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Executive Editor

Siebel courts small, midsize firms

Oct 13, 20035 mins
CRM SystemsEnterprise ApplicationsStaff Management

CRM market leader Siebel Systems hasn’t forgotten the little people. It’s new mantra, “CRM for everyone,” is intended to reflect an easier, more affordable Siebel – a theme that was pervaded at the software maker’s user conference held last week in San Diego.

CRM market leader Siebel Systems hasn’t forgotten the little people. It’s new mantra, “CRM for everyone,” is intended to reflect an easier, more affordable Siebel – a theme that was pervaded at the software maker’s user conference held last week in San Diego.

Executives say they hope the message of inclusion will beef up Siebel’s appeal to small and midsize companies that want the features of full scale, on-premises CRM but have shied away from buying because of implementation challenges and costs.

The cornerstone of Siebel’s new product strategy is its hosted CRM service, developed with hosting partner IBM and unveiled for the Siebel User Week 2003 conference. Siebel CRM OnDemand is expected to deliver CRM tools faster, easier and less expensively than the company’s licensed software suite, Siebel officials say.

The model is designed to appeal to smaller companies than those that make up Siebel’s traditional client base. The vendor also wants its existing customers to use the service to deploy CRM to remote locations and subsidiaries where they haven’t deployed Siebel’s licensed version.

The vendor says its hosted CRM product can be seamlessly integrated with – or automatically migrated to – an on-premises deployment of Siebel’s CRM software. In this way, users can start with a small CRM project and expand the system as needs change, Siebel officials say.

CEO Tom Siebel said the hosted offering addresses customers’ changing needs. “Enterprise software must embrace the speed of change in business into its DNA,” Siebel said last week during his keynote speech at the conference. “In this new era of CRM, we see hybrid solutions to meet the requirements of distributed business models.”

CRM OnDemand is Siebel’s second hosting attempt. The company launched its service in February 1999 and at one time planned to spin off the unit. Instead, Siebel shuttered the losing venture in July 2001.

Siebel’s re-entry into the hosted CRM market comes as analysts say CRM buyers are shifting their purchasing preferences toward the application service provider (ASP) model. For example, license revenue will decline at an average annual rate of 4.8% over the next three years, while subscription revenue will hit $2.8 billion by 2006, Aberdeen Group says. In a recent survey, Aberdeen found 35% of respondents use CRM delivered by a hosting service, and 85% of prospective CRM buyers would evaluate a hosted CRM service.

Aiming for a revenue boost

Like many software vendors, Siebel lately has battled to increase license revenue.

Earlier this month, Siebel announced that it expects to hit its profit targets for the quarter that ended Sept. 30, but miss its revenue mark. Third-quarter revenue will range from $320 million to $322 million and license revenue will range from $109 million to $110 million, the company said. (Final quarterly figures are due out this week.) Analysts were expecting Siebel to report total revenue of $328.4 million.

Meanwhile, Siebel has embarked on a series of layoffs and office closures to cut costs. The company reported that it is on track to achieve its previously stated goals of cutting quarterly expenses by $30 million by year-end. The company intends to cut expenses further to increase that quarterly savings to $40 million by the second half of next year.

CRM OnDemand is a good move to kick-start Siebel’s stalled product strategy, wrote Kelly Spang Ferguson, principal analyst at Current Analysis, in a research brief. “But it is also a defensive move to counter the positive momentum of ASP rivals that have been eating Siebel’s lunch.”

Companies such as NetSuite,, Salesnet and UpShot have led the ASP charge and amassed customers, particularly among small and midsize businesses., for example, has 7,400 customers of its hosted service with combined 100,000 individual subscribers. Siebel has 3,500 customers using its licensed software. Also, 10 companies are beta-testing CRM OnDemand service.

Dominant suite vendors such as PeopleSoft, SAP and Siebel have in the past avoided committing significant resources to hosted CRM offerings and watched the ASP market grow from the sidelines. Siebel is late to the game, but it has resources that none of its ASP competitors can match, according to Ferguson. “The combination of Siebel and IBM may quickly change the competitive landscape,” she wrote.

What might challenge Siebel is the ongoing application development required to maintain a CRM service, Ferguson wrote. “ASPs are in the business of making improvements every few months, which is different than the traditionally longer development cycles for licensed application vendors such as Siebel,” she wrote.

Incremental upgrade

Also at Siebel User Week the vendor said its next major upgrade of the software platform, Version 7.7, is on track for release in the first half of 2004. Among the product’s enhancements are additional industry-specific tools; two-way store-and-forward wireless support; and a new module for tracking customer loyalty.

However, a complete overhaul of Siebel’s CRM system is years away, Siebel told attendees. He predicted that his company could stick with its Version 7 system through the end of the decade.

“This is not something that’s going to be replaced next year with a Version 8,” he said. “We see this as a product architecture with legs.”

One customer attending Siebel’s keynote said he appreciated hearing about the company’s plans to stick with its Version 7 architecture for the foreseeable future.

“It’s comforting to know that they’re starting to stabilize,” said Charles Pierce, director of IT for GMAC Insurance, a General Motors subsidiary in Winston-Salem, N.C.

GMAC Insurance has been a Siebel customer for two years. It’s using Version 6 and plans to upgrade sometime next year. Siebel’s software has worked fine, Pierce said, although he questioned the rosy tone of CEO Siebel’s pitch about the value of Siebel’s technology.

“It’s not quite as much fun as what he described,” Pierce said.

IDG News Service correspondent Stacy Cowley contributed to this report.