Siebel Misses the Mark with Hosted Offering

Kevin Newcomb

Updated · Oct 03, 2003

Yesterday's long-rumored announcement by Siebel Systems and IBM Corp. that Siebel was jumping into the hosted CRM space with Siebel CRM OnDemand garnered a less-than-exuberant response from competitors and a lukewarm response from others in the industry.

“This is clearly an attempt by Siebel to replicate the model which has been very successful, as well as hedge the bet related to their partnership with Microsoft,” explains David Daniels, Research Director at Jupiter Research. “To remain competitive, Siebel needs to shift more of their revenue away from services and back to software. The OnDemand offering accomplishes both needs for Siebel — less reliance on services revenue as well as opening them up to the vast middle market.”

Daniels noted that it's not just Siebel that's in trouble, but rather all client-server enterprise CRM companies. In a November 2002 Jupiter Research executive survey of executives that had deployed packaged enterprise CRM applications, it was found that the majority were challenged when implementing these systems.

More than half complained that professional services cost more than expected, that deployment took longer than expected, and that it required excess time and training costs to compensate for a non-intuitive application. Nearly half the respondents also said that features did not work as promised, the solution cost more than anticipated, and that requested enhancements were not implemented. One-third said vendor support was not responsive, and a quarter cited excessive vendor representative turnover as a problem.

Moreover, a separate Jupiter Executive Survey found that across all IT-related categories — including business intelligence, portals, and others — contact-center applications had the highest churn; 25 percent of respondents said they plan to replace their current application with a new one, indicating that there is little loyalty to one preferred CRM vendor.

“This all signals that vendors such as Siebel are challenged — and will continue to be — in their traditional large enterprise market,” says Daniels. “Large application vendors are clearly feeling the pressure not only within the enterprise market but are eager to develop a mid-market offering, which is where much of the spending is occurring.”

Competitors Weigh In

Not surprisingly, competitors like, UpShot and Salesnet were far less gracious. None seemed worried that their larger competitor was moving into their space. Whether their strong words were mere bravado or more of a response to a move they found insulting to their years of hard work developing their own hosted solutions remains to be seen.

“We've been beating traditional vendors ‘on the road' — in the heart of their business with Fortune 500 companies,” said UpShot Chairman and founder Keith Raffel. “Now Siebel is coming to play in our ballpark. We're tough to beat at home. We have over four years of experience in selling an online Web-based solution, and Siebel is trying to play ball with a Release 1.0 product.”

Salesnet Chairman and CEO Mike Doyle, though less confrontational, predicted a similar fate. “While we applaud Siebel's entrance and willingness to build a pure-play online CRM application, they are like a fish out of water in the online CRM space,” Doyle said. “Finally, they see that there's market demand, and they want a piece of the pie, but the jury is still out on how successful they can be creating a new business model. Traditionally, Siebel has built its business on licensed revenues — and if its failure with is any indication as to how their CRM OnDemand solution will play out, there could be some rocky roads ahead for their online customers.” Chief Strategy Officer Cary Fulbright thinks the OnDemand venture can only hurt Siebel in the long run, whether it succeeds or fails. “If it's really good for small and mid-sized business from a pricing and functionality point of view, then it ought to be very attractive to their enterprise-class customers, both new and existing. Do they expect their enterprise-class customers to use this? If they don't, then that suggests it's not a very robust product, that it's really a product that's been crippled to not cannibalize their core business.”

Been There, Done That

Of course, readers of were treated to this insight months ago, in a July column by Web services guru Phil Wainewright, Missing the (Inflection) Point. Wainewright is the founder of and currently devotes his time and vast knowledge to a Web services blog, Loosely Coupled.

Wainewright began with a no-nonsense account of Siebel's response to the disruptive technology of hosted services. “I never cease to be amazed at how consistently and comprehensively Siebel has failed to understand the true nature and threat of hosted services,” wrote Wainewright. And it only got worse from there.

The latest episode in this sorry saga comes in a published report citing sources saying the two vendors are preparing a service in which Siebel's business applications will be hosted by IBM Global Services. The calamitous extent to which these two companies just do not get it is revealed in the way in which the service is described: as a slimmed-down version of its client-server application.

Frankly, I find myself shocked and appalled that there are still people around who remain convinced that the ASP model is simply a matter of what for several years I've characterized as serving up “cut-down software for cut-down companies.” If that's all that Siebel and IBM have in mind (and unfortunately there's every reason to suppose it is), then let me put the record straight here and now. That concept bears no relationship whatsoever to the hosted services offered by, UpShot and their like.

Wainewright points out that Siebel's vision is that of Application Outsourcing, which offers only marginal cost savings, at best. Where Siebel should have looked, and where its more agile competitors gain the advantage, is the concept of hosted services use a shared-service model relying on a service-oriented application infrastructure, with delegated, self-service configuration at the process and presentation layer. “This shares the cost of the software at a much deeper level than conventional application outsourcing,” writes Wainewright.

Technology Only Small Part of Solution

Bill Blundon, Co-founder and Chief Marketing Officer at Extraprise, an international consultancy focused exclusively on CRM, said the move was expected, that it might win Siebel some business in the long term, but that in the end, the delivery mechanism for CRM was only a small part of the solution.

“Applications software vs. hosted service is a fascinating financial debate. It is a fairly interesting technical debate. However, it has very little to do with marketing, selling, or service. It has no impact on customers. A technology decision is simply one step in a long journey that is driven by people, process, and strategy,” Blundon said.

“In CRM specifically, the technology decision is 10 percent of the solution. There's lots of training and change management going on, there's strategy work, but primarily process work to go on. While this I think is an important announcement and it does validate the position of web services in the space, it's addressing a small percentage of the CRM issue.”

He compares the situation to that of the communications industry. Some companies lease telephone switches and network routers, some purchase them for use in-house, and many use both approaches. “In the end, the network isn't the issue. What matters is the message that gets sent.”

Blundon predicted that Siebel will be better prepared than most to address the “other 90 percent”, due to the strength of their internal consulting organization and their well established relationships with implementation partners.

“I think that's something that the guys who just have the hosted services have had troubles with, because they've been selling cost as their primary advantage, and a lot of the systems integration partners and other consultants who do the other 90 percent don't see a real business opportunity if the focus is just on price,” he said.

“The thing that leads me to think that Siebel has the advantage is that they partnered with IBM on the hosting aspect. To me, the analogy there is Microsoft owning the software and Intel owning the hardware architecture. Siebel and IBM being those two here. For one company to own the whole thing, as Upshot and do, seems to be a little bit of a challenge. I would expect more partnerships to take place there in the coming years.”

Blundon did point to one clear winner in the whole situation. “It's a great day to be a CRM customer. It's pretty clear that a lot of companies want your business, and they're willing to do whatever they have to do to get it. That's a great position to be in.”

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