Wall Street went easy on Siebel Systems last week after the vendor warned it would miss its first-quarter earnings estimates. But if the CRM market leader is to retain its title, simpler products and easier upgrades are in order, experts say.
SAN MATEO, CALIF. – Wall Street went easy on Siebel Systems last week after the vendor warned it would miss its first-quarter earnings estimates. But if the CRM market leader is to retain its title, simpler products and easier upgrades are in order, experts say.
Blaming a weak economy and a handful of postponed sales, Siebel says it will post lower-than-expected total revenue of $330 million to $335 million and software license revenue of about $112 million when it officially announces quarterly results later this month. Nonetheless, Siebel’s stock rose 24 cents to close at $7.99 on the first business day after the negative news.
One reason for Wall Street’s light-handed treatment of Siebel is that analysts were expecting the miss. Investment research firm Goldman Sachs called Siebel’s license revenue shortfall “pretty significant” – Siebel in January provided license revenue guidance of $130 million to $150 million. But there was broad anticipation that Siebel, like many other software companies, would pre-announce missed earnings, according to the research.
That’s not to say Siebel can breathe easy. To stay in the good graces of Wall Street and customers, the vendor needs to adjust its product development and sales strategies to address current buying trends, experts say. Smaller, slower-to-close deals, mounting competition and executive turnover are threatening the CRM market dominance that Siebel has enjoyed over the last few years.
While it’s still the clear leader among CRM suite vendors, Siebel definitely has challenges ahead of it, says Michael Maoz, vice president at Gartner. One challenge is aligning its product strategies with today’s buyers.
The software maker needs to target tactical department- and division-level buyers, Maoz says. Siebel’s sales team has been too slow to grasp the notion that the days of big game hunting – closing $50 million enterprise deals made with the help of partners such as IBM and Accenture – are not sustainable, Maoz says. “From a sales perspective for Siebel, that elephant hunt on the Serengeti is over,” Maoz says.
Winning smaller deals requires more attractive product packaging and pricing. Detractors often point to Siebel’s 400-plus sales, marketing and customer service modules as an indication of complexity.
Reducing complexity is an ongoing effort, says Kevin Nix, group vice president of product marketing at Siebel. The vendor has worked to provide bundles of software that are process-focused, he says. Rather than requiring a company to buy multiple sales modules just to enable lead management, a company could purchase a bundle focused on automating lead management. Siebel’s Version 7.5 suite also includes fixed-price rapid-deployment packages that are intended to speed installation times. Additional simplified CRM packages – with fewer options to enable faster implementations – are due out later this year.
Easing customers’ software upgrade woes also should be a top priority for Siebel, Maoz says. As many as 85% of existing Siebel customers are running Version 6.x of the vendor’s suite, and most have done a lot of customization, he says. Upgrading to the more Java-compliant and thin-client-based Siebel 7.x platform has proven to be a difficult task, Maoz says. Siebel needs to iron out the migration process to entice more customers to make the upgrade, he says.
Internally, Siebel needs to focus on stemming executive turnover. During the last couple years, the company has churned through a number of worldwide and regional sales managers, as well as technical account managers assigned to advise key clients on upgrades and migrations, Maoz says. Paul Wahl, Siebel’s president and COO, retired in March. And last November, Bill McDermott, former executive vice president of worldwide sales operations at Siebel, moved to SAP. “There’s been so much turnover that it’s hurt their credibility,” Maoz says.
Mounting competition
While the field of CRM vendors continues to shrink – 85% of the vendors that were around four years ago no longer in exist, Maoz says – Siebel’s competitive pressures are growing. In particular, rivals from the ERP market such as Oracle, PeopleSoft and SAP have bolstered their CRM suites and begun to advance further into Siebel’s territory.
“There’s no question that the competitive landscape has changed for Siebel in the last two years,” says Joanie Rufo, research director at AMR Research. For a long time, Siebel had a clear advantage over the ERP companies in terms of its product features, she says. Siebel’s advantage still exists, but the gap is narrowing as the ERP vendors develop more legitimate CRM functionality, she says.
The ERP companies also have pools of customers they can try to win over with promises of integrated ERP-plus-CRM offerings. The integrated-suites story is “a very compelling argument if you are an existing PeopleSoft customer or an existing SAP customer,” Rufo says.
In Siebel’s favor, however, is its ability to back up its technology with customers. “Proving their capability is still an issue for some of the ERP players,” which don’t have as many up-and-running CRM customers to reference as Siebel does, Rufo says.
Also combining to put pressure on Siebel are a slew of smaller CRM vendors, such as E.piphany and Onyx Software; service provider vendors with hosted CRM offerings, such as Salesforce.com and Salesnet; and Microsoft, which bought its way into the ERP and CRM markets through its acquisition of one-time Siebel partner Great Plains.
Microsoft professes to target small companies with its new CRM suite, which started shipping in January. Analysts expect the Redmond giant to eventually target midsize companies as well. Midsize companies – loosely defined as those with between $100 million and $500 million in revenue – present a relatively untapped CRM market, and nearly all the CRM vendors are going full bore after these prospects.
Nix dismisses Microsoft’s effect on the CRM arena, at least for now. Companies with simple CRM needs that want better contact management than Microsoft Outlook can provide, along with lightweight sales-lead management and service management tools, are candidates for Microsoft CRM – not midsize or large corporations with sophisticated CRM requirements, he says. “Microsoft has a proven track record of being a fierce competitor. But in our area right now, they’ve had little to no impact,” he says.
Technology progress
On the technology front, integration “has become the bane of the CRM world’s existence,” Rufo says. “Almost every CRM deployment we know is going to have some element of back-office systems tied in.” Whether it’s an order-management application, credit-checking software or claims-processing system, companies need to link their existing applications to CRM systems to make the most of the software.
To make its own integration story more compelling, Siebel last year unveiled Universal Application Network (UAN), its vendor-neutral application-integration framework designed to make it easier for companies to integrate data and cross-application business processes.
UAN is one of the most innovative technologies to be released by a CRM vendor in recent years, Rufo says. One key attribute of the UAN platform is that it doesn’t require that Siebel software control a company’s master customer data. Historically, most CRM vendors required that all customer data get ported into their system before it could work, Rufo says. UAN lets another application be the system of record, she says.
“We know we’re not going to control or own all the data,” Siebel’s Nix says. UAN allows for the ability to create customer-focused processes that cross disparate data sources, he says.
The software maker also is moving from its proprietary core. In the last six months, Siebel has announced plans to port its software to Microsoft’s .Net platform and IBM’s Java-based WebSphere platform, swapping out a large part of its own proprietary application server in the process.
It’s a significant effort, but not one that will be completed overnight, Rufo says. “It’s important that Siebel’s application set will support industry-standard technologies. But we’re not going to see fruits of these announcements in the market until the next three or four years,” she says.
Siebel still in the lead
Siebel continues to sell more CRM applications than its competitors, despite declining sales. Siebel logged $700 million in CRM software revenue in 2002. Meanwhile, SAP attributes $450 million of its 2002 license revenue to CRM applications, according to Gartner. PeopleSoft reported 2002 license revenue of $530 million – for its entire software lineup, including ERP, supply chain, portals and analytic applications. PeopleSoft’s 2002 CRM revenue is likely in the $80 million to $100 million range, while Oracle’s is probably in the $200 million range, says Michael Maoz, vice president at Gartner. “Siebel, even with all its current challenges, has software revenue in the CRM space that equals those other three vendors combined,” he says.
