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Siebel Systems -- the host with the least

Though Tom Siebel once publicly denounced the hosted CRM model, his company may have to join the ASP fray in the name of survival. But can Siebel compete in the hosted CRM market?

About a year ago, in an interview with CNET, Tom Siebel was queried on He said: "I think they're not a factor in the marketplace. They don't have meaningful market share. The company's CEO left, its CFO left, and they can't get financing." Since that time, has flourished and become profitable. It also is responsible for the revival of the extraordinary, dynamic application service provider (ASP) market.

Siebel Systems dismissed hosted solutions two years ago with the dismantling of, an online sales force automation solution, despite $27 million in funding. Tom Siebel's answer to that? "I do not believe it is an economically viable business model as a standalone company. There have been a lot of companies based on the premise that companies want to outsource their application software to a third party. This is what this whole ASP market was about. You look at the progress of those companies based on that premise: They're all failing."

Not anymore., Salesnet, NetSuite, UpShot, RightNow and dozens of others have been wildly successful in the past year, as the restored and revamped ASP model has become the business model du jour and, in fact, probably du decade. Multiple analysis firms have predicted this market will be poised for major growth during the next three or four years. While analysis firm Aberdeen Group sees a decline of CRM license revenues at an annual rate of 4.8% through 2006, Aberdeen expects ASP subscriptions to grow to $2.8 billion by that year -- a 95% growth rate.

Now, Siebel, unable to reverse its decline during the past year, has begun to take notice. Rumors are circulating (based on a research note by analysis firm JMP Securities) that Siebel is going to collaborate with IBM on a hosted model called Siebel OnDemand. Siebel neither denies nor affirms the rumor.

While IBM would provide significant expertise and marketing for such an effort, given Big Blue's hosted services agreements with other CRM companies, such as Onyx, there are multiple problems with Siebel entering this market now.

First, Siebel is late to the game. The company would be providing a first-generation product while companies like and Salesnet are already into their third and fourth generations.

Second, Siebel would have to change its pricing model and make it a very distasteful one. Think about this -- they are used to landing multimillion-dollar software deals. The days of those costly enterprise deployments are nearly over. But Siebel (as do other vendors like Siebel) has its revenue forecasts, spending, compensation plans, corporate culture and entire business model based on that approach. To change its pricing from high-ticket licenses to low-priced subscriptions implies vast internal changes, in everything from how the company forecasts to how it compensates its sales teams.

Third, Siebel would have to eat its words. Tom Siebel's dismissal of both the hosted market and its leaders will make Siebel look bad when the company has to say, in effect, "Once again, we were wrong. Whoops." Seizing mind share with all of this documented disdain might not be easy for a giant like Siebel.

Fourth, the company would have to simplify what are perhaps the most functionally rich applications on the market. That means a significant development effort on Siebel's part to scale its Fortune 1000 enterprise-focused applications to the needs of small and medium-sized businesses (SMBs), without simply disabling some functions of the larger apps and calling that dumbed-down trick its "hosted solution."

Fifth and finally, Siebel would have to penetrate a market it has already miserably failed in -- the SMB space -- and do it at a time when the competition is fierce.

Yet, with all these obstacles, Siebel may have to join the ASP fray for its revival or even survival. When I wrote in the second edition of my book, CRM at the Speed of Light, that at some point "the shark [Siebel] would begin to eat its own tail," I didn't realize that within a year it would be swallowing its own head. But it is, and it's Siebel's time to put up or shut up. Shutting up has been something the company seems to do poorly. Putting up a hosted application might be one of its smarter moves.

But if I were a potential customer, I'd be careful, for all the reasons above and more. In order for Siebel to provide you with an application that fulfills your needs, but not necessarily all your desires, the company is going to have to change its corporate paradigm, something it has failed to do so far. Keep in mind, Siebel's SMB past was defined by just dumbing down its enterprise applications, not understanding the actual market differences between the enterprise and the smaller business. Simply because Siebel is charging a monthly fee for something via the Web doesn't make it any better or smarter.

For more information:
Sea change at Siebel: Is hosted CRM on the horizon?

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