August 23, 1999
Software Hardball
More than egos are at stake as Oracle takes
on fast-growing Siebel
By Bill Alpert
The Dark Lord of Oracle Systems, Larry Ellison, has
cast his Death Star's shadow on one of America's
fastest-growing public companies. That company is
Siebel Systems, which presides over a prospering corner
of the software universe called Customer Relationship
Management, or CRM. Since the spring, Oracle has been
advertising its CRM ambitions throughout the galaxy,
targeting the San Mateo, California-based firm that Tom
Siebel has pushed to a $600 million revenue run rate
and a $6.5 billion stock-market value. Silicon Valley
papers have reported an amusingly ugly clash of e-mails
and lawyers' letters, proving at least that the two firms
are squaring off over something big. Indeed, Siebel
figures the CRM market is already worth a couple of
billion dollars in annual sales and is growing 50% a
year. So investors in Siebel-and a dozen other hot CRM
firms like BroadVision, Vignette and Clarify-want to
know if Oracle's CRM Death Star is fully operational.
It isn't. But the schematics for Oracle Sales Version 11i
show vaunting ambition, and Ellison has a team of 900
programmers slaving away toward its realization. Oracle
also is courting influential consulting firms like
PricewaterhouseCoopers, which have been instrumental
in Siebel's success but historically hacked off by
Oracle's in-house consulting troops. Industry insiders
think proof of Oracle's success or failure in its CRM
scheme won't appear before yearend. If it works,
however, Oracle CRM could pose the only real obstacle
to Siebel's ascent to tech heaven.
In contrast to formerly hot
products for the factory
and the back office sold by
the likes of SAP and
PeopleSoft, CRM
software like Siebel Sales
-- designed to help win
and retain customers -- is
one of the few exciting sectors in the enterprise software
universe. Less expensive solutions for small sales forces
are offered by SalesLogix and Onyx Software.
Siebel and its rivals Clarify and Vantive also sell
software for maintaining customer profiles in a call
center, so that a request for information or support
becomes a personalized sales opportunity. In marketing
departments, software from such firms as Exchange
Applications and the privately held SAS Institute
analyzes transactions to identify the most profitable
customers for targeted marketing. The newest channel
for the CRM vendors is the Internet, where outfits like
BroadVision, Vignette and SilkNet help personalize the
experience of online customers.
Annual spending for CRM could
reach $25 billion by 2005, in the
estimation of the Boston firm AMR
Research. That's why Siebel claims
the market for products like his
Siebel '99 suite is only 5% penetrated.
"It's a big, big market," says Siebel, in his distinctive,
growling voice. By next year, he predicts, his CRM
industry's sales to the "front office" should surpass the
back-office sales of Enterprise Resource Planning
products from SAP, Oracle and Baan. In the quarter
ending next month, he adds, his company should become
the second-largest application software seller, hot on the
heels of SAP.
For the six months ended
June, Siebel Systems rang
up revenues of $299
million, up 82% from the
year-earlier period, with
profits of $47 million, or
44 cents a share,
compared with
year-earlier profits of $9
million, or nine cents
(which suffered a 13-cent
hit from merger costs). Morgan Stanley Dean Witter
analyst Chuck Phillips thinks Siebel could earn about $1
a share this year and $1.50 next, calling the $60 stock an
outperformer.
"There is a big dog in CRM and it's Tom Siebel," says
Adam Klayber, who manages the 1,600 CRM
consultants at PricewaterhouseCoopers. "They really
own the sales-force automation market for top-tier
companies." And thanks to last year's acquisition of the
call center software firm Scopus, says Klayber, Siebel's
got a hunk of that market, too.
Starting amid a crowded field five years ago, Siebel's
firm powered its way to the top with good software,
strong alliances and old-fashioned salesmanship. While
Oracle was making enemies throughout the business,
Siebel teamed with complementary software vendors
such as PeopleSoft, JD Edwards and Great Plains
Software, as well as hardware makers like Compaq
Computer. More important, Siebel recruited the
consulting firms that recommend and customize CRM
products, firmly securing the commitment of Andersen
Consulting through Andersen's acquisition of Siebel
stock. Just this month, Siebel added an impressive new
consulting partner in IBM, which ditched an internal
CRM software project that could have rivaled Siebel's
products. News of the elimination of IBM as a potential
rival was good for an 11% pop in Siebel's shares. Oracle
entered the CRM market in May, with a product called
Oracle Sales Version 3i, which the Redwood Shores
company claims was worth almost $45 million in May
quarter revenues. Mark Barrenechea, Oracle senior vice
president in charge of CRM, says one of the first
customers is Oracle itself. "We'll certainly eat our own
dog food," says Barrenechea.
No one's cavalier about Oracle's potential. The database
giant had revenues of $5.1 billion from services and
$3.7 billion from software in the year ended May 1999,
on which it earned $1.3 billion, or 88 cents a share.
Oracle has plenty of large customers already using its
applications for Internet commerce, finance or
back-office software. Among the first commercial
Internet installations was Diamond Multimedia Systems
in San Jose, where chief information officer Bernie
Miller says a compelling reason for trying Oracle's CRM
product is its promise to mesh with the Oracle ERP
software Diamond already uses.
That's just the blueprint for Oracle's 11i sales software.
"Oracle doesn't have all the pieces today," reports Adam
Klayber, of PricewaterhouseCoopers. "But they have a
strong group of people working toward that result."
At the same time, Oracle is trying to make up for all the
mean things it has done to consultants. At Keane, CRM
practice manager Ken Rudin says he met last week with
Oracle's team, which offered Keane's consultants free
software and training. "Right now they are very hungry,"
says Rudin.
A key battleground for CRM, say consultants like Adam
Klayber, will be the 'Net. "The Web is the defining piece
for all these vendors," says the PricewaterhouseCoopers
consultant, who believes that Siebel, Clarify and the
now-struggling Vantive have already won the war for
sales-force automation and call centers. Because the
e-CRM war has just begun, however, it figures greatly
in the plans of Siebel, Oracle and Web-centric CRM
outfits like BroadVision, Vignette and SilkNet, as well
as the smaller Primus Knowledge Solutions, Pivotal and
soon-be-public E Piphany.
Tom Siebel sees no shadow in his path, except his own.
"If and when Oracle releases a functionally complete
product, we'd expect them to become a competitor,"
says Siebel. "But Oracle today is just not a factor in the
market." |
