In-Depth

Siebel’s CRM OnDemand Gives Customers a Choice

Company announces second foray into hosted CRM

• By Stephen Swoyer
• 10/08/2003

With a helping hand from IBM, CRM powerhouse Siebel Systems Inc. last week unveiled CRM OnDemand, its second foray into the CRM hosting space.

With hosted CRM solutions from Salesforce.com, Salesnet.com, and NetLedger.com—among others—having demonstrated the viability of application hosting, Siebel officials are optimistic that CRM OnDemand will take off in precisely the way that its dot-com-era predecessor, Sales.com, did not. It helps, company officials say, that there’s already a huge built-in installed base for the new product—Siebel’s own Enterprise CRM users.

“Customers are saying ‘On-premise [CRM] is great, there’s a lot of areas where that makes a lot of sense, but we’ve got to make sure that we have the flexibility to choose, to go with one or the other today, to migrate when we need to,’” says Richard Reimer, director of product marketing for Siebel’s CRM OnDemand. “We think we’re in a good position because we’re the only one who lets you tie into Siebel [on-premise] CRM from a hosted solution, so you can do both or either based on what you need.”

To deliver its hosted CRM offering, Siebel teamed up with IBM, with which it jointly developed CRM OnDemand, and which will host CRM OnDemand on its own hardware. “They provide the infrastructure of the security and the reliability and the scalability for this,” Reimer explains. The two companies plan to charge $70 per user per month for the service, which Reimer says will be sold by Siebel’s own sales team as well as by Big Blue’s SMB sales force.

Siebel’s CRM OnDemand introduction was steeped in irony. The day after it unveiled CRM OnDemand, for example, Siebel announced weaker-than-expected quarterly revenue, down 10 percent from the year-ago period. Siebel had previously reported that application license revenue for the first half of 2003 was down almost 50 percent from the year-ago period.

What’s behind Siebel’s decline? Certainly, analysts say, it’s facing stiffer competition from the likes of SAP AG and Oracle Corp. in the high-end, and it’s probably lost a small number of low-end or mid-market customers to Microsoft Corp., which unveiled its first-generation CRM product several months ago. But a surprising threat to Siebel’s market dominance has come from the hosted CRM space, where, analysts say, Siebel has been losing ground. Indeed, even as Siebel has bled revenue, purveyors of hosted CRM solutions have grown their revenues in spectacular fashion. Last month, for example, CRM application service provider (ASP) Salesforce.com reported second-quarter revenues nearly double their year-earlier levels.

“This is a good move to kick start Siebel’s stalled product strategy, but it is also a defensive move to counter the positive momentum of ASP rivals that have been eating Siebel’s lunch, and therefore this service isn’t quite as unique in the industry as Siebel is trying to spin it,” writes Kelly Spang Ferguson, principal CRM analyst with market research firm Current Analysis Inc.

To some extent, the CRM hosting route is well-trod ground for Siebel. Some of you may remember that the CRM pioneer trumpeted its Sales.com, a Web destination site for sales professionals, as the Next Big Thing during the late 1990s. But Sales.com failed to live up to expectations, so Siebel first spun it off as a separate entity (in December of 1999) and then killed it altogether in 2001.

Siebel’s Reimer acknowledges that Sales.com was an abortive first attempt, but says that his company—like many veterans of the late ‘90’s boom—has learned a lot since then. “[Sales.com] was an entirely different approach. It was a dot-com, was intended to be a portal for individual sales people, you could go on there and do your travel, you could do your resume. But as a number of people learned, getting a portal for eyeballs is not a great business model, and that’s why we didn’t continue with sales.com,” he concedes.

Why should CRM OnDemand be any different? For one thing, analysts say, the hosted CRM model continues to grow share at the expense of traditional CRM solutions. As a matter of fact, says Hugh Bishop, a senior vice president with Aberdeen Group, over the next three years, total worldwide CRM application license sales—of the perpetual license variety—will decline even further, plunging to $2.48 billion, down from $3.01 billion in 2002, a drop of 17.8 percent. Over the same period, Bishop forecasts that annual subscription revenues from CRM will increase by more than 1000 percent, from $246 million to $2.8 billion. At that point, subscription-based CRM revenues will have eclipsed revenues derived from perpetual software licenses.

That’s a dire forecast for a conventional CRM stalwart such as Siebel. For his part, Siebel’s Reimer insists that there’s still plenty of upside for his company’s conventional CRM applications. Nevertheless, he allows, Siebel will let the market decide. “It’s premature for me to speculate [if CRM OnDemand will be more successful than Siebel’s conventional applications], but clearly you can see by the level of commitment that we’ve made here, we believe this is going to be a very significant part of our business. The real point is that if the customer wants both, let’s provide both and let the marketplace choose. We’re the first and the only software company in the industry to allow the customers to choose.”

Current Analysis’ Spang Ferguson says that even a spavined Siebel is a threat to the established CRM ASPs. “Siebel CRM OnDemand could be what the company needed to reinvigorate its strategy for the [small to medium enterprise] market, which is the obvious target for this service,” she writes. At the same time, she allows, “Siebel is late to the game and its ASP rivals have good positive momentum, sizable customer bases, and established product offerings.”