Government Regulation Threatens Tech Innovation

Be careful what you wish for. These days, Oracle’s Larry Ellison (search) must find himself stewing over those words every night before he turns in for bed. 

A few years ago, Ellison stood as one of the biggest champions of the government’s antitrust action against Microsoft (search). Today, his company stands squarely in the crosshairs of the same Justice Department that targeted Bill Gates.

The Assistant Attorney General for Antitrust announced that the Department of Justice will oppose Oracle’s $9.4 billion proposed purchase of PeopleSoft (search). Sadly, few are surprised by this announcement.

Though Larry Ellison was wrong when he pursued antitrust charges against Microsoft, Oracle does not deserve the current Justice Department investigation. Once again, the government fails to understand the nuances of the technology marketplace and appears poised to misapply century-old laws written for the robber barons.

It could be seen as unseemly for me to say, “I told you so.” Instead, I will simply point out that last July I wrote in this same space that Larry Ellison would rue the day he and his friends invited the federal government to stick their noses under Silicon Valley’s (search) tent. The aggressive anti-Microsoft positions taken by Oracle and a handful of other short-sighted high-tech firms opened a Pandora’s box of government regulation — a box that it seems will become increasingly difficult to close the lid on. Rather than waging a battle in the marketplace, Ellison and a few of his colleagues tried to fight a war in the courts.

From Route 128 in Massachusetts all the way to California’s Silicon Valley, high-tech firms have helped fuel the American economy as it approached the 21st century. Today, it is beginning to provide a much-needed shot in the arm to the economy as it marches steadily toward recovery. Introducing into the technology industry a stranglehold of government regulation and oversight by the courts threatens to stifle the advancements we have seen so often over the past two decades. 

The static (and stale) analysis used by government antitrust bureaucrats in an apparent effort to block Oracle’s proposed acquisition of PeopleSoft ignores the constant evolution of technology products. The exceedingly narrow definitions of markets used by the DOJ would make virtually any high-tech merger impossible. 

Viewing the “enterprise resource planning” (search) market as one composed of only two or three major companies, including SAP, PeopleSoft, and Oracle, misses the mark entirely. It ignores the countless young and hungry companies that provide real innovation in the sector. Companies like have already demonstrated that major inroads are possible in a very short period of time.

Moreover, Oracle’s primary business today is enterprise database software, with only a small share of the ERP market. In fact, the two companies compete directly only in that narrow segment. By teaming with PeopleSoft, the combined entity would actually pose a more formidable competitive threat to market leader SAP. 

And one must not ignore the fact that Larry Ellison’s personal white whale, Microsoft, has pledged to spend billions of dollars in a major effort to enter this portion of the market. (Ellison must be stunned at the irony that having Microsoft as a competitor could be one of his best arguments if Oracle ends up fighting the DOJ in court.)

Gloating over Larry Ellison’s predicament would be entertaining, but unproductive. Just as Ellison and his friends invited the antitrust regulators into the high-tech arena, all of the players would now be wise to work to educate the government on the need for them to update their view of the marketplace to reflect the realities of 21st century technology. 

The American economy and consumers stand to be the real losers if Larry Ellison’s anti-Microsoft gambit continues to haunt the high-tech sector for years to come.

Jim Prendergast is the executive director of  Americans for Technology Leadership.