Mike Buckley, thanks for your QCOM rebuttal (we were counting on you <g>). Re: Siebel, this from today's Barron's. Any impressions? Greg
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.
Siebel's Tom Siebel
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.
Table: Companies Selling CRM Software
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.
Oracle's Larry Ellison
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."
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