Jun 28, 2004 (02:06 PM EDT)
Justice Department Attacks Lawson's Stature As Enterprise Software Player

Read the Original Article at InformationWeek

Editor's note: This story -- originally published on June 28 -- was updated on July 8 with one correction and one clarification. Specifically, in the story's fourth paragraph, the final sentence referring to the "redirect examination" was added as a point of clarification. In the seventh paragraph, Lawson is now referred to as "no longer ... considered as a contender in the RFP process," which is consistent with the court transcript. It was originally, incorrectly referred to as "no longer ... considered as a provider in the RFP process."

Lawson Software Inc. CEO and president John Coughlan had a bad day Monday.

As a witness for Oracle in the antitrust trial concerning its efforts to acquire PeopleSoft Inc., Coughlan rolled out an impressive portfolio of large enterprise customers who have signed million-dollar licensing deals for its financial-management and human-resources software over the last year. He was attempting to support Oracle's point that Lawson is more than a middle-market business software vendor, and that customers have options other than Oracle and PeopleSoft.

But Justice Department attorney Claude Scott swept in on his cross-examination and hit Coughlan with a battery of questions that raised numerous examples of botched software which left customers stranded, dissatisfied, and having to turn to Oracle and PeopleSoft. The customers, which Lawson held up as trophy accounts, were in turn used by Scott as examples of failures--a contention backed by internal documents and customer memos laced with harsh complaints.

For example, MasterCard told Lawson in a memo that it was not interested in Lawson's software because of a lack of functionality, specifically in regards to its portfolio management and project accounting. Scott also displayed a memo from MasterCard to Lawson that harshly complained of the vendor's inadequate payroll technology which is "causing widespread effects," to its employees, including incorrectly calculating its CEO's paycheck. In the redirect examination, however, Oracle noted that project accounting and portfolio management aren't human resources or financial applications and are thus beyond the scope of the trial.

Scott continued his examples of shoddy technology, highlighting difficulties experienced by the city of Dallas resulting in "a lot of mistakes" when running Lawson's payroll products. Scott noted that the city said it couldn't pay its police and firefighters because the payroll software performed poorly when factoring in overtime. Coughlan confirmed that the city eventually stopped paying Lawson, although Lawson did fix the problem in the end.

Coughlan became defensive and said Lawson got caught up in the midst of some messy city politics, which affected the implementation of its software. He did not elaborate.

Scott also showed the witness internal Lawson documents which noted that Johnson & Johnson wasn't purchasing additional software, after purchasing HR applications for its corporate operations. The decision likely was caused by the HR applications "not being strong enough." The memo continued that Lawson was losing its foothold in the global customer market because of a lack of adequate functionality in its products. Scott also pointed to a document from McGraw Hill, which read that because of a lack of functionality in its product, Lawson would no longer be considered as a contender in the RFP process.

In his relentless questioning, Scott brought up a damning memo by Hyatt International, which noted that Hyatt had had a troubled relationship with Lawson--both as a company as well as with its products. The memo said Lawson doesn't accommodate the international marketplace, and that Hyatt has had to customize its Lawson software to add fields for international operations--so much so that Lawson can no longer support its own product. The memo concluded with the statement, "This should be viewed as a loss."

Eventually, Coughlan started answering with short, sometimes flippant answers such as "Don't know," and "Not sure." Oracle claims that midmarket players, including Lawson and Microsoft, are changing their focus and ramping up products to move into the large enterprise space. Earlier in the day, Coughlan told Oracle attorney Gregory Lindstrom that Lawson has been steadily moving into the turf of Oracle and PeopleSoft since it began focusing in 1996 on vertical markets, namely health care, retail, and public sectors--government and education. Coughlan said software license revenues have increased by 20% during its last fiscal year.

The Justice Department, on the other hand, has called a number of witnesses who testified that Oracle and PeopleSoft sales personnel are rarely met in the field by Lawson when bidding on large-scale ERP accounts because Lawson's products don't have the functionality required to support global customers that need multilanguage and multicurrency capabilities.

While detailing his agenda for the week, Oracle attorney Daniel Wall earlier told Judge Vaughn Walker that he had decided over the weekend not to call Craig Conway, PeopleSoft president and CEO, to the stand.

Oracle's economics expert, Jerry Hausman, a professor of economics at MIT, said later that the government has gotten it wrong in its analysis of an Oracle-PeopleSoft merger.

Under questioning by Wall on Monday afternoon, Hausman disagreed with the government decision to leave out German vendor SAP because it has not been proven that European sales don't affect U.S. markets; and he believes the product definition of human-resources management and financial-management software is too narrow and doesn't take into account that 90% of customers are buying bundles which include other products.

Hausman said that to eliminate SAP from the merger analysis is wrong because if Oracle raised prices, SAP could hire more sales and support people and offer U.S. customers alternative offerings at competitive prices.

Further, he cited a Forbes study this year on the location of Global 2000 companies, which showed that 751 are located in the United States 100 are located in other North American locations, 540 are located in the Pacific Rim and 511 are based in Western Europe. All of these companies, according to the survey, all serviced by the leading business software vendors—Oracle, PeopleSoft and SAP—so to leave out worldwide markets is taking a narrow view of the market.

"From an economics point of view, you're selling the same product," Hausman said, "so in different parts of the world you may have different (market) shares, but it really doesn't matter, it's the same product."

Hausman also raised an interesting theory during his explanation of why companies like Lawson and Microsoft are competitors of Oracle. He suggested that Microsoft might quietly enter Oracle's market through its partnership with BearingPoint, a consulting firm that could resell Microsoft's high-end business software product and provide customers with the support they need. "If they cut prices to the bone, there will be blood in the streets," he said of Microsoft's move into the large enterprise, back-office market.

"We haven't seen any blood in the streets, but it's an entertaining theory," Renata Hesse, an attorney for the Justice Department, later told InformationWeek.

The government will cross-examine Hausman on Tuesday.