Oracle wants to buy PeopleSoft to survive in an increasingly competitive business applications market, Oracle CEO Larry Ellison testified in the US government's case to block the proposed $7.7 billion merger.

"There was a lot of consolidation going on around us and we wanted to be a survivor and a consolidator," Ellison said. Oracle launched its hostile bid for rival PeopleSoft in June last year, days after PeopleSoft announced its plan to acquire JD Edwards.

The US Department of Justice (DoJ) sued in February to block Oracle's merger plan, arguing it is anti-competitive as it would lead to price increases and limit customer choice to SAP and Oracle in the market for high-end financial management and human resource applications.

Ellison, who appeared clad in a sharp gray suit with a white shirt and red tie, disagreed. Under increasing competition from SAP and with Microsoft entering the market, Oracle needs to improve its products and at the same time lower its prices to compete successfully, he explained.

"The only way we can increase our investment in engineering and at the same time lower our price is to increase our installed base," Ellison said. "If we wanted to grow, if we wanted to compete effectively, we had to acquire." Oracle looked at several takeover candidates and PeopleSoft topped its list, he said.

PeopleSoft has been fighting Oracle's offer, even though it initiated merger talks with Oracle in 2002. At that time, Oracle and PeopleSoft could not reach an agreement on the structure of the combined businesses, Ellison said.

Even though Microsoft itself denies it has plans to sells business applications software to large enterprise, Ellison is convinced the software giant will be a major player. "I don't think Microsoft is going to be able to monopolize the business applications market. I think it is going to be like the database market, where they gain share and gain share and ultimately become a formidable competitor," Ellison said. "The second Microsoft enters a market, prices drop like a rock. Microsoft is always a low-cost provider, up to and including zero," Ellison said, offering the Web browser market as an example.

If the PeopleSoft deal were to go through, Oracle has promised to support PeopleSoft customers for at least the next ten years and offer Oracle applications and the Oracle database at no charge, Ellison said. Oracle will not actively sell PeopleSoft products and will work to create an integrated successor product, he said. "The intention is to build successor products that integrate the functionality of both the Oracle and PeopleSoft products and make it easy for the customers to upgrade," Ellison said.

Ellison's testimony attracted a large audience. Spectators lined up in the hall outside the courtroom during the court's lunch break and many were not able to fit in the room when the doors re-opened.

The testimony came near the end of Oracle's defense in the case, which went to trial on 7 June. Oracle plans to call one more witness on Thursday, followed by one or more rebuttal witnesses for the DoJ. Closing arguments are set for 20 July. Judge Vaughn Walker is then expected to rule in August or September.