Unconsummated Microsoft-SAP merger sets industry abuzz

Software industry analysts and legal experts watching the Oracle antitrust case debate the impact of news that Microsoft and SAP talked about a possible merger last year.

Microsoft and SAP each took the unusual step on Monday of announcing that they had discussed -- and quickly dismissed -- a merger last year, triggering speculation about whether such talks will help or hurt Oracle Corp. in its drive to take over rival PeopleSoft Inc.

Microsoft and SAP released statements about the merger talks because they expected that details would spill out during the U.S. Department of Justice's antitrust case against Oracle. The trial began Monday in a federal court in San Francisco.

Microsoft approached SAP last year about the possibility of a merger, but later withdrew the offer, according to a statement issued by Microsoft.

Despite its intriguing nature, the revelation wasn't expected to have much impact in the Oracle case. However, a

Microsoft and SAP [are] oil and water to the nth degree.

Joshua Greenbaum, principal analyst,

Enterprise Application Consulting,
Washington-based attorney who requested that he not be named, said that DOJ lawyers could use the information to make the argument that Microsoft considers the high-end enterprise application market so competitive that it would rather buy than build its way into it.

The market for business applications is currently dominated by SAP, Oracle and, to a lesser extent, PeopleSoft. The DOJ filed its case to block Oracle's $7.7 billion hostile bid for PeopleSoft. Microsoft is not considered a major force in the market, but it has bolstered its product offerings in this area recently.

"[Microsoft] is continually looking at ways it can strengthen its position in the enterprise," said Steve Kleynhans, a vice president at Meta Group, in Stamford, Conn. "Some kind of arrangement with SAP would have bolstered its presence, but the complexity in making it work would probably be insurmountable."

James Kobielus, a senior analyst with Midvale, Utah-based Burton Group, agreed. "It's well known that Microsoft wants to continue to enhance and expand its own ERP offerings," Kobielus said. "I'm not at all surprised that they were talking."

Some were more bemused than surprised.

"It's a crazy idea, for lots of reasons," said

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Joshua Greenbaum, principal analyst for Berkeley, Calif.-based Enterprise Application Consulting Inc. "First of all, there would be some very serious antitrust issues. More importantly, there are cultural issues. Microsoft and SAP [are] oil and water to the nth degree."

Hillard M. Sterling, a principal attorney with the Chicago-based firm Much Shelist P.C., is among the antitrust specialists watching the Oracle case with a close eye. Sterling agreed that the Microsoft-SAP news won't weigh heavily in the Oracle-DOJ case, but he believes it could be of some help to Oracle.

"It is relevant to show that Microsoft is lurking as a viable, potential competitor," Sterling said.

Many who are watching the Oracle-DOJ trial agree that more software industry secrets will likely be revealed, including pricing strategies, software-discount offers and various sales strategies.

On Monday, lawyers for both sides made opening arguments before U.S. District Court Judge Vaughn Walker in the non-jury trial, which is expected to last about one month.

News writers Mark Brunelli and Margie Semilof contributed to this report.

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