come to me, she might not come to
20	me on a $10,000,000 deal. I don't think there's a firm
21	rule of when she chooses to let me know. It's what the
22	deal is.

00037
1	Q. Now, in the context of the approval for
2	discounts in the area of application software, are there
3	any guidelines that have been given to Ms. Catz regarding
4	what you think would or would not be acceptable in the
5	way of granting additional discounts?
6	A. I think it's situational so --
7	Q. So there aren't any guidelines she's been given?
8	A. Well, there are -- to Ms. Catz?
9	Q. To Ms. Catz.
10	A. No.
11	Q. Is there any level of discount that you would
12	not approve in the area of application software?
13	A. I think, again, it's situational so -- but if
14	you ignore situations, could I imagine where we'd give a
15	hundred percent discount, the answer is yes. Can I
16	imagine where we'd give no discount, the answer's yes.
17	So I think that's the full range.
18	Q. That would seem to cover it.
19	Are there circumstances where you've given up to
20	a hundred percent discount on license fees?
21	A. More.
22	Q. "More" meaning what?

00038
1	A. "More" meaning a hundred percent discount in
2	license fees and some additional, some free consulting.

00040
13	Q. Now, do your requests for discounts for approval
14	generally have to include information regarding the
15	justification for wanting to give an additional discount?
16	A. Again, I don't look at these documents so -- but
17	it certainly stands to reason that if you want to give a
18	large discount, you explain why.
19	Q. I mean, you certainly wouldn't want the salesmen
20	giving them if there wasn't a business reason for the
21	basis of it?
22	A. Well, we wouldn't approve it.

00041
1	Q. Now, in the context of the ones that you do get
2	involved in and whatnot, do you generally try to
3	understand what the competitive circumstances are that
4	justify the specific request?
5	A. Yes.
6	Q. And do the competitive circumstances that you
7	would find persuasive from the standpoint of granting a
8	request for discount above 70 percent, for example, in
9	the area of application software, would that include
10	information regarding what -- who the competition was and
11	the pricing they were offering?
12	A. Yes, sometimes. Again, it's a bit situational.
13	Q. Certainly one piece of information that you
14	would find relevant is who you're competing with in a
15	particular account and whether they're pricing in a way
16	that is higher than your folks can without your approval?
17	A. It's more complicated than that, but, yes.
18	Q. Does the issue of -- well, strike that.
19	You said it was more complicated than that. In
20	what way?
21	A. We'll determine whether the competitor is
22	actually a threat to us. So sometimes a competitor

00042
1	coming in with a very low price is a real competition,
2	sometimes a competitor coming with a real low price
3	doesn't have a competitive product, doesn't -- the
4	customer is largely committed to the Oracle data base and
5	they don't want to make a change.
6	There's a cost associated with changing from one
7	system to another, which might outweigh whatever, you
8	know, IBM might be offering a free data base, which they
9	do quite frequently, but there's a high cost in changing
10	what the customer's doing. So we might not have to meet
11	that price of zero that IBM is offering to that customer
12	to change.
13	So the dynamics are -- it's not like buying
14	lumber where, as long as lumber's good quality, the
15	cheaper you can buy, you buy the cheapest lumber. The
16	dynamics of the situation include lots and lots of other
17	things.
18	Q. Well, from the standpoint of determining whether
19	a particular -- strike that. Let me back up and be sure
20	the question's clear.
21	In the context of reviewing accounts or requests
22	in accounts for a special dispensation, either a higher

00043
1	discount or some other business term, you said that you
2	try to determine whether or not the offer that's being
3	reported from your competitor is really a threat or not.
4	A. Is a genuine competitive threat, that's correct.
5	Q. Other than the situations where you've talked
6	about a moment ago and the IBM situation in the data base
7	context where transitioning over would have some
8	implementation and transfer costs that have to be
9	factored into this, what other type of factors do you
10	look at to determine if a particular offer from a
11	competitor is a real threat?
12	A. Well, is the vendor there already an encumbant
13	at that customer, do they have products -- in other
14	words, are there a number of those vendor's products
15	already in place at that customer.
16	So let's say we're competing with SAP and we're
17	trying to replace SAP financials. SAP's an encumbant,
18	then that works against us. So we have to be much more
19	aggressive in our discounting than SAP would if we're
20	trying to actually replace SAP. Or one division is
21	running SAP financials and we're trying to replace, you
22	know, install our financials in another division. SAP is

00044
1	an encumbant. You're not replacing them, but they are an
2	encumbant vendor, so we might have to be more aggressive
3	in our pricing.
4	Q. Earlier also -- again, I'm not trying to
5	misstate you so if I get this wrong, just tell me -- you
6	indicated also you wanted to know if the competitor would
7	have a -- well, let's say in the application software
8	area for the moment because that seems to be more
9	pertinent to what we're doing here. You would want to
10	know whether the particular vendor who is making the
11	offer had a product that had the correct functional
12	requirements for the client; is that right?
13	A. Well, there are three products out there.
14	There's a lot of free ware out there, so there are free
15	products that we can't meet the price. So you could say,
16	well, if you can use this free product, it would have to
17	always be free because the customers would say, "I'll use
18	this free product instead of Oracle." So, therefore, our
19	price goes to zero all the time.
20	So we have to decide whether that free product
21	really is a contender and has the capability to take our
22	place, either to displace us or to win this deal because

00045
1	there's a lot of free ware out there.
2	Q. Would that same analysis take place in the
3	context if somebody you're competing with is not free
4	ware? For example, if someone came in, would you want to
5	look at their product and determine how close they could
6	get to the clients' needs and determine how big a threat
7	they are?
8	A. Of course.
9	Q. Why would you want to know that?
10	A. To see -- because, as we -- as we compete on
11	price -- we have to compete on price and capability. So
12	it depends on the credibility of the vendor, the ability
13	to provide service, the functionality of the product,
14	whether there's encumbancy or not. The existing
15	relationship we have with the customer, did the customer
16	think -- we've done a great job. Does the customer think
17	we've done a terrible job, and we have some making up to
18	do.
19	So there are lots and lots of factors before
20	they decide to make -- purchase enterprise software
21	because it's a long-term relationship.
22	These systems are highly durable and they --

00046
1	they're around for a decade. So they're not just buying
2	a product, they're buying into a company who's going to
3	constantly improve their product, provide related
4	services, provide related products. So they have a
5	certain amount of experience with us, which could have
6	been positive or negative.
7	I'm not trying to make it more complicated than
8	it really is, it really is that complicated.
9	Q. I understand. I understand.
10	Is what you're saying then, in analyzing whether
11	or not to give another discount, you're going to look at
12	the four corners of a particular transaction to determine
13	if short-term, whoever you're competitor is, has a
14	product that meets -- is as good for the client
15	functioning as yours and long term whether they have the
16	wherewithal, the budget, the presence in the market, to
17	give the customer the long-term relationship that they're
18	looking for because if they can't, you don't have to
19	price as aggressively?
20	A. Those aren't the only factors, but, yes. I
21	mean, they can be a small company with a fabulous new
22	product, like a Salesforce.com, or they could be a big

00047
1	company who can guarantee continuous investment, like a
2	Microsoft.
3	So these are two very different -- here are two
4	radically different potential competitors we could face
5	in the same deal. Here comes Microsoft with not that
6	good a product, a customer might say, "But my God,
7	Microsoft is going to make it better five years from now.
8	This is a long-term decision. I should go with Microsoft
9	because look at how much money they're investing, so I
10	should start with Microsoft now because that's the right
11	place to be."
12	Other people might say, "Well, look at
13	Salesforce.com. Their price is incredibly low. They've
14	been very innovative in what they've delivered. I should
15	go with Salesforce.com even though they're a small
16	company."
17	So it's a -- you know, there are different ways
18	companies compete in this market, some instances
19	innovation, some instances relationship.
20	IBM is the king of relationships. I've had a
21	30-year relationship with IBM. I play golf with the
22	sales guy every weekend, they're a company I can trust.

00048
1	I should -- they're the ones giving me guidance, so I
2	should buy that way.
3	So there are lots and lots of different things
4	that influence people to make buying decisions and we
5	have to, through some complex calculus, evaluate all
6	these things and decide how to price our product.
8	But in the circumstances that you are talking
9	about, I take it one initial threshold -- clearly, there
10	may be other factors in this -- is whether or not the
11	competitor that you're being told into an account, that
12	you're being asked to give a higher discount against, has
13	a product that can actually meet the customer's needs?
14	A. That's one factor.
15	Can it -- that's usually looked at over a
16	five-year period, at least a five- or ten-year period.
17	Q. To see --
18	A. Can this competitor -- for example, SAP says,
19	okay, here's the new version of our banking product. SAP
20	has just come out with a couple banking products. These
21	are brand new versions, but we're SAP and we'll
22	continuously make it better. It's very different if

00049
1	company "X" that no one ever heard of came out with a
2	brand new banking product.
3	Q. I understand.
4	A. You can rely --I know SAP is going to be around
5	and that they're an existing -- I buy products from SAP.
6	They're going to be around. Yes, it's a new product but
7	it's SAP, I know them, and they're going to make it
8	continously better.

00053
7	Q. You have in front of you what's been marked
8	Exhibit 6 to your deposition, which is a Form 8-K, dated
9	June 6, 2003, filed with the Securities and Exchange
10	Commission on behalf of Oracle Corporation.
11	Is that what you have in front of you?
12	A. Yes.
13	Q. All right, sir, if you would flip over within
14	the document to the fourth page. And if you want to look
15	through the document before that to look at something
16	specific to familiarize yourself with it, that's fine.
17	A. All right.
18	Q. So we're on page 4 of Exhibit 6 to your
19	deposition. It is a page that is actually numbered at
20	the top page 4 of 25, and we have about halfway down the
21	page an "Oracle to launch cash tender offer for
22	PeopleSoft for $16.00 per share. Oracle fourth quarter

00054
1	preliminary earnings of 14 to 15 cents per share," which
2	appears to be a press release or news release issued by
3	Oracle.
4	Do you see that?
5	A. Yes.
6	Q. Are you familiar with that press release?
7	Again, take as much time as you need to read through it.
8	A. I've never seen it before but -- well, I don't
9	recall seeing it but, yeah, I'm certainly familiar with
10	the event and with the information it contains.
11	Q. Now, the press release itself, if you look at
12	the second paragraph, purports to quote you.
13	Do you see that?
14	A. Yes.
15	Q. Are you familiar with the language that's
16	contained there that's attributed to you?
17	A. Absolutely.
18	Q. Now, it -- first of all, let's skip down, if you
19	would, to the sentence that begins, "Although we will not
20	be actively selling PeopleSoft products to new customers,
21	we will provide enhanced support for all PeopleSoft
22	products."

00055
1	Do you see that?
2	A. Yes.
3	Q. The statement there, what did you mean by "We
4	will not be actively selling PeopleSoft products to new
5	customers"?
6	A. We were trying to explain a couple things -- we
7	would not have -- our sales force would not be selling
8	both the Oracle E-business suite and the PeopleSoft
9	products at the same time to new customers. We would be,
10	in fact, selling the Oracle E-business suite to new
11	customers.
12	Q. And when you say the Oracle E-business suite,
13	what is that product?
14	A. We would be selling the Oracle suite of
15	application products to new customers. So if there was a
16	customer who was not a PeopleSoft customer and not an
17	Oracle customer, in other words, they were -- they didn't
18	have products from PeopleSoft, they didn't have products
19	from Oracle. That's what I mean by "a new customer,"
20	someone who has neither Oracle applications nor
21	PeopleSoft applications.
22	In that case, our sales force would try to

00056
1	persuade that new customer to buy Oracle application
2	products, not PeopleSoft application products.
3	Q. In the context that you've talked about, a
4	customer who hasn't bought from either, as of the time
5	your salesman approached them, would they only offer them
6	the Oracle products for application software?
7	A. What do you mean by "offer"? They would try to
8	persuade -- what the sales force function is is to try to
9	persuade the customer to buy our products, in this case
10	buy the Oracle E-business suite products.
11	If the customers say, "Will you sell me the
12	PeopleSoft products?" of course, the answer is yes, of
13	course, we will sell them. We'll sell the PeopleSoft
14	products to whoever wants to buy them. But our marketing
15	campaigns and our sales organization, in terms of
16	persuasion, we would put our effort in to trying to
17	persuade people to buy the Oracle products.
18	Q. So we're --
19	A. I'm sorry to interrupt. My lawyers probably
20	don't like when I do that.
21	To avoid confusion --
22	Q. I don't mind.

00057
1	A. I know you don't.
2	But to avoid confusion, I want to be very clear
3	that our sales force is trained in selling our products,
4	that's the products they'll continue to sell. We won't
5	have a separate sales force selling PeopleSoft products,
6	we won't have our sales force trying to persuade people
7	to buy the PeopleSoft products. It does not mean that
8	existing PeopleSoft customers as opposed to new customers
9	we wouldn't sell to, we wouldn't be trying to sell to.
10	So that's why the issue is really new customers.
11	Q. Let me follow up on this to be sure I understand
12	what you said.
13	Now, we're talking in a world where the merger
14	would have been approved --
15	A. Yeah.
16	Q. -- and you acquire PeopleSoft. In those
17	circumstances it is your plans to have your sales force
18	actively marketing and selling the E-business suite of
19	Oracle?
20	A. Correct.
21	Q. Now, if your salesmen go into an account,
22	someone's who is not Oracle, has not been PeopleSoft in

00058
1	the past, is the plan to have them even mention the
2	PeopleSoft product or not?
3	A. Even mentioned? No. I mean, everyone will
4	know. I think most people would know we have both
5	products, they'd be on the price list. But, no, they
6	wouldn't even be trained to sell the PeopleSoft products.
7	Q. So by "trained to sell the PeopleSoft products,"
8	what type of training would normally be encompassed in
9	selling, for example, your product?
10	A. Understanding the features and the functions and
11	the details of our products, know to some degree what our
12	products do.
13	Q. And there are no plans to have a separate sales
14	organization or force that would be dealing with
15	PeopleSoft products and selling them post merger?
16	A. No, that's not correct. That's not correct.
17	We would be selling, actively selling the
18	PeopleSoft products to existing PeopleSoft customers. So
19	absolutely sell existing customers. But, again, given a
20	blank sheet of paper, customer doesn't use Oracle
21	applications or PeopleSoft applications, the applications
22	that we would be selling and we would be marketing --

00059
1	advertising, for example, we wouldn't be advertising the
2	PeopleSoft products.
3	Q. All right. Let me rephrase my previous question
4	because I think we just went past each other a little
5	bit. It's my fault and because I wasn't precise enough.
6	From the standpoint of actually having a sales
7	force that will be dedicated to selling to new customers,
8	PeopleSoft products, that will not exist?
9	A. That's correct.
10	Q. Post merger, you said you would sell additional
11	PeopleSoft modules or -- to existing PeopleSoft
12	customers; correct?
13	A. Absolutely.
14	Q. Who within Oracle would be responsible for
15	handling those sales and transactions?
16	A. Again, it would be our existing sales force, so
17	we wouldn't split into two sales forces. We might have
18	some specialists in telesales on PeopleSoft. We would
19	have specialists on PeopleSoft, but we would not have two
20	sales forces. We would have an application sales force
21	that would be able to sell the PeopleSoft products to
22	existing customers.

00060
1	Q. When you say you would have specialists in
2	telesales pertaining to PeopleSoft? What does that mean?
3	A. Oh, they they might know -- we're putting in the
4	latest tax tables for payroll, and making sure that our
5	PeopleSoft payroll customers got the latest updates.
6	It's not something we're likely to charge for, but
7	probably, you know, likely give that away for free.
8	But making sure that we remain in contact with PeopleSoft
9	customers and provide high quality support to PeopleSoft
10	customers.
11	So there would be PeopleSoft specialists
12	probably in telesales and clearly PeopleSoft specialists
13	in our support organization.
14	Q. Do you have a telesales group now?
15	A. Yes, we do.
16	Q. You're talking having certain people within that
17	designated as being PeopleSoft specialists?
18	A. Yes.
19	Q. Has any thought been given to how many you would
20	need to do that type of thing?
21	A. I don't think we have an exact number of how
22	many specialists we would need.

00061
1	Q. Approximation?
2	A. I don't know.
3	Q. Who within the company has been responsible for
4	making integration plans regarding how you would
5	integrate PeopleSoft business into Oracle?
6	A. At a very high level, I've been involved in the
7	integration plan.
8	Q. Who else?
9	A. Every one of my direct -- virtually every one of
10	my direct reports.
11	Q. Has there been a written integration plan
12	prepared pertaining to post merger?
13	A. Not that I know of.
14	Q. Can you describe for me to the extent to which
15	integration planning has already occurred?
16	A. We've certainly -- for example, one of the big
17	ones was deciding not to have two sales forces, how to
18	structure the sales force. What position to take
19	vis-a-vis new customers is extremely important, how we
20	would merge the PeopleSoft products and the Oracle
21	products in a new release; how -- our policy with
22	customers as to how long we would support the PeopleSoft

00062
1	products; how we'd structure the engineering teams; how
2	we'd structure the support teams, you know, what the
3	financial implications of the merger are.
4	All of those things have been outlined.

00069
11	Q. All right, sir, again, looking at page 4 of
12	Exhibit 6, it states, "Furthermore, we will be
13	incorporating the advanced features from the PeopleSoft
14	products into future versions of the Oracle E-business
15	suite."
16	Do you see that?
17	A. Yes.
18	Q. Now, the Oracle E-business suite, again, is your
19	application enterprise software product?
20	A. Yes.
21	Q. What types of functions or modules are contained
22	within that product?

00070
1	A. Oh, just about everything: sales, service,
2	marketing, you know, accounting, finance, personnel,
3	payroll, supply chain automation, warehousing, logistics.
4	Q. Now, do -- do you have a software package or
5	suite that would be characterized as financial
6	management?
7	A. Yes.
8	Q. And do you have a software application suite
9	that could be characterized as having human resources
10	functionality?
11	A. Yes.
12	Q. Is the E-business suite a combination of those
13	two?
14	A. The E-business suite is the sum of most, but not
15	all, of our application products. We have clinical trial
16	products and adverse event reporting products for the
17	pharmaceutical industry, but they're not part of the
18	E-business suite. But E-business is -- most of our
19	applications are collected as the E-business suite that
20	works on top of a single data base.
21	Q. From the standpoint of the customer, if they buy
22	the E-business suite, they license and pay for whatever

00071
1	modules they particularly want out of that; is that
2	right?
3	A. Well, they have a choice. They can either just
4	buy general E-business Suite Users and use any of the
5	modules. So they can buy a thousand users to the
6	E-business suite and twenty can use marketing or they can
7	specifically and explicitly license the financial
8	component or the H.R. component or the manufacturing
9	component.
10	Q. Does it makes a difference price wise which they
11	do?
12	A. It's a little more expensive to have the
13	flexibility. If you know you're going to use financials
14	and only use financials, it's cheaper to just license
15	financials than to license the whole E-business suite.
16	Q. Couple of follow-up questions from earlier.
17	You indicated that you thought there might have
18	been some circumstances where you folks had sold
19	applications software at a zero licensing fee; correct?
20	A. Let me be a little bit more precise on that,
21	which is, yes, a given transaction with a customer. So
22	perhaps -- hypothetical -- where this might happen, we

00072
1	sold the customer some software. There was a consulting
2	project to put it in. The customer was not happy for
3	some reason with our consulting service. There's a
4	subsequent transaction to expand and we gave them the
5	additional software plus a million dollars of consulting
6	to help -- to improve the customer satisfaction.
7	Q. And there -- go ahead.
8	A. What I'm saying is, that's a more likely
9	scenario of a zero price, plus free consulting, what I
10	characterize as a less-than-zero transaction, that there
11	were other transactions with that same customer that
12	preceded that.
13	Q. I understand.
14	Have you also, though, in the context, for
15	example, of your offer to purchase PeopleSoft, told
16	customers that you will swap out software on a free
17	license basis, Oracle modules, equivalent Oracle modules,
18	for whatever PeopleSoft modules they have?
19	A. Right, so we said if you have PeopleSoft H.R.,
20	and you want -- and you want to -- and you want to
21	migrate to Oracle H.R., you can do so at no software fee
22	so -- and you can do that at a time of your choosing.

00073
1	You can do that now, you can do that five years from now.
2	Whenever you want to, you can make that migration.
3	Q. In a context like that, how do you price the
4	maintenance?
5	A. The maintenance would be whatever they were
6	currently paying for PeopleSoft. PeopleSoft has just
7	raised their maintenance fees for the J. D. Edwards
8	customers and so -- again, I'm volunteering information
9	which your question didn't ask but -- you know, I'm not
10	saying we would never raise maintenance fees.
11	We haven't raised maintenance fees recently, but
12	it would certainly start -- I want to be precise. It
13	would certainly start that your maintenance fees would be
14	whatever you're paying PeopleSoft. I'm not saying we
15	would never, ever raise that maintenance fee.
16	Q. When you say "what they're paying PeopleSoft,"
17	you mean the exact dollar amount?
18	A. Yeah.
19	Q. For example, if I'm a customer of PeopleSoft and
20	I swap off with you module for module --
21	A. Let's say -- let's say you bought the PeopleSoft
22	software for $500,000 and you're paying $100,000-a-year

00074
1	maintenance fee and you want to swap to Oracle, you
2	continue to pay the $100,000 maintenance fee but you
3	don't have to buy the Oracle software, you can just move
4	across.
5	Q. And has a decision been made for how long those
6	prices for maintenance will remain in effect?
7	A. Indefinitely. I don't think we've said ten
8	years, but I think the answer would be indefinitely.
9	Q. Now, you said -- you've indicated that, as a
10	general matter, within Oracle, you have not raised
11	maintenance fees in sometime; correct?
12	A. We haven't --
16	MR. SCOTT: Q. You can answer the question.
17	A. I believe -- you know, I believe we haven't
18	made -- increased -- I've got to be very precise here.
19	Some customers got increases, the majority of
20	customers didn't, I believe that's correct, in terms of
21	maintenance fees.
22	Q. You lost me somewhere.

00075
1	A. I lost you because I'm not precisely sure how to
2	answer the question.
3	Q. Let me ask the question --
4	A. I don't want to make the assertion we have not
5	raised any customers' maintenance fees anywhere in the
6	world for the last couple of years.
7	Q. Let me ask the question.
8	For application software, enterprise software
9	that you folks sell, have you raised the maintenance fees
10	within the last three years?
11	A. For certain customers?
12	Q. I'll take that.
13	A. I don't know the answer.

00077
18	For the people who are not J. D. Edwards
19	customers, have you made any decision as to how long
20	PeopleSoft customers that transfer over to Oracle
21	products post merger would receive the same maintenance
22	fees they were paying PeopleSoft as opposed to J. D.

00078
1	Edwards?
2	A. I believe we would treat the PeopleSoft
3	customers exactly like we treat existing Oracle customers
4	in terms of price increases or no price increases in our
5	maintenance fees.
6	Q. You've made no public pronouncements on that one
7	way or the other?
8	A. No.
9	Q. All right. Now, your -- going back to the
10	exhibit, Exhibit 6 to your deposition, it states here,
11	although -- "Furthermore," I'm sorry, in the paragraph 2
12	on page 4, "Furthermore, we will be incorporating the
13	advanced features from the PeopleSoft products into
14	future versions of the Oracle E-business suite."
15	Now, what features are you talking about there?
16	A. Well, I suppose the most conspicuous one is in
17	H.R. They have a pension system and in their human
18	resources system that we don't have and we would put the
19	pension system into the Oracle version of H.R. and, in
20	fact, we would look very thoroughly at all of the
21	features that PeopleSoft had and, as much as possible, if
22	they had features we didn't have, we would try to include

00079
1	those features in the next version of Oracle because
2	over -- what we like to offer Oracle customers and
3	PeopleSoft customers is an improved product.
4	So this is what I refer to as an emerged
5	product. So we take the PeopleSoft features and use the
6	PeopleSoft engineers to put those features into the next
7	version of Oracle H.R.
8	Q. Is this -- strike that.
9	Structurally or functionally how do you do that,
10	put those features in? Are you able to transfer code
11	over or what?
12	A. No, you cannot transfer code over. You have to
13	have the engineer -- but you can transfer knowledge, so
14	you can use the PeopleSoft engineering team and part of
15	the value of this acquisition is the engineering team.
16	You use the engineering team that built those features
17	for PeopleSoft to build those features into the next
18	version of Oracle H.R.
19	Q. Are any of these advanced features using the
20	terminology -- strike that.
21	Yeah, using the terminology in your -- on
22	your -- in the statement here in Exhibit 6, "advanced

00080
1	features," are any of those features that you would be
2	unable to duplicate and include in your Oracle products
3	absent this merger?
4	A. Unable is an interesting question. I can
5	make -- the reason we have not put the pension system
6	into our H.R. system is there's a very small market for
7	the pension system and it's not obvious that it's
8	economically justifiable to put that feature in, given
9	the size of that market. So we are technically able to
10	put it in, but the business case is marginal.
11	Q. All right. Let me understand what you're
12	saying.
13	In the context of the pension features that
14	you're talking about from PeopleSoft, Oracle is
15	functionally capable of developing that type of
16	functionality?
17	A. Yes.
18	Q. But from a business standpoint, you've made a
19	decision as of now not to do that?
20	A. Correct.
21	Q. And that is because of, you said, in business
22	cases --

00081
1	A. It's a very small market.
2	Q. So are you -- is what you're saying is the
3	investment in actually doing the engineering to develop
4	the pension system wouldn't be worth -- may not be worth
5	the volume of sales it would generate?
6	A. It's right on the -- yes, it's not clear that it
7	is.
8	Q. Now, would it be -- I'm not expecting exact
9	figures here --
10	A. Sure.
11	Q. -- but from a degree, how much cheaper would it
12	be to take it from and develop it from the PeopleSoft
13	product and reinstall it versus developing it on your
14	own?
15	A. It wouldn't be just cheaper, we'd have more
16	customers. Then as you have more customers, you have
17	more customers to amortize the development over. In the
18	sense that PeopleSoft makes us a bigger applications
19	company, we're then able to invest more money in
20	developing features.
21	Q. Other than the pension feature that we've been
22	discussing, are there other advanced features that you'd

00082
1	expect to include in the Oracle E-business suite post
2	merger?
3	A. That's the one large one. There are, you know,
4	little features here and there that we'd want to include
5	for purposes of upper compatibility.
6	We would like a PeopleSoft customer sometime in
7	the next, I'll just say five years, in the next five
8	years, running PeopleSoft 8 to move to the merged
9	product. We'd like to make that move as graceful as
10	possible. In other words, we don't want them to give up
11	any feature they had in PeopleSoft 8 and not have that in
12	Oracle Version 12.
13	So it should look like moving from -- so the
14	PeopleSoft customers and PeopleSoft 8 should look like
15	moving from PeopleSoft 8 to PeopleSoft 9. In fact, our
16	goal is to make it easier to go from PeopleSoft 8 to
17	Oracle 12 than going from PeopleSoft 7 to PeopleSoft 8,
18	so they can't give up features, so it's very important.
19	And that's one of the things we mean by that, to
20	take all of those features we don't have, even some of
21	the minor features, include those in the next version of
22	our H.R. product that should make it very grace to

00083
1	upgrade so you don't have to give up any features.
2	It's an easy upgrade and you not only get all
3	the features you had with PeopleSoft, you get all the --
4	you get a union of the -- of all of the Oracle advanced
5	features and all the PeopleSoft advanced features. You
6	get a more sophisticated, more advanced product.
7	Q. From the standpoint of the features that you
8	just described that would be transferred from
9	PeopleSoft's product into Oracle to make a transition
10	over to Oracle more palatable to PeopleSoft users, what
11	type of things are we talking about?
17	A. It's a matter of-- again, the big case, if you
18	had pension capability, you would not want to upgrade to
19	the Oracle product and lose the pension capability.
20	If you had a particular feature in PeopleSoft, I
21	can't think of any, they are -- you know, they have a
22	very sophisticated H.R. product.

00084
1	We think we're ahead of them in virtually every
2	other area, but if there was -- if we discover certain
3	specific features that we don't have, we don't want to
4	take those away from PeopleSoft customers because we want
5	them, again, to upgrade.
6	MR. SCOTT: Q. Has any work been done at this
7	point to identify features that you would want to
8	transfer from the PeopleSoft product to the Oracle
9	product to make it more a smooth or graceful transition
10	for people who are wanting to switch over?
11	A. I know of no such document.
12	Q. Whether there's a document or not, has anybody
13	been looking at that type of thing?
14	A. We always do competitive analysis so there's
15	been constant competitive analysis between us and
16	PeopleSoft, but we really don't have access to their
17	software. So until we look at their software in detail,
18	except at gross levels, where I can say -- the pension
19	system we just simply don't have, except in areas like
20	that, I really can't.
21	Q. I understand.
22	When you said that you do constant competitive

00085
1	analysis, presumably versus PeopleSoft, what do you mean
2	by that?
3	A. We have a specialist in H.R., his name is Tony
4	Kender, and we compete with them in the H.R. area. And
5	we know what they say about their products, why they
6	say -- they say you should buy PeopleSoft for these
7	reasons, and we talk to customers when they make
8	decisions and -- talked about it before. One of the
9	purposes of the competitive analysis and the win/loss
10	reports is to figure out why we lost. Was it a product
11	deficiency? Is there something we can do to improve our
12	products?
13	So we're constantly trying to figure out what
14	new features we should put into the product to be
15	competitive with a variety of companies or to gain
16	competitive advantages, what features they don't have,
17	which we should be talking about when we're selling our
18	products versus them.
19	Q. Mr. Kender, is he dedicated to doing this type
20	of work related to PeopleSoft only, this competitive
21	analysis, or does he have other vendors that he looks at?
22	A. He used to work at PeopleSoft so he, excuse me,

00086
1	he used to work at SAP, so he handles SAP. But he was
2	responsible for our H.R. team, so he had the
3	responsibility for H.R.
4	Q. From a competitive analysis standpoint or --
5	A. H.R. sales swat team. They were the experts
6	that got involved in selling H.R.
7	Q. So -- and in selling, being the special -- when
8	you said "swat team," what is that?
9	A. They would be flown into a crisis situation
10	where there was a decision being made on an H.R. purchase
11	and they would, you know, they would travel the world to
12	to try to persuade customers to buy Oracle.
13	Q. His work in that regard, is it directed just at
14	PeopleSoft or PeopleSoft and SAP or PeopleSoft, SAP and
15	others?
16	A. Anyone making an H.R. decision. And he'd have
17	to deal with people who are looking at outsourcing with
18	Fidelity.
19	H.R. is interesting. There are software
20	suppliers and there are service suppliers who directly
21	compete, so they might be considering buying Oracle or
22	just outsourcing all their H.R. to Fidelity.

00088
10	Q. The question is, when you're looking at a
11	discount situation, does the fact of what type of product
12	is involved in a particular competitive transaction
13	matter to you?
14	A. Yes.
15	Q. In what way?
16	A. If we have a brand new product -- example right
17	now, we have a brand new product called Collaboration
18	Suite. We have almost no references. It's a brand new
19	product. It's very aggressively priced, yet we still
20	give huge discounts, trying to get references.
21	So, again, I'm going back to situational.
22	Here's a product -- we're trying to get large

00089
1	customers -- especially for a large customer, trying to
2	get large, credible references and, again, it's not
3	uncommon to even give the product away and even give
4	services away early on in the life cycle of the product,
5	to get a strong reference from an early adopter of that
6	technology.
7	Q. Would it matter to you in the context of a sale
8	involving application software, whether it was your H.R.
9	product or your financial services product or an ERP
10	combination of the two, from the standpoint of deciding
11	whether or not to approve a discount or other special
12	contract terms?
13	A. I don't think so. Back to -- it's back to
14	situational. I think you have to -- it's such a
15	complicated, complex dynamic. If it's --
16	Q. Let me give you an example.
17	A. We have strong competitors in virtually every
18	area.
19	Q. For example, if you were -- an account comes up
20	for approval of a higher discount over 70 percent and you
21	understood it was PeopleSoft you were competing with for
22	their H.R. product. Are you more likely to give a higher

00090
1	discount there than if it was SAP, for example?
2	A. No.
3	Q. You you indicated that you thought that
4	PeopleSoft had a very sophisticated H.R. product; right?
5	A. Yeah.
6	Q. And so does the sophistication of that product
7	in any particular account have any effect on whether or
8	not you give a higher discount?
9	A. The product is one factor causing the customer
10	to buy. Sometimes PeopleSoft can be a formidable
11	competitor because their product. SAP can be a
12	formidable competitor because their product is pretty
13	good. I don't think it's as good as PeopleSoft's,
14	actually, in H.R.
15	But SAP is a much stronger vendor and SAP has
16	the ability to invest at a much higher level than
17	PeopleSoft. So a lot of people will say SAP is the
18	encumbant supplier in an awful lot of places.
19	So, again, I'm back to this -- here's a
20	situation -- I'll take Oracle out of it. You're looking
21	at SAP as a possible supplier, you're looking at
22	PeopleSoft as a possible supplier, you're looking at

00091
1	Microsoft as a possible supplier. They all have
2	different characteristics. If you're an existing --
3	depending upon the kind of customer you are, you can make
4	decisions for any of those companies.
5	SAP has more encumbancy. They have more
6	customers than anybody in applications, so they're more
7	likely to have the encumbancy advantage. That can work
8	for or against you. You like the SAP product, you buy
9	more. Maybe PeopleSoft has a better product, but I think
10	SAP will pass them in five years.
11	Again, these are those long-term, highly durable
12	products that are constantly improved. And the vendor is
13	often more important than the product.
14	Q. When do you expect to have in place the
15	Oracle -- the Oracle business product that would include
16	the features of PeopleSoft that would make it a more
17	graceful transition for PeopleSoft customers?
18	A. Should the acquisition go through --
19	Q. Yes?
20	A. -- how long approximately would it take us?
21	Q. Yes, sir.
22	A. Couple years.

00092
1	Q. In discussions earlier you said something about
2	you were hoping -- again, I'm not trying to -- I'm trying
3	to lay some foundation here in asking questions. If I've
4	got this wrong, feel free to tell me.
5	You indicated something along the line of you
6	were hoping that there would be a transition of
7	PeopleSoft customers to your product over a five-year
8	period?
9	A. We think --
10	Q. Or did I get it wrong?
11	A. Ideally, we said we would support the PeopleSoft
12	products for at least 10 years.
13	Q. Gotcha.
14	A. We would hope that, if we do our job well,
15	that -- our job includes two things, one is doing a very
16	good job of supporting the PeopleSoft customers as they
17	continue to use PeopleSoft product and continue to
18	enhance and improve that PeopleSoft prodcut, high quality
19	service, highly improvements, which is what we did when
20	we bought the Digital RDB data, so we have a track record
21	of doing that, of treating customers well.
22	So if we can persuade them by providing a high

00093
1	quality of service that we're a supplier they want to
2	stick with, that's a good step one.
3	Step two would be to make improvements to our
4	products by including all of what I'm calling the
5	PeopleSoft features to make that migration to PeopleSoft
6	very easy and attractive. They'd have reason to make
7	that migration because they would be getting a better
8	system, and then providing no economic barriers for
9	making that transition by not charging them for going
10	from PeopleSoft software to the Oracle software.
11	Q. In the context of this type of transition,
12	you've indicated that you would do a trade-off with
13	PeopleSoft customers on a module-by-module basis,
14	whatever they had from PeopleSoft you would swap off for
15	an equivalent module from you --
16	A. At no charge.
17	Q. -- at no charge.
18	From the standpoint of implementation costs,
19	actually installing the software and insuring that it
20	works in a way consistent with the customers' needs, are
21	you in a position where you at Oracle have decided one
22	way or another whether or not you will assist PeopleSoft

00094
1	customers in that regard?
2	A. We sometimes assist our own customers in that
3	regard, migrating from one version to another. We have
4	package deals where sometimes we'll migrate them at no
5	fee if they become an outsourcing customer, for example,
6	if they outsource with us and run on our data center.
7	The overall plan for everybody is to make -- is
8	to minimize the cost of that migration. One of the
9	reasons -- I'll just cycle back.
10	One of the reasons we're making sure we have all
11	of the PeopleSoft features and we want to automate
12	migration from PeopleSoft 8 to Oracle Version 12, or what
13	we'll call the merged product, the Oracle/PeopleSoft
14	merged product, we want to automate that migration as
15	much as possible to minimize the labor cost. That's the
16	only thing that's going to make it really attractive to
17	customers because it is expensive to move from one
18	product to another if you don't have a high degree of
19	automation.
20	Q. Let me be sure I understand this. In the
21	context of customers, PeopleSoft customers transitioning
22	to Oracle, there may be a potential, if they are

00095
1	interested in becoming an outsource customer of Oracle's,
2	to do the transition at no charge from an implementation
3	standpoint?
4	A. Sure.
5	Q. For customers who do not -- are not interested
6	in doing the outsourcing, you're going to try to automate
7	as much as possible the implementation process to reduce
8	the cost to them?
9	A. Automate as much as possible. Understand, there
10	was a cost of going from PeopleSoft 7 to PeopleSoft 8,
11	there was a significant cost from going from PeopleSoft 7
12	to PeopleSoft 8. We would try to make it cheaper to go
13	from PeopleSoft 8 to the merged product than it was --
14	than the cost of going from PeopleSoft 7 to PeopleSoft 8.
15	So the companies understand that every period of
16	time, I'll just pick five years, for major releases, that
17	they're going to have to install a new version of the
18	software. They don't have to, we said we'd actually
19	support it for 10 years. If you stay with PeopleSoft,
20	you will not -- I guarantee you PeopleSoft will not
21	support PeopleSoft 8 for ten years. There will be a
22	PeopleSoft 9. The PeopleSoft customers will have to

00096
1	upgrade to PeopleSoft 9.
2	Upgrading from PeopleSoft 7 to PeopleSoft 8 was
3	a very expensive process. Upgrading -- there will be a
4	cost associated upgrading from PeopleSoft 8 to PeopleSoft
5	9. We don't think it will be any more expensive and
6	we're going to try through automation to make it less
7	expensive to go from PeopleSoft 8 to the merged product.
8	Q. Do you have any estimate of what it would cost
9	in the dollars or man hours to transfer from a PeopleSoft
10	product to your product post merger for an individual
11	customer?
12	A. If we do it right, it won't look like going from
13	a PeopleSoft product to an Oracle product, it will look
14	like from going to PeopleSoft 8 to PeopleSoft 9.

00098
22	Q. Will the enhanced Oracle product that you're

00099
1	hoping the customers will migrate to operate on anything
2	other than Oracle's data base?
3	A. I don't know.
4	Q. That decision hasn't been made?
5	A. That decision hasn't been made.
6	The answer is it's likely to only operate on an
7	Oracle data base.
8	Q. So for a customer who wants to migrate post
9	merger from PeopleSoft to Oracle who does not have Oracle
10	data base, what will that entail?
11	A. They would have to learn -- they would have to
12	have people trained in how to operate an Oracle data
13	base.
14	Q. Would you do anything with them from the
15	standpoint of trying to offset the cost of doing the
16	transfer?
17	A. There would be no -- we would provide the Oracle
18	data base for the merged product free of charge so there
19	would be no charge for doing that. Again, as I say, most
20	customers run the Oracle data base so --
21	Q. Are there implementation costs associated from
22	transferring from one data base to the Oracle data base?

00100
1	A. I don't think so. I think there are training --
2	you said implementation costs.
3	Q. Yes.
4	A. There could be some training costs and training
5	some DBA's. You would probably go out and hire people
6	experienced running Oracle. There's a large population
7	of people experienced in running Oracle.
8	Q. DBA's are what?
9	A. I'm sorry, data base administrators, the people
10	who operate the data base on a daily basis.
11	Q. So would there be plans post merger to issue or
12	come out with a PeopleSoft 9 product?
13	A. No -- yes, the PeopleSoft 9 is the merged
14	product, so there would be one team of people, we would
15	merge the PeopleSoft engineers with the Oracle engineers
16	and they would produce a merged product. You could call
17	that PeopleSoft 9 or Oracle 12, it's the same product.
18	It would have the union, it would have all the PeopleSoft
19	features and all the Oracle features.
20	Q. Are there plans to come out with a PeopleSoft 9
21	product that runs off of PeopleSoft code post merger?
22	A. No.

00101
1	Q. Now, in the context of some of the discussions
2	that have taken place regarding what would happen with
3	customers post merger, there have been some indications
4	that you folks would keep engineers working on the
5	PeopleSoft product, as you said, support it for eight,
6	for ten years.
7	A. Ten years
8	Q. In the context of that, what type of -- have
9	decisions been made about the number of PeopleSoft
10	engineers that would be dedicated to that project?
11	A. No, it really depends on what features we're
12	putting into the product. I mean, everything from the
13	things -- there are statutory requirements to put in, the
14	tax tables, to make sure that we keep the payroll
15	withholding taxes are accurate for the next ten years, to
16	more exotic features like wireless capability, which we
17	would plan as new technologies emerge and new operating
18	systems emerge. We would plan to keep the PeopleSoft
19	products current with those technologies.
20	Again, it's really in our interest to keep these
21	customers very, very happy. I don't think -- I don't
22	think we'll get them to move to Oracle products through

00102
1	coercion.

00103
18	Now, I don't know that I saw it in Exhibit 6 but
19	I've seen a reference from -- may have been quoted from
20	you or someone else, saying that post merger, while you
21	will not be actively marketing the PeopleSoft product to
22	new customers, if somebody called up on the phone and

00104
1	wanted to buy it, you're not going to turn away money.
2	A. Absolutely not.
3	Q. And exactly from that perspective, would it have
4	to be that type of circumstance, where somebody
5	approached you and said, "I want the PeopleSoft product,"
6	that you would sell it to them?
7	A. No, I said earlier that if you're an existing
8	PeopleSoft customer.
9	Q. I'm just talking about new customers now.
10	A. A brand new customer?
11	Q. Yeah.
12	A. Yeah, you'd you'd have to express an interest in
13	a PeopleSoft product to one of our salespeople.
14	Q. You also indicated, going to existing PeopleSoft
15	customers, that may -- wanted to buy additional modules
16	that they had not previously purchased from PeopleSoft,
17	that would be possible?
18	A. Of course. We would actively be trying to sell
19	those to those customers.
20	Q. Actively, who would be doing that?
21	A. Probably a specialized telesales organization
22	would be calling existing PeopleSoft customers and ask

00105
1	them if they needed more seats for an existing module,
2	more users for an existing module, or if they wanted to
3	use main modules.
4	Q. In the context of an existing or previously
5	existing PeopleSoft customer who is buying additional
6	modules, what would the policy be about how that purchase
7	would be priced?
8	A. I don't think there would be any difference in
9	policy versus selling existing Oracle customers new
10	modules. So I think the pricing -- we try to have a
11	pricing equivalency.
12	Q. "Pricing equivalency" meaning what in that
13	context?
14	A. If additional -- again, if an H.R., human
15	resources, seat cost -- I'm just picking a number out of
16	the sky -- $2,000 for Oracle, we try to have a similar
17	price for the PeopleSoft component and discounting policy
18	for both would be the same.
19	Q. Would you plan on discounting additional
20	PeopleSoft modules to existing customers, discount them
21	in ways that would address any competition in that
22	account?

00106
1	A. Oh, of course.
2	Q. How would you go about that?
3	A. Same exact process as if Oracle is an encumbant
4	application supplier and Microsoft was coming in and
5	trying to displace us.
6	Q. Well, now, if you have a customer who has a
7	PeopleSoft H.R. system or applications and they are going
8	into the market -- this is, again, post merger -- for
9	financials management software, how would that play out
10	in the context of your company post merger?
11	A. I think at that point there's a PeopleSoft
12	product installed there, assuming there's not an Oracle
13	product installed at that customer, so I think we would
14	give the customer the choice of buying either Oracle
15	financials or PeopleSoft financials.
16	Q. At the same price?
17	A. Yeah, exactly.
21	You testified earlier, I believe something to
22	the fact -- in reference to PeopleSoft having a very

00107
1	sophisticated H.R. product.
2	A. Right.
3	Q. I think you said you felt that your folks, your
4	products, were ahead of them in all other areas with that
5	possible exception?
6	A. I said virtually all areas, all areas that I
7	knew about.
8	Q. What did you mean by that?
9	A. It means our manufacturing product, we think our
10	financial product is better than theirs and it has more
11	features. Doesn't mean they don't have some features
12	that we don't have, but we probably have more -- we have
13	more features than they do so we're a more feature-rich
14	product than they are, certainly in manufacturing and
15	supply chain and most other areas that I know of, save of
16	human resources.
17	Q. Would that be true for financial management, as
18	well?
19	A. Absolutely.
20	Q. How did you get to the point where you are in a
21	position where you have a more feature-rich product, with
22	the possible exception -- in all areas with the possible

00108
1	exception of H.R.?
2	A. We started on financials before they did so
3	we've been at it longer. We're larger than they are so
4	we invest more in it, and I think we've been more
5	innovative than they've been. We got to the Internet
6	first.
7	Q. From a standpoint of their H.R. product, how
8	does that compare to your H.R. product? Is it a question
9	of being more feature rich or something else?
10	A. They worked on H.R. before we did. That was --
11	that was their first product. That was their only
12	product for sometime. They invested more heavily in H.R.
13	and they started before us and they invested more heavily
14	in it.
15	Q. Now, has the gap between you and PeopleSoft and
16	H.R. remained constant over time from the standpoint of
17	feature richness?
18	A. No, I think we've caught up in most areas.
19	Q. What do you mean by that, "caught up in most
20	areas"?
21	A. I mean the features -- in fundamental H.R. I
22	would say we're approximately equivalent, my judgment is

00109
1	we're approximately equivalent, that they're really not
2	ahead of us at all.
3	Q. What period of time did it take you to get to
4	the point where you believe you are approximately
5	equivalent to PeopleSoft in H.R.?
6	A. Interesting question. Once we focused on it,
7	more than one, less than two years.
8	Q. How did you go about catching up with them?
9	A. Spent money, hired engineers and had them put in
10	features.
11	Q. Why did you do that in the context of catching
12	up with PeopleSoft in H.R.?
13	A. It's a big -- H.R. is a very, very large market.
14	Virtually every company has to deal with personnel and
15	payroll issues and it was a big business opportunity and
16	we wanted to have a very competitive product.
17	Q. Did the feature richness of their product before
18	you got to the point where you believe that you were
19	functioning equivalent with them, give them an advantage
20	of trying to sell that product to customers?
21	A. Sure.
22	Q. In what context? How did it give them an

00110
1	advantage?
2	A. Well, if you have more features -- if, for
3	example, you needed -- I'll go back to the thing we still
4	don't have.
5	If you need a pension system and Oracle doesn't
6	have it and PeopleSoft has it, you would buy PeopleSoft.
7	It's just a matter if that's something you need. There
8	are some features people don't need. Most companies
9	these days don't have pension systems, so for the vast
10	majority pension is not an issue.
11	Q. Can you give me some examples of features that
12	you've added over time to catch up to PeopleSoft in the
13	H.R. area?
14	A. Displaying job openings on the Internet.
15	Q. Anything else you can think of?
16	A. I can go back and check, give you a fairly long
17	list. But I'm really not sure about the specific
18	catalogue of features.
19	Q. Now, is it your perception that over time
20	PeopleSoft has made any efforts to catch up with you in
21	the area of financial management?
22	A. I think all vendors look at, you know, look at

00111
1	what the other companies are offering, and where there
2	are deficiencies they try to catch up. You try to cover
3	up deficiencies, close gaps, as we say, and gain
4	competitive advantage.
5	You try to innovate in certain areas to create
6	features no one has so you're the first company with this
7	new feature and you try to close competitive gaps.
8	Q. Was the feature richness of your product, your
9	financial management product, did that enable you to take
10	business away from PeopleSoft because they did not match
11	up with you functionaly?
12	A. It's one of the factors I think. Vendor
13	credibility, again, is at least as big a factor.
14	Ability -- these decisions are made over long term so the
15	current state of our product is important, but our
16	ability to keep investing, the fact we're going to be
17	around as a vendor, we have had the financial ability to
18	keep investing, respond to technology changes, to add
19	features, I would say is at least as important as the
20	current, you know, the snapshot -- what's the state of
21	your product now? What's the state of their product now?
22	I don't think anyone looks at it that way.

00112
1	Q. Let me ask this --
2	A. That's extreme. Maybe some people do. I think
3	the vast majority of people look at a long-term, five- to
4	ten-year relationship with a supplier, how is that
5	product going to evolve and not just meet my needs today
6	but meet my needs two years from now, four years from now
7	or 10 years from now
8	Q. In the context of your financial management
9	package, do you think PeopleSoft has caught up with you
10	today from a functional standpoint?
11	A. I think they certainly -- they've added a bunch
12	of features. I think there's a bunch -- I think we
13	handle global companies a little bit better than they do,
14	something called Global Single Instance. There's still
15	things we do -- general ledger consolidations I think we
16	do better than anybody. So there are some things I think
17	we do better than PeopleSoft or any other supplier.

00114
21	misstating what you said. You used the term "leapfrog"
22	in the context of looking at competitors and deciding

00115
1	whether to discount or not, i.e., judging competitive
2	situation. What did you mean by that term?
3	A. Leapfrog?
4	Q. Yes.
5	A. Where they had a better product than you did
6	last year and now you have a better product than they do
7	so you went from being technically disadvantaged to
8	technically advantaged, you leap-frogged over their
9	technology.
10	Q. Have there been circumstances in the context of
11	your sales of ERP application software where you feel
12	that you have leap-frogged your competitors?
13	A. Yes.
14	Q. Could you give me, tell me what circumstances
15	they were?
16	A. We were the first company to go to the Internet.
17	We decided -- we went partially to the Internet as an
18	optional feature as released 10.7 of our applications,
19	and released 11 hours in Internet only applications. So
20	everyone who had that would be upgrading from client
21	server in terminal systems -- we had three versions, we
22	had a terminal system in the old days and then we had a

00116
1	client server system and then we moved to an Internet
2	system.
3	And we were considered slightly mad for
4	introducing the Internet system when we did. There was a
5	lot of negative press, there was a lot of conflict inside
6	of Oracle whether we should introduce an Internet-only
7	system, but we did, and virtually everyone followed.
22	Q. Have there been any circumstances where you

00117
1	think in the ERP application software arena where you've
2	been leap-frogged by any of your competitors?
3	A. Yeah. I think when SAP came out with their ERP
4	suite, a group of applications that worked together as a
5	unit, they had a main frame system called R-2 and then
6	they developed a new system called R-3, which was
7	designed to run on Unix and run on a relational data base
8	and they had all of the applications work together, and
9	so as they moved from R-2 to R-3. Now I think they then
10	leap-frogged our Unix open system relational
11	applications.
12	Q. Were you able to catch up to them based on that
13	leapfrog?
14	A. Well, the problem with them was that they --
15	because they're a European company they -- they've been
16	in business much longer than we were. They had been in
17	the applications business much longer than we were and
18	now they had the same Unix technology that we did and the
19	same open system technology, same relational data base
20	that we did. But they had a lot more experience in
21	building big multi-national systems.
22	So they were very good at building systems that

00118
1	ran in Germany and ran in France and ran in Japan and ran
2	in Brazil, adhered to all the local laws and all of those
3	things, and it took us awhile to catch up with all of the
4	multi-national features.
5	Q. Do you recall when you were able to catch up
6	with SAP from the standpoint they had multi-national
7	features?
8	A. It took us awhile, it took us a few years.

00137
15	Q. If you were -- again, I'm talking ranges now, I
16	don't expect a precise number on this. If you were
17	comparing for a particular customer the cost to them over
18	the life of the product of an integrated ERP suite, such
19	as you or PeopleSoft or SAP sell, versus a best of breed
20	approach, what kind of cost differential are we talking
21	about?
22	MR. RILL: I'm going to object to the nature of

00138
1	the question, the character of the question. He didn't
2	say they were equivalent, SAP, PeopleSoft and Oracle.
3	MR. SCOTT: Your objection's noted and you can
4	take that into account in your answer.
5	A. Well, we think the suite might -- the best of
6	breed approach, I think is five times more expensive and
7	that's not the worst part. The worst part is because the
8	best of breed approach fragments all your data into
9	separate data bases and it's very hard to get good
10	information out.
11	If you look at Microsoft's Project Green, it is
12	a complete and integrated suite, which is absolutely --
13	unfortunately, they got it right. The people they
14	acquired at Great Plains are very smart. They've been in
15	business a long time and they are going to be a
16	complete -- they're very much like the Oracle E-business
17	suite.
18	Microsoft does a fabulous job of looking at
19	what's going on in the marketplace, getting high quality,
20	experienced people, and then copying -- closing gaps at a
21	very, very rapid rate. One of our biggest concerns now
22	is we have Microsoft coming into this market with a

00139
1	complete and integrated E-business suite, which if you
2	look at Microsoft's pricing history, you know, they're
3	going to price very, very aggressively.
4	If you look at what are Microsoft's limits for
5	competition, can they afford to price very aggressively?
6	Yes, they can. Can they afford to invest very heavily?
7	Yes, they can. Can they close gaps at a very, very rapid
8	rate, absolutely.
9	MR. SCOTT: Q. When you are talking about the
10	best of breed, when you say they've got individual data,
11	the data is in individual data bases --
12	A. Separate data bases. So if you had all these
13	things, you'd have an H.R. data base that was really part
14	of the PeopleSoft application, you'd have a Siebel data
15	base that was part of your call center, you'd have a
16	Salesforce.com data base that was part of your field
17	sales -- where your Sales field data was, you'd have an
18	accounting data base maybe within SAP, you'd have a
19	supply chain data base in i2.
20	These are literally separate data bases. Your
21	information about your business would be fragmented into
22	many different data bases.

00140
1	Q. Would it be possible for you to access the data
2	across the best of breed applications?
3	A. Staggering, yes, but staggeringly so difficult,
4	there's no good way to do it.
5	Q. Is it -- the best of breed type of suppliers, I
6	notice you mentioned Siebel?
7	A. Yes
8	Q. Would they be an example of one?
9	A. Well, they're so -- they're interesting because
10	they have a CRM suite.
11	I'll tell you what I believe, I believe the
12	long-term winners provide a complete E-business suite.
13	That's -- obviously, that's what we've done. That's how
14	we better our business.
15	We look at our current No. 1 competitor and what
16	are they doing? E-business suite. We look at our future
17	No. 1 competitor; what are they doing? E-business suite.
18	So we think that even Siebel, which does just
19	front CRM, front office, call centers, marketing, field
20	sales, those kinds of things, even they're going to have
21	a hard time in the long run.
22	I'll give you -- and they're terribly vulnerable

00141
1	both on the innovation side, from an innovative supplier
2	like Salesforce.com, and a suite supplier like Microsoft.
3	So a combination of those two, a company that competes
4	via innovation, Salesforce.com, a company that competes
5	using economics, the ability to invest huge amounts of
6	dollars and price very, very aggressively -- Microsoft's
7	favorite price being zero. They're the only ones whose
8	normal case is often zero There's no one else like
9	that, puts a company like Siebel at a serious
10	disadvantage.
11	Q. Let me back up a minute. A couple things about
12	what you said about Siebel.
13	You said Siebel has a CRM suite?
14	A. A CRM suite, so they have all of the front
15	office pieces. Front office, just like the back office,
16	the ERP suite included manufacturing, accounting, H.R.,
17	payroll, several components in the back office.
18	The CRM suite would be marketing, sales and
19	service and call centers.
20	Q. Despite the fact that they may call this a CRM
21	suite, do you consider that product to be a best of breed
22	product?

00142
1	A. I do consider it to be a best of breed product.
2	Q. And why is that?
3	A. You would have to have at least one other --
4	again, it's on the borderline. You'd have to have --
5	you'd have to integrate it, that front office, the Siebel
6	front office products with somebody's accounting system
7	and someone's manufacturing system, someone's H.R.
8	system. Siebel doesn't do that. And that would have
9	-- and that system integration is going to be costly and
10	those costs over time are going to disadvantage Siebel.
11	Q. Now, has -- when you say that you believe that
12	the suite, the people who are selling the suite approach
13	as opposed to the individual best of breed approach are
14	going to be the eventual winners, over what period of
15	time do you think that's going to happen?
16	A. I think it's happening already.
17	Q. What makes you think that?
18	A. SAP is gaining market share already and
19	they've -- depending on how you slice the market up, if
20	you look at the oil and gas industry, which is important
21	to Texas, SAP has a hundred percent of it, clearly a
22	hundred percent market share.

00143
1	So as you look at industries -- and that's the
2	way the application business works, it's divided by
3	industry. So if you look at industries, you know, small
4	to large, everyone in oil and gas uses SAP. That's the
5	market for the oil and gas industry.
6	So they've been tremendously successful and
7	they're going to be a very formidable competitor. And
8	they invented the suite business with ERP and now they're
9	finishing the suite business as they've made entries into
10	call center, sales, marketing and service. So they are a
11	complete E-business suite company.
12	Q. Now, you indicated a moment ago -- strike that.
13	You think that the E-business suite companies --
14	I'm sorry -- are already taking share away from the best
15	of breed approach?
16	A. Yes.
17	Q. Do you think that the best of breed companies
18	have a long life who are using that approach?
19	A. I think a company like Salesforce.com, which has
20	been very innovative, can -- could have a second
21	generation best of breed company, which is very
22	interesting because --they're a very interesting company,

00144
1	worth looking at closely, because they're a tiny company
2	that came in and created an unbelievable price pressure
3	on Siebel. They priced their product at $195 a month,
4	one-tenth of what Siebel costs and for Siebel to offer a
5	comparable product -- Siebel combined with IBM, quite a
6	tandem, to compete with Salesforce.com to have a
7	competitive product for $70 a month. Quite amazing, and
8	what they're selling isn't exactly software, it's a
9	service to automatic -- a service on the Internet to
10	automate your sales force. So, in fact, it's better. It
11	has all the software characteristics but you don't have
12	to buy the computer or the network, you just use it on
13	the Internet.
14	So it's really, really low cost. It's a very
15	low implementation cost, very low per user cost. So
16	they've been tremendously innovative, however, they're
17	still best of breed. But they're kind of a second
18	generation best of breed.
19	You will see a second generation E-business
20	suite coming out, which is a service that integrates all
21	of the components, and you'll see that from Microsoft and
22	you'll see that from us and you'll see that from SAP.

00145
1	And we think, again, our No. 1 competitor right now is
2	cleary SAP and our No. 1 competitor 24 months from now is
3	clearly Microsoft.
4	That's our belief and those two major
5	competitors are both very large, have the ability to
6	invest very, very heavily, you know, and price
7	aggressively. But the key thing here is they're both
8	complete E-business suite suppliers. That's their
9	strategy.
10	Q. You believe that's the way the market's going?
11	A. I'm convinced. By the way, can I throw in one
12	more reason why I'm convinced?
13	Q. Absolutely.
14	A. The antitrust division, remember when there was
15	a P.C. software industry? There isn't one now. There's
16	Microsoft, and there used to be Ash & Tate with a data
17	base and there used to be Word Perfect with a word
18	processor, there was Lotus with a spread sheet. There
19	was Harvard with Graphics.
20	They were all replaced and completely wiped out
21	by an integrated suite called Microsoft Office. The
22	integrated suite always wins, so you don't have to look

00146
1	forward, you can look back. It's always the way.
2	Q. What other -- we've mentioned the Salesforce.com
3	and Siebel as best of breed suppliers out there.
4	A. Yes.
5	Q. Who else is there?
6	A. I mentioned i2, Manugistics, Commerce One,
7	Ariba.
8	Ariba was interesting to note because at the
9	height of the bubble, Ariba's market valuation, they're a
10	best of breed procurement, purchasing. All they do is
11	automate a little part of purchasing, but they had a
12	higher market value than Dimler-Chrysler at the height of
13	the bubble.
14	So you might look at what this best of breed is
15	worth now, Commerce One -- if you just look at what's
16	happened to best of breed over the last couple years,
17	you'll see they're in the process of vanishing.
18	Q. Now, based on some of your testimony, you
19	mentioned Microsoft more than a couple times in the
20	course of the conversation, I take it you are convinced
21	they're going to enter and start the market that you're
22	in and start competing with you, the sales of ERP

00147
1	software?
2	A. I take them at their word. I take them on --
3	the amount of money they're currently investing is
4	breathtaking. It's a little bit -- when someone -- like
5	when a country starts mobilizing their army, you get
6	nervous when people are putting all those people on your
7	borders, you pay attention.
8	Microsoft has got very -- has made two major
9	acquisitions in this area, Great Plains and Navision.
10	They've got a huge development organization and I know
11	some of the people who are running it who are very
12	talented.
13	They've adopted the E-business suite strategy,
14	so I think they're building the right products. They
15	have a lot of experience. They have two experienced
16	development teams they've acquired and they said they
17	plan to spend more money on R&D than Oracle, SAP,
18	PeopleSoft, Lawson, Cerner, you name it, on down the line
19	combined.
20	So, remember, I've been around here a long time.
21	I saw them enter the data base market and become very
22	competitive. I saw them start from nowhere, have zero

00148
1	market share in a browser market, to move to a hundred
2	percent market share. I saw them start with zero -- not
3	zero, they had the Mac. They had word processors on the
4	McIntosh.
5	They had five percent market share or ten
6	percent market share. I've seen them go from five or ten
7	percent market share in any number of areas to
8	approaching, not a hundred percent market share, 85, 95
9	percent market share over and over again.
10	Q. Is it your belief that without this transaction,
11	i.e., without your company being allowed to acquire
12	PeopleSoft, that you will be unable to compete with
13	Microsoft, assuming they do enter the ERP space?
14	A. Oh, absolutely.
15	Q. Why is that?
16	A. Because scale is hugely important in this
17	business. There are two things you compete on, one is
18	innovation -- that's very important -- and the other is
19	scale.
20	And Microsoft -- your ability, for example, one
21	of the things we have to do is be able to price against
22	Microsoft. So Microsoft shows up. They're always the

00149
1	price leader; right? Everything they do, aren't they the
2	price leader? I'm not allowed to ask you questions,
3	sorry. That's rhetorical. So Microsoft's going to price
4	extremely aggressively as they come out.
5	What is our ability to meet their pricing?
6	What's it based on? It's based on the size of our
7	business. We have -- the interesting thing about the
8	software business is that you have this huge fixed cost,
9	your R&D development, for the first version of your
10	product. Then there's no incremental cost, there's no
11	unit cost of selling the products. So somehow you have
12	to sell enough to cover your R&D costs or you can't -- as
13	prices come down, you better get bigger.
14	In other words, your ability -- Microsoft's
15	ability to sell at a low price is because they sell a lot
16	of software. That's exactly what enables them to sell at
17	a low price. Scale is what allows you to price very,
18	very aggressively, scale or innovation, one or the other.
19	And we have to have the scale, you know, at
20	least better scale than we currently have to compete
21	against Microsoft as they come in.
22	One of the things that's particularly scary is

00150
1	we saw -- and I know this is interesting because I think
2	it's an important part of the case -- I know people say,
3	well, we don't think Microsoft can enter what some people
4	are calling the high-end of the market very early. We'll
5	see competition from Microsoft at the low end of the
6	market early on, but it will take them a good long time
7	to get to what people are calling the high end of the
8	market.
9	And the lie of that, of that notion, is clearly
10	demonstrated by Salesforce.com. As they entered the
11	market, and a lot of people characterized them -- in
12	fact, Craig Conway, whose name's come up here before --
13	characterized Salesforce.com as a small company that will
14	forever be selling software to other small companies, a
15	small company that will stay small and always be selling
16	software to other small companies.
17	Well, he couldn't have been wronger. If you
18	look at Salesforce.com customer lists, they're selling to
19	some of the largest companies in the world. They came in
20	and immediately started selling to very, very -- not just
21	mid-size, not just small companies and mid-size
22	companies, but very, very large companies.

00151
1	So what you must understand is we build one
2	product and that one product is sold up and down the
3	line. And the product that Oracle sells to General
4	Motors is the identical product that we sell to a small
5	ABC toy company. There's no notion of building a
6	separate product for the high end. There's no notion for
7	building a separate product for the low end, at least we
8	don't have it.
9	SAP is the same, so -- PeopleSoft is the same.
10	Microsoft is building, you know, one suite of products.
11	Salesforce.com is the same. So they enter this market
12	pricing very aggressively, improving their product very
13	rapidly. We think they're going to get a substantial
14	share of the market and unless we get to scale, we're
15	going to have a very difficult time competing.

00152
1	MR. SCOTT: Q. All right, sir, you indicated --
2	first of all, we're back from the break. You're still
3	under oath. If you need to take a break, let us know.
4	You indicated off the record there was something
5	you wanted to clarify.
6	A. Yeah. You asked me am I saying that if this
7	deal does not go through, the acquisition of PeopleSoft
8	doesn't go through, does that mean we won't be able to
9	compete. And I think what I'd like to say is -- I
10	quickly said "yes," and what I would like to say after a
11	little more consideration, it will make it harder, it
12	will make it harder.
13	I'm not ready to just say, "Boy, that's it, it's
14	over. We can't compete."
15	Q. So the record's clear, I think the question I
16	asked is, are you saying that if you don't get to do this
17	transaction and buy PeopleSoft, would you be unable to
18	compete with Microsoft if they come into the area where
19	they're selling ERP suites and other software comparable
20	to Oracle?
21	And your response is?
22	A. My response is, after some thought, it will make

00153
1	it a lot harder.
2	Q. In the context of that answer, what do you mean
3	by "a lot harder"?
4	A. The additional sale allows us to invest more in
5	R&D. It allows us to price more aggressively.
6	I think if you look, we have a very large fixed
7	R&D cost and our ability to discount is somewhat
8	mitigated by having to cover and pay back that R&D cost.
9	And Microsoft doesn't have -- Microsoft's profits are so
10	enormous, that they can give their software away for a
11	very, very long time without having to cover the R&D
12	cost. We don't have a similar advantage.

00159
11	Q. Let's -- let me ask you if you would turn in the
12	document to page 54.
13	So we're on page 54 of Exhibit 7.
14	A. Okay.
15	Q. This appears to be a transcript of a financial
16	analyst day and there's a reference at the bottom of the
17	page where there's a statement, "Larry" and then some
18	narrative behind that.
19	Do you see that?
20	A. Yes.
21	Q. Let's flip over a little bit earlier in the
22	document to figure out what analyst day they were talking

00160
1	about, just to give you a little bit of context here.
2	All right, sir, if you would just look at page
3	28 of the exhibit, it appears to be the start of the
4	transcript on analyst day. It has "Oracle Financial
5	Analyst Day, Safra Catz and Chuck Phillips, Q & A."
6	Do you see that?
7	A. Uh-huh.
8	Q. Let's flip back into the document itself. And
9	we're back on page -- go back to page 54.
10	A. Okay.

00161
17	Q. Now, there's a statement there where it said --
18	attributes you having said at some point that a lot of
19	smaller companies are act [sic] more features than actual
20	companies or products.
21	Do you see that?
22	A. Right. It goes right into what I was saying

00162
1	before, before we came to this document.
2	Take a company like Ariba and what they had was
3	the ability to enter an Internet purchase request --
4	enter a purchase request on the Internet and they built a
5	company out of that one little piece of automation, where
6	what people want to buy are what I believe is going to be
7	the winning strategy in applications are these complete
8	E-business suites.
9	It automates your entire back office, it
10	automates your entire front office. You're not going to
11	want to buy just one feature, the ability to enter
12	purchase requests on the Internet.
13	Now, if you're an innovator like Ariba was, I
14	mean, they were the first company to do that, to allow
15	you to enter your purchases on the Internet, interesting
16	first -- what's called a first-mover advantage; they were
17	the innovator. But people don't want to buy nifty new
18	features, they want to buy a complete working system, and
19	companies that are built around a small number of
20	features have no future.
21	And I've referred to those -- those aren't
22	companies, they're just features. They're not even

00163
1	one-product companies, they're one-feature companies, and
2	they're going to lose out to the suite companies and, in
3	fact, they are.
4	Having said that -- I'm not trying to make
5	everyone's life miserable here -- there's an example of
6	the second generation best of breed company like
7	Salesforce.com, which is a best of breed company but has
8	done such a good job on price and such a good job on the
9	technology, that even though -- they are, they're very
10	attractive and doing quite well.
11	Q. Now, in the context of -- let me ask you if you
12	would rum to page 57 in the document. About halfway
13	down, there's a -- fourth paragraph, third full
14	paragraph, starts, "And that's a symptom of a very
15	serious problem."
16	Do you see that?
17	A. Right.
18	Q. Goes on to state -- again, you can look, but
19	these are statements attributed to you -- "That's a
20	symptom of a very serious problem. And suites evidently
21	won. They will in our best of breed products and they'll
22	one feature companies, no one product companies. You've

00164
1	got PeopleSoft, J. D. Edwards, neither one of them are
2	like that. They actually have ERP systems and
3	PeopleSoft's funny, they're a little bit of a hybrid
4	because they are the best of breed H.R. supplier, as well
5	as being the being the number three ERP company."
6	Do you see that?
7	A. Yes.
8	Q. Who would you attribute being No. 1 and No. 2
9	ERP companies?
10	A. SAP was No. 1 and Oracle was No. 2.
11	Q. By "ERP," we're talking again here the
12	integrated suite, the back office operations?
13	A. Existing back office automation.
14	Q. Now, is that statement -- again, read whatever
15	you need to put it in context.
16	Is that a statement, PeopleSoft -- SAP is
17	No. 1, you're No. 2, No. 3, is that worldwide or in some
18	other smaller geographic area?
19	A. Worldwide.
20	Q. In the United States how would you rank?
21	A. In the United States where would Oracle rank?
22	Q. Yes, sir.

00165
1	A. No. 2 or No. 3.
2	Q. Now, when you use the terms -- again, read
3	whatever you need to put it in context.
4	When you talk about SAP being the No. 1 ERP
5	company, Oracle No. 2, and PeopleSoft No. 3 in the
6	context of this statement, measured by what?
7	A. By revenue.

00170
22	Q. Now, in talking earlier today about when you are

00171
1	looking at a discount request and you'd try to determine
2	what companies are realistic threats before you let the
3	salesman give money away; right?
4	A. Right.
5	Q. Of the other ERP vendors in the United States,
6	which would you consider a realistic threat that you
7	would have to take seriously in the context of a discount
8	request?
9	A. We talked about -- Lawsons is probably the best
10	example. In certain industries -- again, this thing
11	tends to be industry-oriented, not -- I know the
12	government characterizes big company, small company
13	oriented. I don't think that's the way it really works,
14	I think it's industry-oriented, as I understand the
15	market.
16	Lawson would be very, very competitive in a
17	hospital, if you're trying to automate a hospital.
18	They've got a lot of good references in hospitals,
19	from very large to very small. Very tough competitor in
20	a hospital, stronger than we are. They're probably No.
21	1, very strong in state and local government. So
22	typically as you look around --just like SAP, if we're

00172
1	competing with SAP in oil and gas, it's almost pointless,
2	you know, why bother.
3	Q. Why is that? Why would it -- why does SAP have
4	such an advantage over you in oil and gas?
5	A. Well, once you get critical mass, once -- this
6	is why our industry tends to cluster, SAP -- it's back to
7	scale.
8	Once you have a certain number of oil and gas
9	customers, you can afford to invest in interesting things
10	for oil and gas, even if it's just sales and marketing,
11	just special brochures and specially-trained salespeople,
12	people who speak the language, a special sales force.
13	You have a special sales force that just sells to oil and
14	gas and they can afford to create such special people
15	with specialized knowledge to sell to that market, where
16	we cannot afford that if we have two oil and gas
17	companies.
18	So once you get to critical mass, industry by
19	industry, you get -- you get companies that are very hard
20	to displace and the way this industry really petitions
21	itself up is not high end, low end, not big and small at
22	all, but it's by industry if you look at companies who

00173
1	are stronger and weaker inside this industry.
2	Q. Let's follow up on that.
3	You said that the market tends to act from
4	the -- down industry lines?
5	A. Yes, for applications.
6	Q. Application software. What did you mean?
7	A. Well, banks -- look at the entire sales process.
8	If you're an oil and gas company, you're going to ask for
9	references, and if my reference was J.P. Morgan Chase,
10	that's interesting, that's a big bank, but didn't I say
11	we were an oil and gas company? Weren't you listening to
12	me? I mean, who are your oil and gas references?
13	And people -- technology products are not easy
14	to understand, I don't care how smart you are. They're
15	very complicated. There's just lots and lots of details
16	and features. And one of the great litmus tests for
17	deciding whether to buy or not buy an application is, I'm
18	an oil and gas company. Can you show me another company
19	that successfully, just like mine, that successfully is
20	using this product? Show me a reference, if it works --
21	I'm Shell Oil, show me it works over at Chevron
22	or Exxon. Show me -- I'm not sure Chevron still exists.

00174
1	I lose track. So on a reference base, does your sales
2	force understand the notions of upstream exploration and
3	downstream distribution of oil. Can I even have a
4	conversation about my business? Are they specialized?
5	Do you have a special users group, where oil and gas
6	companies get together and decide what new features we'd
7	like to see in this application.
8	Once you get to critical mass, it gets more and
9	more difficult to compete in that market because you're
10	not getting any return out of your investment or a very,
11	very small return on your investment.
12	Q. Are there particular industries that you think
13	Oracle is strongest at similar to SAP in oil and gas?
14	A. Sure.
15	Q. What are they?
16	A. High tech, high tech manufacturing, for example.
17	We're extremely strong in high tech manufacturing.
18	That's an example.
19	Q. Any others?
20	A. Yeah, I think we're pretty strong in banking but
21	so is, you know -- SAP is pretty strong in banking,
22	retail banks.

00175
1	There are a lot of industries where we're pretty
2	competitive. But you said -- but nothing like SAP's -- I
3	mean, SAP can point to a few industries where it's more
4	or less over, we barely try to compete.
5	Q. What are the other ones SAP has other than oil
6	and gas?
7	A. Car manufacturers, I think they have all of
8	them, a hundred percent.
9	Q. Are there -- not necessarily to the level of
10	SAP, but other than high tech and banking, are there
11	other ones that you think you have, based on your
12	product, a particular advantage?
13	A. Oh, an advantage?
14	Q. Yes.
15	A. I think we have an advantage in a lot of
16	different industries, but it doesn't mean that we have
17	the market share. At a certain point you get such large
18	market share, that everyone buys because everyone else
19	bought.
20	Q. Are there any particular industries where you
21	believe PeopleSoft has the strength, not necessarily up
22	to SAP's level?

00176
1	A. No, SAP is unique. SAP has Microsoft's market
2	share in a few industries.

00177
4	If you're a hospital, because Lawson's smaller
5	than we are and they're smaller than SAP and they're
6	smaller than PeopleSoft, but they have a very strong
7	reference base inside of hospitals, so they're able to
8	compete very, very effectively inside of hospitals, more
9	effectively than we are or PeopleSoft or SAP. They have
10	more market share. Their sales force is more specialized
11	in health care so they actually have a specialized sales
12	force for health care. They also have one for state and
13	local government.
14	Q. I've seen references in various places and
15	probably some of your documents, as well, for example, to
16	SAP being particularly strong in manufacturing generally.
17	Do you agree with that?
18	A. I think -- I think there are -- particularly
19	strong in manufacturing, actually, I don't. Even though
20	they have -- depends what you mean by "strong."
21	Q. Not up to the level perhaps that they are in oil
22	and gas, but their product seems to have a good fit in

00178
1	heavy manufacturing type of situations.
2	A. Now I know what the problem with my answer was,
3	I don't think their product is that good in
4	manufacturing, I think their market success has been very
5	good in manufacturing. And it's one of those
6	interesting -- that's how I was answering -- I read your
7	question as, do you think they're really good in
8	manufacturing?
9	What does "good" mean? Does "good" mean good
10	business success or good product? I think here -- I
11	think we're better in manufacturing than they are. I
12	know we're better in process manufacturing than they are
13	because they don't really have a process manufacturing
14	product, process manufacturing, pharmaceutical
15	manufacturing, food manufacturing.
16	But considering that they don't have a good
17	process manufacturing product -- they would disagree with
18	me, of course -- considering they don't have a very good
19	processing manufacturing product, they've been pretty
20	successful among -- they've been very successful, more
21	successful than we have with process manufacturers.
22	So if that Oracle statement means they are, you

00179
1	know, tough in manufacturing because they have a lot of
2	good references in manufacturing, they're tough to sell
3	against in manufacturing, I think we have the better
4	product. But the better product does not automatically,
5	by any means, get you the sale.
6	Q. Are there industries where you think you're
7	particularly tough to sell against because you have a
8	critical mass, not perhaps as much as SAP in some bids,
9	but you have a strong base of reference of customers?
10	A. Yeah, the computer industry in general. Sun's a
11	customer of ours, Cisco is a customer of ours. During
12	the madness of the dot net, the dot com boom, virtually
13	all of the dot com companies used Oracle applications,
14	got them all.
15	Q. Are there any particular industries where you
16	think PeopleSoft has particularly strong reference points
17	that gives it something of an advantage?
18	A. Again, not like SAP. They're much closer to us
19	than they are to SAP. In fact, they're not even as
20	close -- again, they're third in ERP. They're behind us
21	in ERP. A lot of their scale is in H.R. They've done
22	okay with service companies. They've done conspicuously

00180
1	poorly in manufacturing.
2	Q. By "service companies," could you give us an
3	example of what you're talking about?
4	A. Oh, an accounting firm, a computer consulting
5	firm.

00181
19	Q. Now, you said a few times that currently you see
20	in the United States SAP as being the No. 1 competitor.
21	A. Yes.
22	Q. In the future, at some point in time, you see