In-Depth

Bad Day at the Races: Oracle Watches SAP Take First for CRM

Oracle’s $6 billion acquisition of Siebel was good enough for second place—behind arch-rival SAP—in 2005’s torrid CRM market.

• By Stephen Swoyer
• 06/21/2006

Only time will tell if Oracle Corp. got a bargain when it coughed up nearly $6 billion for Siebel Systems Inc. last year.

But if Oracle was betting that the addition of Siebel and its prodigious customer base would help it leapfrog over SAP AG to CRM market dominance, it—or CEO Larry Ellison, at any rate—was mistaken.

That’s the conclusion of the latest research from market watcher Gartner Inc., which found that SAP—and not the combined Oracle/Siebel—was the CRM market leader in 2005, on a revenue basis, at least. The CRM market as a whole is far from saturated: revenues increased by 13.7 percent from 2004, driven in part, Gartner research director Sharon Mertz says, by renewed business confidence amid a healthy commercial economy.

For the year, Gartner researchers say, SAP grew its CRM market share at both Oracle’s and Siebel’s expenses. Both firms bled CRM market revenues, Siebel ceding between 5 and 6 percent of its market share (even though it actually grew its revenues by about the same margin) and Oracle—the CRM practice of which includes the former PeopleSoft, too—hemorrhaging as much as 22 percent of its market share. SAP, on the other hand, posted solid if unspectacular market share growth (5 percent) while at the same time growing its revenues by almost 16 percent. Elsewhere, CRM-as-a-service pioneer Salesforce.com all but exploded—growing its modest market share by almost 35 percent (and its revenues by 44 percent). SAP’s performance gave it the CRM market lead, with more than a quarter of all revenues (25.9 percent) followed by the combined Oracle and Siebel with 23.4 percent. Salesforce.com was tied for third with Amdocs, both at 4.9 percent market share.

Gartner researchers said that midmarket sales helped drive growth across the CRM space, a phenomenon that benefited both the large suite purveyors and software-as-a-service providers, too. Oracle’s acquisition of Siebel last October didn’t necessarily constrain that company’s growth, either: Siebel posted strong Q4 results, Gartner analysts say, but these gains came not at the expense of arch-enemy SAP, but of Oracle’s combined CRM practice.

At the same time, Mertz says, CRM market tumult—i.e., the uncertainty of existing PeopleSoft, and, to some extent, Siebel customers—might have helped fuel SAP’s success. “Merger and acquisition activity continued relentlessly in 2005, as large vendors acquired smaller firms and as market leaders acquired each other," Mertz said in a statement. “Market consolidation in 2005 remained a driver for best-of-breed and suite providers by offering a compelling value proposition and capitalizing on temporary buyer uncertainty. Buyers were solidly focused on new customer acquisition, expanding wallet share, process optimization, and business accountability.”

Going forward, the efforts of SAP and Oracle—and, to a lesser extent, Salesforce.com and Amdocs—will almost certainly focus on that elephant in the CRM market room: the roughly 41 percent of market share controlled by boutique and specialty CRM vendors, who in 2005 generated $2.33 billion in revenue.