III.

THE RELEVANT MARKETS

High-function HR and FMS solutions or software
(8)
Oracle and PeopleSoft are vendors of enterprise application software (EAS). EAS is software that supports major business functions needed to manage a business effectively at a corporate or branch level, such as managing corporate finances, automating the sales and marketing functions of a company, or managing the resources involved in corporate projects. EAS that is commercially available ‘off the shelf’ is referred to as ‘packaged’ software, in order to distinguish it from customised software that fulfils the same functions as packaged applications, but is developed in-house or with the help of outside consultants.
(9)
The industry generally groups EAS into categories having functionality with broadly similar purposes. The relevant categories for the present transaction are financial management systems (FMS) and human resources (HR), together often called enterprise resource planning (ERP). The FMS suite typically includes software for accounting (accounts receivable, accounts payable, general ledger), planning and budgeting, reporting, time and expense management and the financial supply chain. The HR suite combines software for personnel data, payroll management and benefits. Other EAS pillars are customer relationship management (CRM) and supply chain management (SCM).
(10)
The Commission found that the relevant product markets for the assessment of the present transaction are the markets for high-function FMS and HR software applications. As HR and FMS applications are not substitutable for buyers, the Commission considers these as two distinct markets. The high-function FMS and HR software applications are intended to serve the needs of large and complex enterprises (LCEs) which require software and accompanying services with a particularly high standard in terms of, inter alia, scalability, configurability, sophistication, pricing, reliability and quality of the software and brand recognition of the vendor.
(11)
The market investigation showed that characteristics of high-function HR and FMS software are different from those of mid-market products. In general, high-function software solutions are more complex, offer greater functionality, support more users (in total as well as in concurrent-use numbers), are much more expensive (from two to five times or more) and have higher implementation costs compared to mid-market software. High-function HR and FMS software have a greater breadth of horizontal functionality and more depth of vertical functionality. High-function software has to support very high volumes of users (e.g. 30 000 employees simultaneously using online employee self-service portals) and high volumes of transactions and therefore has to have a very high degree of scalability. Mid-market products typically have their limits at several hundreds users. High-function HR and FMS software can cope with large companies’ complex organisational designs. In carrying out their activity, large and complex organisations usually involve several departments whereas in mid-size and small companies functions are carried out by one/a few persons.
(12)
High-function HR and FMS software has to offer compliance with the legal requirements and accounting rules of the main economic zones and legal jurisdictions (e.g. US-GAAP, IAS and other national systems); in this context, large and complex company solutions will tend to support multiple regions and different currencies simultaneously or almost in real-time. At a minimum, these solutions must provide mechanisms for large enterprises to manage these differences with a minimum effort. In addition, large enterprises’ applications must simultaneously support multiple languages even within a single location, including sometimes Japanese and Chinese languages. Mid-market solutions typically have been optimised for use in a specific economic region, and as a result typically provide far less language and geographic support options.
(13)
A very high level of product maintenance and support drives LCEs’ choice of EAS products and is an inherent characteristic of high-function HR and FMS solutions, compared to mid-market solutions and to the support needs of a mid-market customer. Complex enterprise systems must consider the impact of 24-hour/seven-day coverage required for the challenges of the global company. For mid-market companies, usually a primary location in the US or Europe is linked to smaller sales offices or distributors overseas.
(14)
The underlying architecture of high-function solutions is fundamentally different from the one of mid-market products. Often, only a multi-tier architecture can achieve the level of throughput that is required from high-function EAS solutions.
(15)
Mid-market solutions normally have simpler interfaces, or simpler APIs (application programming interfaces), making them easier to integrate in a simple way with other mid-market software and other smaller-scale solutions, but allowing little scope for adding directly to the functionality of the software. High-function software tends to have complex and proprietary APIs which allow full and complex integration with other large scale software solutions and additional functionality to be added to customise the solutions as well as supporting multiple popular programming languages.
(16)
The Commission’s investigation further showed that ‘best-of-breed’ or point solution software, HR software outsourcing services, system integration services and incumbent software (already installed at customers) do not represent competitive constraints vis-à-vis a small but non transitory increase in price of high-function software, and therefore all these products/services are not in the relevant markets.

Large and complex enterprises as customers
(17)
High-function HR and FMS solutions are software that is typically purchased by complex organisations/companies which have a very high level of functional needs, expect high standards in product performance and require short time and continuous availability of accompanying services.
(18)
The Commission has therefore come to the conclusion that there are distinct product markets for FMS and HR high-function solutions for large and complex enterprises.

Vendors of high-function HR and FMS software
(19)
The Commission further established who the vendors of FMS and HR high-function software are. Those suppliers form the competitive constraints for a combined Oracle/PeopleSoft in the markets at stake.
(20)
The Commission established the suppliers in the market by looking at the bids made by suppliers for such customers, i.e. for large and complex enterprises needing complex functionality in the field of HR and FMS applications. However, it appears difficult to draw a clear-cut line between the customers on the basis of the complexity of their needs and therefore between customers of application software which is able to cater for the needs of such large and complex enterprises and those applications adapted for mid-market customers. In order to be able to carry out its investigation, the Commission used proxies to describe those customers and the transactions for such software applications.
(21)
As a first suitable proxy for the ‘complexity’ of the requirements of such large organisations, the Commission considered a net licence value of EUR 1 million to be appropriate. This value appeared to be an appropriate first indication that such bids are made for high-function solutions purchased by large and complex enterprises even though it does not mean that bids in individual cases below this value may not involve high-function FMS and HR solutions. However, for a licence of a value in excess of EUR 1 million it can be safely assumed that anyone winning a bid above this threshold for applications in the field of HR and FMS may be considered as a supplier of high-function FMS and HR solutions. The Commission further complemented this threshold by a delineation of large and complex enterprises as customers. The market investigation showed that thresholds of 10 000 employees or of revenues exceeding EUR 1 billion might be an appropriate proxy for a rough qualification of large and complex undertakings. The Commission concludes that the complementary set of proxies can be used for a first qualification of the bids to assess whether the bids are for high-function software for large and complex enterprises.
(22)
With the help of these proxies, the Commission analysed the bids in which EAS vendors participated in 2001 and 2002 as well as the bids submitted by Oracle in response to the Commission’s information request after the Oral Hearing. The Commission further analysed documents relating to bids resulting from the US trial in order to establish who the suppliers of such software applications are.
(23)
On the basis of this evidence, the Commission concluded that in the markets for high-function FMS and HR for large and complex enterprises Oracle, PeopleSoft and SAP are the main players. Each of these players identified at least 50 to 100 bids within a two-year period falling under the proxies and therefore concerning high-function software for large and complex enterprises (i.e. companies with more than 10 000 employees and revenues exceeding EUR 1 billion). However, the Commission’s data and the submissions by Oracle show that occasionally other players win bids for high-function FMS and HR software to serve the needs of large and complex enterprises. Other such vendors of HR and/or FMS high-function software are: Lawson, Intentia, IFS, QAD and Microsoft. Although these vendors won only a limited number of bids, they were either runner-ups for high-function FMS and HR software or they participated in bids with a license value exceeding EUR 1 million in a larger number of bids.
(24)
Using Oracle’s dataset containing bid data, as well as two other datasets obtained from the US trial proceedings, the Commission further undertook an econometric analysis in order to investigate whether the data revealed a difference in Oracle’s bidding behaviour depending on the identity of the competitors in the final bidding round. A finding that Oracle was relatively more likely to provide aggressive discounts when either SAP or PeopleSoft were present in the final bidding round rather than when competing against other competitors would suggest indirect evidence that competition is mainly between the big three software providers and that only Oracle, SAP and PeopleSoft are vendors of high-function FMS and HR software to serve the needs of large and complex enterprises. The main finding was that no significant distinction could be identified between the behaviour of Oracle when competing against SAP and PeopleSoft compared to the behaviour against other bidders. This was true even when restricting attention to large deals.
(25)
The Commission further analysed the capabilities and reach of the FMS and HR software of the other vendors, Lawson, Intentia, IFS, QAD and Microsoft. Particularly on the basis of the evidence that has come out of the US trial in San Francisco, the Commission concluded that, despite limitations in the product offerings of each of these vendors as opposed to Oracle, PeopleSoft and SAP regarding HR and FMS high-function software, each of them has several customers in the field of HR and FMS which may qualify as large and complex enterprises. These vendors may be able to serve their needs at least in the verticals in which the respective vendor specializes.
(26)
The relevant product markets are therefore, respectively, high-function FMS and HR solutions for large and complex enterprises. The main players in these markets are SAP, Oracle and PeopleSoft. However, the Commission has come to the conclusion that several other vendors could represent a competitive constraint vis-à-vis Oracle, PeopleSoft and SAP at least in the verticals in which they are active and cannot be excluded as vendors from the markets for high-function FMS and HR applications. For the purposes of the present transaction, Lawson, Intentia, IFS and Microsoft are to be treated as vendors for FMS and HR high-function applications and QAD is to be treated only as vendor for FMS high-function solutions.