VentanaMonitor™
Summary
The software market continues to consolidate. The announcement by Oracle that it will purchase CRM applications provider Siebel is the beginning of the final phase of the commoditization of the transaction-centric CRM and ERP applications market. The acquisition, if completed, will impact significantly the future direction of CRM efforts. More importantly, it will limit global organizations’ vendor choices to Oracle or SAP, while providing some room for Microsoft Business Solutions and smaller suppliers Onyx and salesforce.com to service larger organizations. Organizations that currently own or plan to purchase upgrades or new applications from Siebel should take precautionary measures to mitigate their financial and operational risk. Ventana Research believes this event provides a useful opportunity for organizations to reassess their planned IT investments in CRM to ensure they are on track to deliver value by improving the operational and financial performance of their businesses.
Assessment
Siebel Systems, Inc. has been a leading provider of CRM applications. Siebel’s innovations, not the least of which was its early pioneering of the term CRM, propelled it forward for more than 10 years, allowing it to grow into a multi-billion-dollar company and a significant business partner to many large corporations. But the company has faced significant challenges over the last three years in attempting to maintain its early rate of growth and to compete against the other major CRM providers.
Ventana Research cannot help but note that Siebel’s success is a striking accomplishment in a market that always has been -- and to some degree remains -- ill-defined. Most organizations do not use CRM to manage customer relationships but rather to handle transactions and interactions with customers across multiple channels. Though the use of Siebel’s products may not match the company’s marketing rhetoric, the products have sold nonetheless, to the point where the company became a victim of its success. Many customers have saturated their business units with software applications acquired to improve marketing, sales and service delivery performance, not to mention tools to integrate all that technology. The tools are working well enough that organizations have not felt the need to upgrade or replace applications as often as Siebel, or its shareholders, would have liked. These delayed or denied purchasing decisions have had a significant impact on Siebel’s license revenue growth -- or, more recently, its decline.
For organizations that have adopted Siebel as their major or sole CRM provider, the last two years have seen progress toward realizing the vision of CRM, which is delivering information about customers that can materially improve the profitability of the relationships with them. The key to this advance has been Siebel Business Analytics, combined with investments in third party BI and information management tools. The enabler for Siebel was the strategic acquisition of nQuire four years ago, which brought it the technology platform and people that would yield the substantial flow of license revenue that the Siebel Business Analytics product line has generated.
Thus, Siebel Business Analytics, along with a dedicated organization focused on analytics for CRM and other operational areas, is the true gem Oracle is acquiring. The Business Analytics group at Siebel has been very successful both at delivering value to existing Siebel CRM customers and at competing for generic BI business and selling applications that link customers to operations and finance. Marketed and sold effectively, this group’s products could improve Oracle’s position in the BI market significantly. Oracle has not done well to date at penetrating the broader BI platform, tools and applications market. This is a market that has been growing substantially over the last decade, as witnessed by the success of Business Objects, Cognos, MicroStrategy, SAS Institute and others. By acquiring his former protégé’s company, Larry Ellison may have created the opportunity for Oracle to move into a credible, perhaps commanding, position in the market.
However, this also adds to Oracle’s already substantial portfolio of applications that will have to be managed and ultimately migrated into the new Oracle architecture. Siebel’s offerings, though they may quickly be rebranded, will be queued behind the products of the former Peoplesoft; their full integration will not be accomplished overnight. Until then, they are unlikely to benefit fully from sharing a brand with Oracle’s database technology. Since Ellison appears to be in an acquisitional mood, perhaps a purchase in the integration technology arena could accelerate Oracle’s opportunity to provide effective middleware and a truly integrated applications suite.
Market Impact
This acquisition has not gone unnoticed by IBM, Microsoft and SAP, all of which play in the enterprise software and applications market. Since Siebel had significant database and computing platform partnerships with Microsoft and IBM, Oracle could, and likely will, begin to restructure the Siebel CRM applications to ensure that future deployments use Oracle middleware and database infrastructure. For SAP, this provides an opportunity to continue forward with its new CRM release and the SAP NetWeaver platform, which is on the market today and will not require any additional fusing of third party applications. For Microsoft and IBM, this acquisition creates a new challenge in competing with Oracle and gives them reason to work more closely with SAP. Fortunately for them and for other vendors focused on performance management in the CRM and ERP market, among them Business Objects, Cognos, Hyperion, SAS and even SAP, they probably will have time to evolve their competitive strategies, since Oracle will have to rationalize its sales, services and product organizations and likely won’t be able to sell and service these markets very aggressively in the near future.
Recommendation
The market for enterprise CRM applications is not as glamorous as it once was. The reality is that most organizations have something that operates and meets existing people and process needs. Organizations should fully leverage existing investments by utilizing the entire life-cycle term of their applications if possible. Moving to the next step isn’t easy; our research and feedback from clients continue to point to challenges in integration of the systems, managing customer information assets for growth, building consistent customer master data stores for the business and utilizing BI to access and deploy information across the enterprise. Fortunately for Oracle, it will have far more than just the opportunity to gain customers and maintenance revenue — it will have a business analytics product line that could over time give Oracle a substantially enhanced standing in this market.
Ventana Research encourages companies not to take unnecessary risk during the period that Oracle will require to complete its acquisition of Siebel. No company should make a purchase commitment until Oracle provides a clear, credible product roadmap clarifying when the integrated tools will be available to deploy in the organization. Organizations that are currently exploring which CRM path to take should not commit before having developed a full business case, operations assessment and corporate governance review of their entire investment from a people, process, information and technology perspective to ensure investing in a system that will deliver value. Those seeking to focus more narrowly can continue to assess the Business Analytics product line as a separate opportunity to leverage their existing Siebel and even Oracle or SAP investments and generate information based on business analytics that can improve operational performance.
Other Research Notes:
Oracle Opens New World of Opportunity
Oracle OpenWorld and Peoplesoft acquisition reveal strengths and weakness for Oracle in 2005 and beyond. (January 12, 2005)
Siebel Strengthens Commitment to Business Intelligence
Broadening of analytic application suite brings new focus for Siebel Business Analytics. (November 29, 2004)
Siebel adds to Robust Customer Analytics Applications
Customer Analytic Applications 7.7 built on next-generation BI platform ( October 15, 2003)
About Ventana Research
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