For 10 years, Siebel Systems Inc. has developed feature-rich packaged applications; however, Siebel's new CEO is reversing that stance turning the company, instead focusing on building custom applications for CRM. During his keynote address at Siebel User Week, recently appointed CEO Mike Lawrie said Siebel will enter the custom-build software market. This represents a major shift away from packaged applications to a new corporate philosophy aimed at custom applications.
The Bottom Line: Siebel is looking to increase its services revenue during a period when license revenue is likely to be flat or down, marking a fundamental shift in its business model.
What It Means: At the conference, Lawrie said the custom-build software market represents "75% of the worldwide opportunity." With this statement, the new CEO presents a quandary with one of two implications: either the CRM software market that Siebel pioneered never really existed, or that its current product set cannot address the majority of companies' customer management requirements. Either way, it represents a huge turnaround for a company that sold the value of an integrated CRM system to more than 3,500 customers.
In reality, Siebel has been selling applications that need customization since its inception. Very few customers implement the vanilla system and have to turn to professional service firms to alter the systems to fit their needs. The average ratio of software-to-service costs is higher than 1:2 for the typical implementation. Even in financial services verticals that have the most industry-specific functionality, final implementations rarely resemble out-of-the-box functionality for pipeline management, incentive management, case management, and account management.
The Takeaway: Lawrie understands that to grow wallet share with customers, Siebel must take over more of the problem and more of the responsibility for the low value delivered on many CRM implementations.
New business model, new customer value
Siebel's change from software to services has major implications on its investments in Research and Development (R&D) and future functionality roadmap; the largest question from customers will be the value of maintenance. Siebel's current customer base continues to pay average annual maintenance of around $1 million. Siebel's shift to services changes its R&D priorities: Additional features and functions will take a back seat to developments in methodology, training, business process development, and other people skills. Buyers should expect that the introduction of functional enhancements will slow down significantly. Those wanting to accelerate the process will need to engage Siebel on a custom basis.
The Takeaway: Customers should review upcoming levels of functionality and technical enhancements to Siebel's products and review maintenance payments.
Rebuilding services staff
For the past three years, Siebel has decimated its professional services staff through layoffs and attrition, and is hoping to rejuvenate it with the addition of Eileen McPartland, senior vice president of global services. McPartland has a major retooling effort ahead of her as she moves the professional services staff from a software culture to a business process culture.
The Takeaway: McPartland's experience at Ariba, Accenture, and in rebuilding SAP Services' Group are an excellent shot in the arm for Siebel that increase its likelihood of success in the transformation into a services-oriented company.
Conclusion: The shift fundamentally changes the game for Siebel and signals a catalyst for the rebirth of this troubled company. Current customers may get left behind based on this shift away from improving the product as investment dollars move toward services. Customers must watch carefully as this transformation progresses under Lawrie's leadership and the strong transformational skills of Eileen McPartland. The recent preannouncement of third-quarter results shows a 5% increase in revenue over last quarter, indicating that the market is starting to believe in Lawrie's leadership.
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