Rumors have been swirling since spring that Siebel Systems Inc. would re-enter the hosted applications market. Now it's reality: The company last week joined forces with IBM to offer Siebel CRM on Demand, a subscription service for small and midsize businesses and divisions of larger companies that don't have the resources or desire to install and manage a big in-house customer-relationship-management application.

Siebel has been here before. It shuttered Sales.com, an online offering, in June 2001. It learned lessons from redesigning its client-server software, which is hard to use in a hosted environment because of throughput requirements and bandwidth constraints, into a Web-based model a couple of years ago. The new software, which offers sales, services, and marketing functions, is written in Java 2 Enterprise Edition. Siebel brings to the table its Universal Application Network integration technology, which lets its hosted software link to legacy and third-party apps, offers built-in analytics, and lets customers upgrade from a hosted to an on-premises version. "That's been one of the Achilles' heels of hosted-only vendors," Meta Group VP Elizabeth Roche says.

Not only does Siebel have the right architecture to provide a better service this time around, says Denis Pombriant, VP and research director at Aberdeen Group's CRM practice, but the market is ready. A survey in June by Aberdeen and CRM information portal RealMarket found that 85% of 156 respondents said they'd consider using a hosted CRM service, up from 52% in January.

Siebel and IBM will jointly market and sell the offering, priced at $70 per user per month. With new license revenue falling 47% for the first six months of the year, to $222.0 million, it's imperative that Siebel find new areas for growth. "The next group buying are companies that span a broad spectrum in the mainstream, from small business to large multibillion-dollar companies," Pombriant says. "But they have fewer resources, are more risk averse, and don't have the same competitive pressures. An introduction like this will bring more of those people into the market."