Government Exhibit P3251-R CID Deposition Transcript [Non-designated testimony redacted]
00006 | 01 | | 02 | | 03 | | 04 | | 05 | | 06 | | 07 | | 08 | | 09 | | 10 | | 11 | | 12 | | 13 | | 14 | Q. Would you state your full name for the record, | 15 | please? | 16 | A. Cynthia Lynn Bate's. | 17 | Q. Are you currently employed by Microsoft | 18 | Corporation? | 19 | A. Yes. | 20 | Q. What's your title? | 21 | A. General manager, US small business. | 22 | | 23 | | 24 | | 25 | |
00011 | 01 | | 02 | | 03 | | 04 | | 05 | Q. When did you join Microsoft? | 06 | A. I joined Microsoft in it was either January or | 07 | February of 2000. | 08 | Q. So early 2000? What was your position when you | 09 | joined Microsoft? | 10 | A. I was the director in our corporate development | 11 | the strategy group. | 12 | | 13 | | 14 | | 15 | | 16 | | 17 | Q. And when you joined Microsoft, you were director | 18 | of corporate development and strategic planning? | 19 | A. There was a period where the title of the group | 20 | was corporate development and strategy. I can't remember if | 21 | it was exactly when I joined or shortly thereafter that they | 22 | added the "and strategy" to the title. | 23 | Q. For how long were you the director in the | 24 | corporate development and strategy group at Microsoft | 25 | Corporation? |
00012 | 01 | A. I was an employee in the group until early | 02 | February of this year. My title changed over the course of | 03 | my roughly 4 1/2 years in that group. I believe I was a | 04 | director for a year before I was promoted to senior | 05 | director. | 06 | Q. So approximately early 2001 you became senior | 07 | director? | 08 | A. Sometime in 2001, yes. | 09 | Q. Did you receive any other promotions or titles | 10 | within that group? | 11 | A. I became a managing director in the group in | 12 | October of let me make sure I get this right in | 13 | October of 2001. | 14 | Q. And for how long were you a managing director? | 15 | A. I was a managing director until I recently took a | 16 | new position as general manager of our small business in the | 17 | U.S. | 18 | Q. When did you become general manager for small | 19 | business in the US? | 20 | A. In early February of that year. | 21 | Q. And do you focus on any particular business units | 22 | of Microsoft in that position? | 23 | A. My group is responsible for our P&L serving small | 24 | companies. That's companies less than 15 employees. And | 25 | I'm responsible for the full P&L for all of our products. |
00013 | 01 | Q. So basically any product for a company less than | 02 | 15 employees, you're responsible for the P&L side of the | 03 | business? | 04 | A. Yes. And there are a few small exceptions but | 05 | generally that's correct. | 06 | Q. While you were a manager in the corporate and | 07 | strategy group, to whom did you report? | 08 | A. I reported to Richard Emerson. | 09 | Q. What was Mr. Emerson's title during the time you | 10 | reported to him? | 11 | A. His title was Senior Vice-President of Corporate | 12 | Development. | 13 | Q. And did anyone report to you while you were the | 14 | managing director? | 15 | A. I had 2 individuals report directly to me, | 16 | Tivanka Ellawala and Ken Hastings. And other individuals in | 17 | the group would work with me on projects, although they | 18 | didn't report directly to me. | 19 | | 20 | | 21 | | 22 | | 23 | | 24 | | 25 | |
00014 | 01 | | 02 | | 03 | | 04 | | 05 | | 06 | | 07 | | 08 | | 09 | | 10 | | 11 | Q. What is the function or role of the corporate | 12 | development strategy group at Microsoft? | 13 | A. Our prime the group's primary function is to | 14 | execute investments and joint ventures and divestitures that | 15 | the company may make. We also work in conjunction with | 16 | business units in analyzing the industry landscape to assess | 17 | potential opportunities. | 18 | Q. The assessment of potential opportunities, is that | 19 | an ongoing process? | 20 | A. It's a combination of both. | 21 | Q. But the primary role is to execute mergers and | 22 | acquisitions for Microsoft? | 23 | A. Yes. | 24 | Q. And | 25 | A. Actually, I should clarify. |
00015 | 01 | Q. Sure. Please do. | 02 | A. The primary role. The role is in both of the | 03 | components that I've described. | 04 | | 05 | | 06 | | 07 | | 08 | | 09 | | 10 | | 11 | | 12 | | 13 | | 14 | | 15 | | 16 | | 17 | | 18 | | 19 | | 20 | | 21 | | 22 | | 23 | | 24 | | 25 | s |
00142 | 01 | | 02 | | 03 | Q. I would like to have you look assist at what I | 04 | will mark as Plaintiff's Exhibit 58, I believe. | 05 | (Whereupon, A Deck Document was marked | 06 | Exhibit-58 for identification.) | 07 | BY MS. BLIZZARD: | 08 | Q. Would you take few minutes to look at this and see | 09 | if it looks familiar to you? | 10 | A. (Witness complies.) This looks familiar. | 11 | Q. And what role did you have in the preparation of | 12 | this document? | 13 | A. I was very involved, up until I left on a holiday. | 14 | So generally I was there was a couple of slides | 15 | that was added while I was gone. Slide 16, I'm not familiar | 16 | with. I didn't do that slide myself. | 17 | Q. And do you believe this document was prepared in | 18 | the normal course of business at Microsoft? | 19 | A. Yes. | 20 | | 21 | | 22 | | 23 | | 24 | | 25 | |
00145 | 01 | | 02 | | 03 | | 04 | | 05 | | 06 | | 07 | | 08 | | 09 | | 10 | Did did Steve Ballmer approve this deck before | 11 | it was presented to the board? | 12 | A. Again, since I wasn't there at the moment that the | 13 | deck was stamped final and sent, I can't answer | 14 | definitively. I do know that he was instrumental and | 15 | involved in the presentation. | 16 | | 17 | | 18 | | 19 | | 20 | Q. Why don't we turn to the first page? And | 21 | actually, let me state for the record because I don't think | 22 | I did before. This is Bate's stamped, MS-OPSUB 678. And it | 23 | was produced by Microsoft in the course of this litigation. | 24 | And it runs to page 698. So if we could turn to page 679, | 25 | the first page? |
00146 | 01 | At the very top it says, "Sagittarius is the | 02 | world's largest Enterprise application vendor." | 03 | Do you see that? | 04 | A. I do. | 05 | Q. What does that mean to you? | 06 | A. That means if you look at license revenue of SAP | 07 | in Enterprise applications, that there would not be a | 08 | company in the world that would have larger license revenue. | 09 | Q. So largest there refers to revenue? | 10 | A. Yes. | 11 | Q. And when it says, "Enterprise application vendor," | 12 | does that signify to you a certain type of application | 13 | vendor? | 14 | A. It's intended to capture this concept that we've | 15 | been discussing of applications that target large | 16 | Enterprise, as opposed to small and medium businesses | 17 | Q. And I realize what you have been through this | 18 | several times today. But could you describe for me the line | 19 | you draw between large enterprises and small and medium | 20 | businesses? | 21 | A. Yes. And I'm not either of the other gentlemen | 22 | that you're talking to are better equipped to give you that | 23 | nomenclature. I believe is the I know now that I am in | 24 | the business group selling this, the definition of | 25 | mid-market goes up to 1,000 employees. I can't get more |
00147 | 01 | specific on the specifics beyond that. | 02 | Q. So would you then define S&B to be up to 1,000 | 03 | employees and Enterprise to be greater than 1,000 employees | 04 | roughly? | 05 | A. In this definition? | 06 | Q. Well first, just generally? | 07 | A. Generally. There are varying definitions across | 08 | the industry. So it's hard to answer that generally. You | 09 | could ask my opinion and I am happy if you like to give you | 10 | an opinion. | 11 | Microsoft defines it. I can give you the names. | 12 | So I know that our accounts that are sold through our direct | 13 | sales force are called global strategy and major accounts. | 14 | And below that category, which is basically what we think of | 15 | as big Enterprise corporations, where we don't have a | 16 | product but we don't have an application product, a business | 17 | application product. We sell Office. Office is obviously | 18 | an application. | 19 | Below that is a space that we call CAS, corporate | 20 | account space the corporate account area. And then below | 21 | that we have mid-market and small. | 22 | And I'm now a general manager of small, as I said, | 23 | 50 employees or less. I know that mid-market in our | 24 | definition under SMS&P, spans from 51 to 1,000. I'm not | 25 | sure of the exact definition of CAS. |
00148 | 01 | Q. Let me break apart a few things you had in there. | 02 | I think you just said in the business applications | 03 | Enterprise space that Microsoft does not have a product; is | 04 | that correct? | 05 | A. That is correct. | 06 | Q. And in terms of Enterprise as you were using it | 07 | there, you were referring to this global strategic and major | 08 | GSM section of the market? | 09 | A. I was generally, I was. Although, I was more | 10 | broadly thinking of just large Fortune 500 complex | 11 | organizations. But roughly, I think that would align with | 12 | our global strategic and major classifications. | 13 | Q. Just so I'm clear. So in your opinion, Microsoft | 14 | doesn't have a business application product aimed at global | 15 | strategic and major segments of the market? | 16 | A. That's absolutely; correct. | 17 | Q. That segment of the market is associated with a | 18 | direct sales force? | 19 | A. Yes. As opposed to the SMS&P organization, where | 20 | we sell all through partners. | 21 | Q. And do you have an opinion on why that distinction | 22 | is made, between the direct sales at the GSM market and the | 23 | partners at the SMS&P level? | 24 | A. It's an issue of viable business model, scale. | 25 | There are millions of S&B companies and there are a few |
00149 | 01 | thousand. I don't know the exact number. Maybe tens of | 02 | thousands. I'm not sure. | 03 | Global, strategic and major corporations. So | 04 | scale feasibility and then complexity of the product as | 05 | well. | 06 | When you're dealing with more complex products and | 07 | more complex solutions, a business model with a direct sales | 08 | force is required. | 09 | Q. So if I could tie those pieces together then, | 10 | would you say that Microsoft doesn't have a business | 11 | applications product aimed at the global strategic and major | 12 | Enterprise space, more a direct sales force that would be | 13 | required to support such a product? | 14 | A. Correct. | 15 | | 16 | | 17 | | 18 | Q. How does complexity fit into this distinction | 19 | between the global strategic and major supported by the | 20 | direct sales force and the SMS&P supported by the partners? | 21 | A. Generally, you should think of a less complex | 22 | product where the S&B space is it lends itself more to | 23 | being able to be sold through itself through thousands of | 24 | partners that constitute our partner base. And the level of | 25 | sophistication of them is thousands of partners. Many of |
00150 | 01 | them are 10 to 20-person small IT shops. The level of | 02 | sophistication needed is much less, fitting with this | 03 | concept of having a broad chain and serving the clients, as | 04 | opposed to having to enter a enter those sales directly | 05 | yourself. And they're more complex. | 06 | | 07 | | 08 | | 09 | | 10 | | 11 | | 12 | Q. In your understanding of the global strategic and | 13 | SMS&P is based on your experience at Microsoft in the last 4 | 14 | years? | 15 | A. 4 1/2 years, yes. | 16 | Q. 4 1/2 years. And is it based on both your time | 17 | when you were supporting the MBS unit, as well as your | 18 | current role in the US small business unit? | 19 | A. Yes. | 20 | Q. Let me turn back to the exhibit and that top line | 21 | again where it says, "SAP is the world largest Enterprise | 22 | application vendor." | 23 | In a presentation to the Microsoft board, would | 24 | that be interpreted to mean that SAP is the largest vendor | 25 | with selling applications to this GSM level? |
00151 | 01 | A. That was the intent. So hopefully that is how it | 02 | was interpreted. | 03 | Q. Let me drop down to the third bullet point. It | 04 | says: | 05 | "Of the top Enterprise applications vendors" And | 06 | then it has the 3 code words, which I believe stand for | 07 | Oracle. Serious is Siebel? | 08 | A. Yes. | 09 | Q. And Pegasus is PeopleSoft? | 10 | A. Yes. | 11 | Q. "SAP has approximately 57% of the total license | 12 | revenue in that peer group." | 13 | What does that mean, you have the top Enterprise | 14 | applications vendors? | 15 | A. It means, if you look at revenue in in the | 16 | license revenue in the space serving the large complex | 17 | corporations, you stack rank the revenue. That these are | 18 | the companies that basically make up the vast majority of | 19 | that entire market. | 20 | Q. When you say, "serving" I believe you said, | 21 | "serving the large complex enterprises." That again, | 22 | relates to Microsoft, we'll call, the global strategic and | 23 | major section of the market? | 24 | A. Yes. | 25 | Q. So the companies with the largest market shares |
00152 | 01 | would you say were Oracle, PeopleSoft, SAP and Siebel? | 02 | A. Yes. | 03 | Q. And who else is in that market? | 04 | A. It depends a little bit on how you define it. | 05 | Because there are there are some players who offer niche | 06 | vertical Enterprise applications. So a company like JDA or | 07 | Retech buy Enterprise applications for one particular | 08 | vertical. That is a very small percent of the total market. | 09 | So I think it's fair to say, that at least the way | 10 | that we view the market, these are the only players. | 11 | Q. So other than products aimed at narrow verticals, | 12 | Microsoft views the Enterprise applications market or the | 13 | GSM market as comprised of Oracle, PeopleSoft, SAP and | 14 | Seibel. | 15 | A. Yes. And I I knew that. I don't know that I | 16 | necessarily am speaking for all of Microsoft. | 17 | But I, in my role of senior executive at | 18 | Microsoft, have that view. And I think it accurately | 19 | represents the general firm view. | 20 | | 21 | | 22 | | 23 | | 24 | | 25 | Q. Looking at those 4 players for a minute, Oracle, |
00153 | 01 | PeopleSoft, SAP and Siebel. Which one of those offer a | 02 | broad variety of human resources and financial management | 03 | products? | 04 | A. Since it's been many months since I've dealt with | 05 | this. And I'm now in a small space. We're not dealing with | 06 | these players at all. | 07 | In terms of the real breadth of product, it's SAP | 08 | and Oracle. I believe that Siebel does have a small HR | 09 | module, as well as PeopleSoft having a small HR module. | 10 | But clearly, in terms of offering a broad a | 11 | broad suite, a broad solution, it's just Oracle and SAP. | 12 | Q. Is Siebel known primarily as a CRM product? | 13 | A. It is known primarily as a CRM product. | 14 | Q. Do you believe that's primarily why people buy it? | 15 | A. Yes. | 16 | Q. Let me go ahead and turn to the next page which is | 17 | Bate's number 680. | 18 | It says in the first bullet there: | 19 | "SAP and Microsoft operate in large and | 20 | complimentary segments with minimal product and overlap." | 21 | What does that mean to you? | 22 | A. That is representing the fact that Sagittarius, as | 23 | we said on the previous page, is the largest supplier of | 24 | complex Enterprise business applications. And Mensa is not | 25 | in that market but does have through its acquisition of |
00154 | 01 | great plains and division, a presence in the S&B as its | 02 | applications space. | 03 | Q. So you're understanding of Microsoft's existing MS | 04 | products is, that they are not in the Enterprise section of | 05 | the market? | 06 | A. Correct. | 07 | Q. And SAP is in that section of the market? | 08 | A. Correct. | 09 | Q. And that's why this bullet point says, there is a | 10 | minimal product overlap because SAP is essentially at the | 11 | Enterprise level and Microsoft is at the S&B level? | 12 | A. Correct. | 13 | Q. Let me go ahead and turn to page 681. This is | 14 | continuing to discuss the strategic rationale for the | 15 | Microsoft SAP proposal. The first major bullet says: | 16 | "Achieve leadership in ERP applications for | 17 | Fortune 500 companies." | 18 | What does that mean to you? | 19 | A. That means the strength in this space that we just | 20 | described that SAP has, would be transferred to Microsoft. | 21 | Should we acquire SAP, we would then also become a leader in | 22 | the Enterprise application space. | 23 | Q. So where it says, "ERP applications for Fortune | 24 | 500 company," is another way of saying that, to use some | 25 | other terminology on the previous pages, would again be this |
00155 | 01 | large Enterprise area? | 02 | A. Correct. | 03 | Q. The subbullet under that says: | 04 | "An objective we will not pursue in the absence of | 05 | this combination." What does that mean to you? | 06 | A. That means that should we not acquire SAP, we do | 07 | not have intentions to to get into that market for some | 08 | reasons which I can articulate. And therefore, we would not | 09 | meet an objective. | 10 | Actually, as I read it, it's a little misleading. | 11 | Because it says, "an" objective. | 12 | If you say something is an objective, it implies | 13 | that we absolutely want to do that. And that is not to the | 14 | best of my knowledge, something that is a definitive | 15 | objective. We certainly want to have access to solutions | 16 | for our customers. | 17 | Q. So you were saying Microsoft wants access to its | 18 | solutions for its customers but does not necessarily want to | 19 | enter the Enterprise space as we've been discussing? | 20 | A. We don't have plans to. We may in a different | 21 | world want to. But it's a very complex objective to try to | 22 | replicate and duplicate what SAP primarily and Oracle as | 23 | well, have built in that space, both in regard to the code | 24 | base. | 25 | To the best of my knowledge, our current code base |
00156 | 01 | serves small and medium businesses, could not scale to serve | 02 | large, complex organizations. So we would need to build a | 03 | new code base. And again I'm not technical. So do | 04 | something to or start from scratch to address that market | 05 | from a technological perspective, as well as build out an | 06 | Enterprise sales force that is capable of selling Enterprise | 07 | applications. Our current Enterprise sales force does not | 08 | sell Enterprise applications. | 09 | | 10 | | 11 | | 12 | | 13 | | 14 | | 15 | | 16 | | 17 | | 18 | | 19 | | 20 | | 21 | | 22 | | 23 | | 24 | | 25 | |
00157 | 01 | | 02 | | 03 | | 04 | | 05 | | 06 | | 07 | | 08 | | 09 | | 10 | | 11 | | 12 | | 13 | | 14 | | 15 | | 16 | | 17 | | 18 | | 19 | | 20 | | 21 | | 22 | | 23 | | 24 | | 25 | Q. Okay. And I sort of interrupted you. But let me |
00158 | 01 | ask again: | 02 | What other reasons would Microsoft not pursue the | 03 | objective of entering the Enterprise application space, in | 04 | the absence of a merger with SAP? | 05 | A. Well, overall, it would come down to an economic | 06 | analysis, which we did not include in any of our analyses | 07 | because of complexity and just generally sort of dismissing | 08 | that as an option. | 09 | A second component, in addition to the technology | 10 | and code base, would be building out Enterprise sales force. | 11 | And you know, again, you know, SAP has thousands | 12 | of people who have many years of experience selling to CXO | 13 | level executives complex business applications. That's | 14 | something that would be difficult to create from scratch. | 15 | Q. So Microsoft does not have a sales force suitable | 16 | to sell Enterprise applications into the Enterprise segment | 17 | of the market and it would be very difficult to create that | 18 | sales force. Is that | 19 | A. Correct. | 20 | ' Q. Were there any other factors that went into your | 21 | analysis of whether to pursue the Enterprise market in the | 22 | absence of the SAP merger? | 23 | A. Not to my knowledge. Those are the primary | 24 | Q. Did Microsoft consider purchasing any other | 25 | applications? |
00159 | 01 | A. During the time of this analysis? | 02 | Q. Yes? | 03 | A. No. | 04 | Q. Did Microsoft consider purchasing any other | 05 | applications vendor, outside the time of this analysis? | 06 | A. I am aware that we had looked at a few REDACTED | 07 | years back. | 08 | Q. What was the result of the analysis at that time | 09 | of Microsoft purchasing ? REDACTED | 10 | A. It was something that put materially, we decided | 11 | was not and I did not do that specific analysis. I was | 12 | just aware that that analysis was done. But it was | 13 | something that we decided not to pursue. We actually went | 14 | in sort of a totally different tact and developed | 15 | organically our own CRM product into a totally different | 16 | space, which is the S&B/CRM product that we do have today. | 17 | Q. Has Microsoft ever considered, either in the time | 18 | frame of this analysis or otherwise, acquiring a company | 19 | called Lawson? | 20 | A. This is a similar question that was asked before. | 21 | My answer would be the same. I'd be happy to repeat it if | 22 | you'd like me to? | 23 | Q. Sure. | 24 | A. I'm not aware of any serious analysis surrounding | 25 | a possible acquisition of Lawson. I am aware Lawson being |
00160 | 01 | presented to me and Microsoft generally from investment | 02 | bankers. | 03 | And I am also aware I am it would not | 04 | surprise me that Lawson just as a name might be found in a | 05 | deck that listed 10 or 20 different ERP vendors, if someone | 06 | was just doing a broad landscape analysis of the myriad of | 07 | small ERP players. Lawson is a little no fish nor foul, | 08 | just as a direct sales force. | 09 | We don't really view them as a competitor directly | 10 | in the S&B space. Their efforts are more CAS and lower | 11 | Enterprise. Because they have a direct sales force that was | 12 | in contrast to our stated strategy. And our strategy of | 13 | focusing on the S&B space, which is partner-led, not | 14 | direct-sales-force led. | 15 | Q. So why was Lawson not considered specifically in | 16 | this context, as an alternative to SAP for entering the | 17 | Enterprise space? | 18 | A. That's a very inconsequential player. | 19 | Q. What do you mean by, "inconsequential"? | 20 | A. I can't state their revenues. I think they have | 21 | very small revenues. I think they don't they don't have | 22 | a client base in the Fortune 500 generally. They may have a | 23 | few clients but generally they don't. | 24 | I don't think they have a strong product that | 25 | could that could scale into complex organizations. So |
00161 | 01 | generally, it would not be an attractive target, if one had | 02 | an objective of wanting to create a successful business in | 03 | the Enterprise applications. | 04 | | 05 | | 06 | | 07 | | 08 | | 09 | | 10 | | 11 | Q. Let me ask you about another company. Well, | 12 | actually 2 companies at the moment. There's a company | 13 | called SSA Global and they purchased Baan, another company | 14 | during the time of this acquisition? | 15 | A. Uh-huh. | 16 | Q. Did Microsoft consider at all either SSA global or | 17 | Baan as a potential acquisition that would allow them to | 18 | enter the Enterprise applications market? | 19 | A. No. | 20 | Q. And why was that? | 21 | A. Principally, for the the same reasons that I | 22 | just articulated. | 23 | Q. And those reasons would be that, they had small | 24 | revenues, didn't generally serve the Fortune 500 and were | 25 | not a strong product that could scale to the Enterprise |
00162 | 01 | level? | 02 | A. Yes. | 03 | Q. Were there any other companies at all who were on | 04 | the edges of being considered for possible acquisition | 05 | target to enter the Enterprise application space? | 06 | A. No. | 07 | | 08 | | 09 | | 10 | | 11 | | 12 | | 13 | | 14 | | 15 | | 16 | | 17 | | 18 | | 19 | | 20 | | 21 | Q. If Oracle is successful in purchasing PeopleSoft, | 22 | will that change Microsoft's assessment of what it will do | 23 | in the Enterprise applications space? | 24 | A. To the best of my knowledge, no. It doesn't have | 25 | an impact one way or the other. |
00163 | 01 | Q. And given that, based on what we've discussed here | 02 | today, the impetus for looking at SAP as a potential | 03 | acquisition started as a result of Oracle's proposed | 04 | takeover, why would now the successful culmination of that | 05 | merger not have any effect? | 06 | A. I think that the announcement of Oracle's bid for | 07 | PeopleSoft not so much and I I fully acknowledge that | 08 | is, thinking over this concept. I think it serves as a | 09 | wake-up call for us to do some basic strategic analysis that | 10 | we needed to do and we should have done. | 11 | PeopleSoft and Oracle, neither of them are | 12 | particularly strong partners of Microsoft. And so even in | 13 | the worst case that an acquisition happened or an | 14 | acquisition didn't happen and both of them turned | 15 | dramatically against Microsoft, it's still on the margin is | 16 | not that much of an impact. | 17 | | 18 | | 19 | | 20 | | 21 | | 22 | | 23 | | 24 | | 25 | |
00164 | 01 | | 02 | | 03 | | 04 | | 05 | | 06 | | 07 | | 08 | | 09 | | 10 | | 11 | | 12 | | 13 | | 14 | | 15 | | 16 | | 17 | | 18 | | 19 | | 20 | | 21 | | 22 | | 23 | | 24 | | 25 | Q. I'd like to turn actually to the appendix, which |
00165 | 01 | was 1410. And if you look at what's Bate's number 19304 | 02 | A. Uh-huh. | 03 | Q. there's a risk on the right-hand side that you | 04 | discuss several times a day. "Basically the core business | 05 | of ERP is a mature market," this slide says, "with the | 06 | Fortune 500 already largely penetrated." | 07 | First of all, do you have any understanding of why | 08 | that risk was in the appendix and not in the main body of | 09 | the presentation? | 10 | A. I'm not certain. | 11 | | 12 | | 13 | | 14 | | 15 | | 16 | | 17 | | 18 | | 19 | | 20 | | 21 | | 22 | | 23 | | 24 | | 25 | |
00166 | 01 | | 02 | | 03 | | 04 | | 05 | Q. Was your understanding that the Microsoft team was | 06 | working on this, was more concerned about that risk or less | 07 | concerned about it than they had been prior? | 08 | A. What's going through my mind is the definition of | 09 | a team. It's obviously composed of different individuals. | 10 | As a I would say that Steve felt that it was less of a | 11 | risk. | 12 | Q. Why do you believe Steve felt it was less of a | 13 | risk? | 14 | A. Because if I recall correctly, he did have input | 15 | on this slide. And thus, I am inferring that he thought it | 16 | was somewhat less of a risk, still work put in the appendix. | 17 | Because it was not in the main body of the deck. | 18 | Q. Let me talk a little bit about what it means to be | 19 | a mature market. When you use that phrase as it's used here | 20 | in page 19304, what does that mean to you? | 21 | A. A market that has high penetration and slowing | 22 | growth. | 23 | Q. By "slowing growth," what do you mean? | 24 | A. Year-over-year growth in license revenue that is | 25 | decreasing. |
00167 | 01 | Q. You don't mean by that though, that it has 0 or | 02 | negative growth but rather less growth? | 03 | A. Yes. | 04 | Q. Objective on the left side estimated available | 05 | market of 20 billion in license revenue. What does that | 06 | mean to you? | 07 | A. That is an estimate over many years of a potential | 08 | sales of SAPs, business applications products to large | 09 | corporations. The market that they are able to serve It's | 10 | not in one of the decks. I believe we actually it | 11 | wasn't one of the decks. This was just this was a | 12 | research report that had some very specific analysis around | 13 | it. As a general, answer to your question, this is meant to | 14 | describe the market that, you know, has growth over many | 15 | years that would provide an available market of 20 billion | 16 | dollars. | 17 | Q. So why you believe that the Enterprise | 18 | applications market overall is growing more slowly for SAP | 19 | alone, you believe, aggregate over many years, there's still | 20 | a 20 billion dollar license revenue market? | 21 | A. They have that potential there and that sort of | 22 | strong upgrade cycle. And they also have a very strong | 23 | product that has historically been performing well versus | 24 | competitive products. So the assessment from research | 25 | analyst reports that we didn't differ with was, they would |
00168 | 01 | continue to get opportunities for growth. | 02 | Q. When you say, "a strong upgrade cycle," what does | 03 | that mean? | 04 | A. That means that they have an installed base of | 05 | clients that, I don't remember the exact percentages. But a | 06 | large percentage of their current customer base is using an | 07 | older version of their product. And they have come out with | 08 | a new product in recent years, that has potential for | 09 | increased sales, as customers with older versions upgraded | 10 | to the newer product. | 11 | Q. Going down a few bullets, there's a line that | 12 | says: | 13 | "Strong new team in the US already demonstrating | 14 | impressive results. License revenue up 54% in constant | 15 | currency in quarter 3." | 16 | A. Yes. | 17 | Q. When you say, "license revenue up 54%," I assume | 18 | that's year-over-year, would it be strong growth? | 19 | A. Yes. But I should actually let me see. | 20 | Yes. In answer to your question, that would be | 21 | strong growth. | 22 | | 23 | | 24 | | 25 | |
00183 | 01 | | 02 | | 03 | | 04 | During Ms. Blizzard's questions, she asked you | 05 | some questions about the GSM space at | 06 | A. Yes. | 07 | Q. Microsoft. And that's the global strategic and | 08 | major account space? | 09 | A. Yes. | 10 | Q. And that's essentially, Fortune 500 companies? | 11 | A. That's my understanding roughly, yes. | 12 | Q. And it's true is it not, that Microsoft Business | 13 | Solutions sells into what it calls, the corporate account | 14 | space? | 15 | A. Yes. | 16 | Q. And what is that space? | 17 | A. That is the space that is below the global | 18 | strategic and major space. And as I mentioned earlier, I'm | 19 | not quite sure of exactly how we defined that. | 20 | I believe well, let me just say, I I'm not | 21 | quite sure how we define that. | 22 | Q. To your knowledge, does Microsoft Business | 23 | Solutions have direct sales personnel? | 24 | A. I am not certain of our model in the CAS space. | 25 | How we go to market there. |
00184 | 01 | Q. Are you aware that Microsoft Business Solutions | 02 | has hired business applications sales personnel from Oracle | 03 | and other Enterprise application companies? | 04 | A. I'm not generally aware of that. I may have heard | 05 | someone say, Bob from Oracle is working at Microsoft. But | 06 | generally, no. | 07 | Q. Microsoft Business Solutions has gone to a | 08 | vertical sales approach, at least for the corporate account | 09 | space; correct? | 10 | A. I don't know a lot about how we go to market in | 11 | corporate account space. | 12 | Q. In general, have the Microsoft Business Solutions | 13 | gone to a vertical sales approach? | 14 | A. That would be an incorrect statement broadly. | 15 | So for instance, in my space, which is employees | 16 | and coming fewer employees, we don't go to market | 17 | vertically. | 18 | | 19 | | 20 | | 21 | | 22 | | 23 | | 24 | | 25 | |
00185 | 01 | | 02 | | 03 | | 04 | | 05 | | 06 | | 07 | | 08 | | 09 | | 10 | | 11 | | 12 | | 13 | | 14 | | 15 | | 16 | | 17 | Q. Microsoft does have a direct sales force that | 18 | sells database and other products to the Enterprise; | 19 | correct? | 20 | A. Correct. | 21 | Q. And approximately how many people are in | 22 | Microsoft's direct sales force that sells to the Enterprise? | 23 | A. Many thousand. But I couldn't pinpoint it | 24 | specifically. | 25 | Q. And the Enterprise sales force does make pitches |
00186 | 01 | regarding Microsoft Business Solution's products to | 02 | Enterprise customers; correct? | 03 | A. Restate that. | 04 | Q. Sure. The Enterprise sales force does make | 05 | pitches about Microsoft products to Enterprise customers; | 06 | isn't that true? | 07 | A. I well, I don't believe they specifically try | 08 | to sell those products because they aren't quoted to sell | 09 | those products, to the best of my knowledge. | 10 | They may say, in fact, this hub and stroke | 11 | concept, if they're calling on Ford, they may say, you | 12 | should think about how you can get your suppliers to work | 13 | with Microsoft products. | 14 | Q. And going back to the Ford hub and spoke analogy, | 15 | Ford is a Fortune 100 company, approximately? | 16 | A. Yes. | 17 | Q. Many tens of billions of dollars in annual | 18 | revenue? | 19 | A. I don't know their exact revenue but I think it | 20 | would be in that range. | 21 | Q. And they have many large divisions? | 22 | A. Yes. | 23 | Q. And to your knowledge, does Microsoft Business | 24 | Solutions Enterprise ERP products get sold into any Ford's | 25 | large divisions, as an example? |
00187 | 01 | A. I know that our markets, which are targeted at | 02 | small companies are sold into some small divisions of larger | 03 | companies. I'm not sure if we sell into divisions of Ford | 04 | or not. | 05 | Q. Are you aware of any sales to larger divisions of | 06 | enterprises, such as Ford? | 07 | A. I'm sorry. Can you repeat it? | 08 | Q. Sure. Are you aware of any sales of Microsoft | 09 | Business Solutions products, ERP products, to larger | 10 | divisions of enterprises such as Ford? | 11 | A. Well, your previous question was around smaller | 12 | divisions. So no. I'm not aware of sales to large | 13 | divisions. | 14 | | 15 | | 16 | | 17 | | 18 | | 19 | | 20 | | 21 | | 22 | | 23 | | 24 | | 25 | |
00188 | 01 | Q. And it's true, is it not, that Microsoft is | 02 | spending approximately 2 billion dollars a year on R&D for | 03 | Microsoft Business Solutions over the next 5 years? | 04 | A. I think that number is misquoted. So I would I | 05 | would the 2 billion dollar number is I have seen it. | 06 | And I actually used that number because I've seen it before. | 07 | I think it refers broadly to our investment in the S&B | 08 | space, not just R&D. Not our investment in the sales force | 09 | and others. So I personally think people at Microsoft use | 10 | that number too loosely. | 11 | | 12 | | 13 | | 14 | | 15 | Q. And Ms. Blizzard asked you some questions about | 16 | Lawson; do you recall that? | 17 | A. Yes, uh-huh. | 18 | Q. If you turn to Exhibit 1403. This is your June | 19 | 12th Email to Mr. Ballmer, Mr. Gates and others. | 20 | A. Yes. | 21 | Q. And then turn into one of the analyst reports, the | 22 | Goldman Sachs report? | 23 | A. What number on the bottom? | 24 | Q. 18878. | 25 | A. 188yes. |
00189 | 01 | Q. What is the revenue figure reported by Goldman | 02 | Sachs for Oracle's ERP sales for 2002? | 03 | A. $150 million dollars. | 04 | Q. What is the 2002 revenue figure for Lawson, as | 05 | reported by Goldman Sachs on page 18878? | 06 | A. $114 million dollars. | 07 | Q. And if you turn to Exhibit 1405, Ms. Bates? | 08 | A. Yes. | 09 | Q. Do you have that? | 10 | A. I do. | 11 | Q. If you turn and this is for the record, the | 12 | Email of Jason Carter to a variety of people including | 13 | yourself on June 20th, 2003? | 14 | A. Yes. | 15 | Q. Turn to page 14058. | 16 | A. Yes. | 17 | Q. Towards the bottom of the page it talks do you | 18 | see the heading, "Additional Information"? | 19 | A. Yes. | 20 | Q. And then, "What's Next"? | 21 | A. Uh-huh. | 22 | Q. And it says, "This puts several other vendors in | 23 | play. Lawson is an obvious one. They have strong, vertical | 24 | solutions that make them an attractive target." | 25 | Do you see that? |
00190 | 01 | A. Yes. I see that. | 02 | Q. Are you aware of what Lawson's strong vertical | 03 | solutions are? | 04 | A. I can't rattle them off but 6 months ago I | 05 | probably could. I can't now. | 06 | Q. And Ms. Blizzard asked you questions about whether | 07 | Microsoft considered acquiring any other companies at or | 08 | about the time when it was considering acquiring SAP? | 09 | A. Uh-huh. | 10 | | 11 | | 12 | | 13 | | 14 | | 15 | | 16 | Q. Microsoft only evaluated an acquisition of SAP; | 17 | isn't that correct? | 18 | A. That is correct. | 19 | Q. And there was a brief reference to . But REDACTED | 20 | that was just in the first deck, the June 12th deck? | 21 | A. Correct. | 22 | Q. And then fell by the wayside very quickly? REDACTED | 23 | A. Correct. | 24 | Q. And Microsoft focused all of its efforts on | 25 | acquiring SAP; is that correct? |
00191 | 01 | A. On analyzing the potential acquisition. | 02 | Q. Thank you. And that's because SAP is the clear | 03 | leader in the ERP market; correct? | 04 | | 05 | THE WITNESS: Well, we've spent a lot of time | 06 | today talking about why we thought that SAP would be an | 07 | attractive acquisition target. As from all of the previous | 08 | discussion, none would show one component of that was that | 09 | they were they were the strongest player in the | 10 | Enterprise applications base. | 11 | | 12 | | 13 | | 14 | | 15 | | 16 | | 17 | | 18 | | 19 | | 20 | | 21 | | 22 | | 23 | Q. If I can get you to turn back to Exhibit 1410, | 24 | which is the board of directors appendix dated January 5, | 25 | 2004? |
00192 | 01 | A. Yes. | 02 | Q. Ms. Blizzard asked you questions about SAP's | 03 | strengths and estimated available market in license revenue; | 04 | do you recall? | 05 | A. Which page are you referring to? | 06 | Q. I'm sorry. 19304. | 07 | A. In which bullet? | 08 | Q. Under "Strengths," there's a bullet with, "Install | 09 | base of 20,000 customers." | 10 | Do you see that? | 11 | A. Yes. | 12 | Q. And it says, good opportunity to cross and upsell? | 13 | A. Yes. | 14 | Q. And it's true, is it not, that in your analysis of | 15 | a proposed acquisition of SAP, you came across evidence SAP | 16 | has historically had an extremely high customer retention | 17 | rate? | 18 | A. Yes. | 19 | | 20 | | 21 | | 22 | Q. And what is the customer retention rate that you | 23 | recall SAP enjoying? | 24 | A. As is on the page, we have a bond that says, | 25 | "Historically high, 90-plus percent customer retention |
00193 | 01 | rate." Customer retention. | 02 | Q. And that means that historically, Sap's customers | 03 | have not migrated to another vendor, such as Oracle when | 04 | they've made an upgrade; is that true? | 05 | | 06 | | 07 | Q. You can answer. | 08 | A. My understanding is yes. I'm basing this on | 09 | analyst discussion on this point. Analyst reports. | 10 | Q. Well, your estimate of the available market is | 11 | based on analyst reports too; correct? | 12 | A. Correct. | 13 | Q. It's your understanding, the estimated available | 14 | market, that's essentially revenue that SAP is going to | 15 | enjoy because it's able to convince its customers to stay or | 16 | to upgrade to its newest product? | 17 | MS. BLIZZARD: Objection, form. Vague | 18 | THE WITNESS: I those 2 points weren't as | 19 | directly linked as you're implying. | 20 | | 21 | | 22 | | 23 | | 24 | | 25 | |
00194 | 01 | | 02 | | 03 | | 04 | | 05 | | 06 | | 07 | | 08 | | 09 | | 10 | | 11 | | 12 | | 13 | Q. And I'll rephrase. Exhibit 1410 was submitted to | 14 | the Microsoft board of directors for its review, in | 15 | connection with an evaluation of a potential acquisition of | 16 | SAP; correct? | 17 | A. Correct. | 18 | | 19 | | 20 | | 21 | | 22 | | 23 | | 24 | | 25 | |
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