In-Depth

Siebel: Improving CRM OnDemand, One Acquisition at a Time

Actions show Siebel is putting its money where its mouth is in the hosted CRM market; CEO positions CRM OnDemand for small to mid-size enterprises.

• By Stephen Swoyer
• 01/28/2004

Since unveiling its CRM OnDemand service in October, Siebel Systems Inc. has made a pair of acquisitions that makes it clear the company is serious about hosted CRM.

First, in November, Siebel snapped up CRM application services provider (ASP) UpShot Corp. for $70 million. At the time, analysts said the UpShot deal would help to immediately expand Siebel’s penetration into a hosted CRM market dominated by rival Salesforce.com.

Last week, Siebel once again put its money where its mouth is, paying nearly $5 million for Ineto Services, a provider of hosted contact center solutions. Ineto is a small vendor with 15 employees and only about 70 customers, but the acquisition lets Siebel add contact center solutions to its CRM OnDemand stack, bringing it closer to the capabilities of its on-premise solutions. More to the point, Siebel also will acquire an Ineto customer list that includes Wells Fargo and German conglomerate Siemens.

A giant of traditional, on-premise CRM, Siebel resisted the hosted CRM wave as long as possible, finally introducing its CRM OnDemand service in October of last year. Since then, Siebel competitors have charged that the company isn’t committed to hosted CRM and that CRM OnDemand is merely a retread of the failed Sales.com CRM portal it introduced four years ago. In this respect, says I. Jacobs, an analyst with market research firm Current Analysis Inc., the $75 million that Siebel spent fleshing out CRM OnDemand speaks volumes. “The deal should also dissolve much of the uncertainty in customers’ minds about Siebel’s resolve in breaking into the hosted market,” Jacobs writes.

During his Comdex keynote address, Siebel CEO Thomas Siebel stressed that CRM OnDemand complements his company’s on-premise offerings, but neatly positioned it as a small-to-medium enterprise (SME) play. “Clearly, the Siebel CRM On Demand solution is designed for the middle market and the lower end of this market … these tend to be more casual users,” he said, later adding: “It’s really designed to meet the utilities of divisions of large organizations, small businesses, and businesses that are starting up.”

Not surprisingly, industry watchers speculate that the mid-market is the sweet spot for CRM. In a research bulletin published in November, for example, consultancy METAGroup predicted that mid-market organizations—which have typically competed against large companies on the basis of customer service and intimacy—will start to feel pressure to flesh out their own CRM infrastructures in 2004 and beyond. METAGroup noted that the vendors having the most success selling to Global 2000 organizations—Siebel, Oracle Corp., SAP AG, and PeopleSoft Inc.—market highly flexible CRM solutions that can be adapted to address a range of business needs, but at the expense of licensing and implementation fees that are too expensive for many mid-market customers.

Now that it has cobbled together a CRM OnDemand service that reduplicates the three functional areas of its on-premise offering (sales, marketing, and service), Siebel is the first of these vendors to attack this problem.

Analysts were generally positive about the deal, noting that it demonstrates Siebel’s seriousness in the hosted CRM space. “Adding contact center functionality to the OnDemand brand will immediately help the offering [to] be seen as a full CRM suite, much the same way the company’s acquisition of Scopus in 1998 made Siebel the company it is today,” says Jacobs.

Jacobs believes that Siebel’s acquisition will turn up the heat on hosted and conventional applications vendors alike. Competitors such as Salesforce.com will be under great pressure to offer integrated contact center services, while Oracle, PeopleSoft, and SAP will be forced to think about buying their way into the hosted CRM space.

At the same time, analysts say, Siebel has its work cut out for it. “The company must show a detailed plan for integrating both Ineto Services and UpShot into a unified OnDemand CRM suite,” Jacobs writes. “This should include a single, consistent pricing plan for the full breadth of the service, as well as individual pricing for each module.”