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Does Siebel's surge foretell a stronger CRM market?

Some are wondering whether Siebel's rosier financial picture means good things for the entire CRM space in 2004.

The New Year got off to a positive start for the CRM software industry on Monday, when Siebel Systems Inc. announced it was raising its guidance on earnings and sales for the fourth quarter.

The positive early returns could be a sign of better things to come. While many analysts are predicting little growth for 2004, any increase is far better than the declines in CRM spending during the last three years.

According to Stamford, Conn.-based Gartner Inc., the CRM market will grow by 1% in 2004 and reach $2.9 billion in 2007. Those figures represent spending on software applications only and do not include maintenance, updates and service.

Siebel, San Mateo, Calif., seems to have seen some of that new spending early. The vendor expects to find it earned 8 cents per share on overall revenue of about $365 million for the quarter that ended Dec. 31. License revenue is expected to be about $150 million. Analysts had been expecting earnings of 6 cents a share on overall revenue of $350 million. The estimate lifted Siebel shares to a Monday close of $15.39, an increase of $1.40 for the day.

For companies that have been putting off major CRM investments, the time could be ripe for them to open their wallets.

Riverstone Networks Inc., a Santa Clara, Calif.-based metro Ethernet network solution provider, implemented the Oracle E-Business Suite in January 2001. The deployment came at a tough time for the national economy but amid the company's best quarter ever. David Riley, director of IT initiatives for Riverstone, was pleased with the result of the $2 million endeavor, which put customer information in a central repository and enhanced customer-facing applications.

"Over the last two years, [CRM] prices have come down quite a bit, whether in consulting, hardware or software," Riley said. "The deals now are a lot less. Oracle now would be half the price because we spent so much on consulting."

Yet, despite the successful implementation and signs of an uptick in the economy, Riverstone is taking its time with its next investment.

"We want to make sure the uptick in the economy is not a smoking gun," Riley said. "We want a good two quarters underneath us before the next leap of faith. I don't foresee the next investment being that dramatic."

Of the five areas of CRM identified by Gartner, marketing should see the highest compound annual growth rate at 10.5%, according to analyst Tom Topolinski. Customer service and call- and contact-center spending are each expected to grow at a rate of 1.5%, while sales and e-commerce software are expected to see a decrease of 6.9% and 4.8%, respectively.

Two of the main drivers of the increase in spending on marketing will be Sarbanes-Oxley compliance and investment in analytics, Topolinski said. Customer privacy concerns are also expected to drive spending.

Vendors shouldn't expect to see too many large projects either, Topolinski warns.

"We're probably going to continue to see incremental, tactical implementations," Topolinski said.

Gartner predicts that 70% of CRM spending will be justified by a project's cost-cutting potential, despite executive-level pledges to invest in increasing the customer base.

Across industries, Topolinski said, telecom and finance will continue at their current levels of spending, with a small amount of growth expected in health care and more growth in personal services and government.


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