Competitors prepare for Siebel CRM OnDemand

Siebel Systems’s partnership this week with IBM on a new, hosted CRM (customer relationship management) service makes it the first enterprise applications vendor to prominently launch a monthly subscription service, but others in the applications market say Siebel’s altered strategy won’t affect their own product plans and pricing.

Siebel CRM OnDemand will compete most directly against the batch of ASPs (application service providers) that have emerged in the last few years to offer midsize businesses access to CRM functionality without the upfront costs and management complexity associated with standard CRM deployments. Leaders in the market include Salesforce.com, UpShot, NetSuite and Salesnet, each of which has attracted several thousand corporate customers to its offering.

Siebel’s move comes at a time when it faces stagnant growth among its traditional customer base of large companies willing to invest millions in CRM systems. After peaking in 2001 at $2.1 billion, Siebel’s revenue has been slipping, to $1.6 billion in 2002 and a forecast $1.4 billion in 2003. As the company’s revenue contracts, so has its staff: Siebel’s employee count has shrunk 40 percent since the start of 2001.

When Siebel exited the software-as-a-service business two years ago, it did so amidst dark comments from Chief Executive Officer (CEO) Tom Siebel about the ASP sector’s viability. Competitors are quick to cast Siebel’s return to the sector as a sign of strategic confusion.

“It’s pretty comical to have them re-entering this space after disparaging it as such a terrible idea. It shows how desperate they are to reverse their revenue decline,” said PeopleSoft CRM General Manager Joe Davis. “That hasn’t been a problem for us.”

Siebel has suffered in the past few years from its insistence on being a best-of-breed, single-application vendor, according to analyst Josh Greenbaum of Enterprise Applications Consulting.

Customers overpurchased during the dot-com boom, and were left with too much CRM firepower for their needs, he said. Instead of buying new licenses during the past few years, they’ve focused on installing and taking advantage of what they already own. Siebel’s top rivals, such as SAP and PeopleSoft, have been able to approach their installed customer bases with other products from their portfolio. Lacking that product diversity, Siebel has been forced to try to wring new sales out of a slumping market.

“Staying the current course is not going to be a winner,” he said. “For them to really continue to grow, they’re going to have to find more products to sell and more customers to sell to.”

Siebel executives say the company has not often run into the CRM ASPs in pitching new business. They expect Siebel CRM OnDemand to reach customers not otherwise inclined to buy from among the current crop of hosted offerings.

Analysts say the service has some advantages unmatched by the smaller CRM service vendors, including deep analytics capabilities and the availability of an upgrade path to a traditional Siebel CRM system. One customer beta testing the product, Planitax Chief Technical Officer Chris Stauber, agreed that it offers more advanced functionality than he’s seen in other hosted CRM services.

Planitax, an 18-person tax software company in Emeryville, California, is currently subscribing to a hosted CRM service Stauber declined to name. A seven-year Siebel employee before he joined Planitax, Stauber was displeased with the limits of that system, particularly in its marketing and analytics functionality.

“When you’ve used CRM and SFA (sales force automation) extensively, you know there’s a comprehensiveness that’s required. The current application does a fine job, but it doesn’t have the sophistication I knew was available in other products,” he said.

So far, Siebel CRM OnDemand seems to offer the depth needed for a rapidly growing organization, he said.

Siebel’s arrival in the market is certain to increase the competitive pressure on the CRM ASPs, said analyst Amy Wohl of Wohl Associates. But it could also force some larger vendors, including SAP and PeopleSoft, to consider a subscription offering, she said. And it could spark Microsoft into more aggressive action in marketing the Microsoft CRM software it launched last year, she said.

“So far, (Microsoft) has been sort of quietly playing off in the corner somewhere. This could make them decide to make a higher-profile play,” she said.

PeopleSoft, like Oracle and SAP, already offers hosted options for its enterprise applications. It does not, however, offer a subscription plan. Customers choosing a hosted deployment pay the same rates as those choosing an on-site installation. That strategy is not going to change, Davis said.

“We’re not about to change our revenue model, because we don’t need to,” he said. “If I were losing deals to Salesforce.com. I would be more concerned about (Siebel CRM OnDemand). I’ve seen Salesforce on two deals in the last year, and we won both of those.”

The CRM ASPs also profess to be unconcerned about Siebel’s arrival. While Siebel says it does not run into Salesforce.com in pitching new business, Salesforce.com CEO Marc Benioff says his company encounters Siebel “all the time” — and beats them. Salesforce.com has won business from existing Siebel clients including Cigna and Nokia, he said.

NetSuite CEO Zach Nelson sees Siebel’s new service as its acknowledgment that the ASP market is too important to ignore. The company’s late entry will set it far behind the dedicated vendors, he predicted.

“What Siebel is telling its customers is that they should be looking at managed solutions,” he said. “I think they’re five years behind on every possible measure. How do you deliver software as a service? It’s not something you wake up one morning and know how to do.”

Siebel may be new to the hosted delivery model, but IBM isn’t. It has for the past year been encouraging its network of applications partners to offer subscription-based services. One vendor that has taken IBM up on the offer is midmarket CRM vendor Onyx Software.

Onyx knew going into that deal that it wouldn’t be IBM’s only CRM partner, and it’s resigned to competing for IBM’s sales and marketing attention with Siebel’s new service, said Eben Frankenberg, executive vice president of business development. Its subscription package costs significantly more than Siebel’s $70 per month per user without configuration costs: Onyx’s monthly fees start around $150 per user, and start-up costs for consulting and configuration can run $100,000. For the higher price tag, customers get a more tailored and more easily upgraded product, he said. Should they decide to bring the software in-house, no further customization is needed, Frankenberg said.

Onyx has no plans to alter its approach or pricing. “We think a Siebel or a Salesforce.com offering may be fine for people who want very basic contact management, but anybody who is being thoughtful about their CRM project and actually enforcing processes in their organization will need some amount of consulting and some amount of customization,” Frankenberg said.

Despite the vendors’ claims to the contrary, analysts say Siebel CRM OnDemand’s launch sometime this quarter will shake up the market.

“One of the things you need to keep in mind is that this is not version one, even though it’s Siebel’s first competitive offering of hosted CRM,” said Denis Pombriant, CRM research director at Aberdeen Group. “This is built on a great deal of strong heritage in developing and deploying deep functionality. It’s a product everyone considering hosting will want to look at.”