Siebel a Symbol of CRM's Decline
By Ronna Abramson
09/24/2002 07:23 AM EDT
thestreet.com
Once the poster boy for customer relationship management software, Tom Siebel has fallen a long way since January, when as CEO of his eponymous company he graced the cover of Forbes, predicting a comeback in the IT market in the first half of the year and of the economy in the second half.
Seven months later, Siebel ended up eating those words as he reported dismal second-quarter results and layoffs that sent the company's stock plummeting. Shares are down almost 78% since the beginning of the year, while the Goldman Sachs software index is down about 54%.
Before Siebel's (SEBL:Nasdaq) surprise second-quarter disappointment, analysts were sticking to the line that CRM would be a top priority when IT spending picked up and Siebel, the undisputed CRM leader, would be particularly well positioned for a rebound. Even Bear Stearns analyst Chris Kwak, who initiated coverage a week before Siebel's stunning second-quarter disappointment with an unattractive rating, called the company's long-term position solid.
However, a growing number of analysts are starting to change their tune. Now some say that even when the economy improves, the stand-alone CRM market -- and consequently stand-alone CRM companies such as Siebel -- are going to be absorbed into the larger enterprise resource planning (ERP) sector as IT spending habits remain conservative and formidable competitors such as Microsoft (MSFT:Nasdaq), SAP (SAP:NYSE), Oracle (ORCL:Nasdaq) and PeopleSoft (PSFT:Nasdaq) edge into Siebel's domain.
To some degree, it's a revival of a long-running debate pitting best-of-breed companies against suite vendors.
The End of CRM as We Know It?
"The [CRM] category is dissolving," said JMP Securities analyst Pat Walravens. "People who want plain vanilla functionality will buy from a suite vendor or, if they're a smaller company, eventually Microsoft, and people who want more specific functionality are going to buy tool sets that allow them to map out their own business processes."
These suite vendors enjoy advantages on three fronts, analysts say. First, the IT-spending downturn gives them time to improve CRM products to better compete with best-of-breed vendors. Second, they boast thousands of customers who already have bought other software to manage such activities as financials and human resources. And third, they're benefiting from more attention from third-party system integrators such as Accenture, which no longer are funneling business only to Siebel.
In just the past quarter, PeopleSoft boasted of winning six former Siebel customers, while J.D. Edwards (JDEC:Nasdaq) reported signing on Siebel customer Fidelity Investments.
Joshua Greenbaum, a technology consultant and principal with Daly City, Calif.-based Enterprise Applications Consulting, said he believes CRM is "about to take off," but under a different business model. "It's the business model for CRM that I think is outdated," Greenbaum said.
He said he's seeing companies increasingly tie CRM to other applications such as supply chain management, logistics and product development software, while customers are driving more decisions in the enterprise than ever before. He believes stand-alone CRM companies will become a thing of the past because there is a much greater advantage to integrating CRM into other systems.
CRM vendors disagree, blaming the current state of their businesses on the IT-spending slowdown.
"We're the second-largest application-software company in the world," David Schmaier, Siebel's executive vice president of products, said in an interview last week, noting that Siebel's revenue surpasses the application sales of rivals Oracle, PeopleSoft and J.D. Edwards. "These companies have been in business a lot longer than us, so that means we're growing a lot faster than they are."
"The real story here is the ERP market is declining," Schmaier added. "We're weathering this storm as well as, if not better than, any of the ERP guys."
Siebel CFO Ken Goldman echoed those assertions Monday at the Banc of America Securities Investment Conference, while also maintaining that CRM remains at least among the top four IT-spending priorities. However, Morgan Stanley's latest survey of 225 IT executives, in July, found that CRM dropped four notches down their priority list, to 14th.
Customer relationship management software is used to automate and manage marketing and sales force information as well as customer support, including call centers. It's considered front-office software because it typically involves interactions with customer. By contrast, ERP is back-office software that helps companies manage and automate finances, human resources, manufacturing and inventory. |
