00006
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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.
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00014
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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.
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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
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12
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00157
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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
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00164
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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
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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.
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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?