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Hosted CRM providers made a big splash during the dotcom era and started
to spring up like weeds until the market downturn decimated the entire
space. One player, salesforce.com,
did better than most on the market's way up and the way back down.
A rivalry ensued between the hosted model, led by salesforce.com, and
Siebel's in-house approach. In April 2001, Tom Siebel even predicted the
demise of salesforce.com, stating that he believed the company would no
longer exist in a year. Siebel's comments, while incorrect, made sense in
a market that saw other ASPs closing their doors as fast as they had
previously opened them.
Technology is ever-changing, and predicting market trends can sometimes
be tricky. Hosted CRM is no exception and, in fact, Siebel recently
introduced a hosted solution of their own, named CRM OnDemand.
Additionally, Siebel purchased hosted CRM vendor UpShot Corp. In light of
these recent events, I thought it wise to ask both CRM rivals some
questions about the hosted model and how each company views the other.
First, I spoke with salesforce.com's chief strategy officer, Cary
Fulbright.
RT: Siebel recently announced a hosted model. What is your opinion
of this announcement?
Fulbright: Two weeks ago, Siebel
announced Siebel OnDemand and said the company was 'doubling down' on CRM.
Presumably, this is an acknowledgment that the company's foray into
employee relationship management has been a $1 billion waste of money, and
they have finally woken up to the fact that their CRM software license
revenues are half of what they were two years ago. We are 100 percent
invested in on-demand CRM, and have been for four years. In that time,
we've invested $100 million in development on 16 releases to produce a
robust, world-class offering. We have a single integrated solution that
meets the needs of our customers'not an outdated client-server software
app, an abandoned UpShot hosted app, or a yet-to-be-delivered
first-generation Siebel OnDemand app. We are single-minded about the end
of software. If Siebel really embraces this model, it will mean their
software license revenues will take another 75 percent decline. Welcome to
the new world.
RT: How will you differentiate yourself in light of this news?
Fulbright: We really believe in the
end of the current enterprise software model and the triumph of software
as service. We've doubled our subscribers and our customers in the past
year and doubled our revenues year-over-year for the past three years.
Siebel's belated efforts are just a marketing smokescreen to bait
customers with Siebel OnDemand and then sell them the old Siebel 7.5
software to which they can't get their own installed base to upgrade. The
most obvious sign of this is all the company's marketing about companies
that can run both on-demand and on-premise Siebel solutions. Why would
anyone want to do this?
As of today, Siebel CRM OnDemand doesn't exist. The company announced
one customer at its launch ' Planitax ' which is actually still using
salesforce.com. Customers have a clear choice. They can choose Siebel, an
unproven provider of CRM on-demand who three years ago killed their first
foray into this market and this week killed the UpShot product in favor of
their own non-existent in-house offering, or they can choose the global
leader in on-demand solutions, salesforce.com. We have a mature Web-based
CRM solution. It's available in 11 languages and 110 countries around the
world. It has integration. It has customization. It has offline access.
With sforce, it has code-level customization that has never before been
seen in a software-as-service model. It is the best of both worlds.
Siebel touts the ability to have a blended in-house and hosted model as
an advantage. Will you change your strategy to sell software as well so
that you aren't seen as a more limited solution?
To clarify, we now know that Siebel's on-demand offering is not a
service at all. It is software being sold by and to IBM, Sun, HP and
others as licensed technology. Customers will not know what version they
are on, what the availability is, what security is being employed, etc.
salesforce.com, on the other hand, is a services company whose job is to
do one thing: make customers successful. We do it better than anyone. We
have a winning strategy and do not plan on changing this simply to offer
customers software they don't need or want.
RT: The hosted model is a fraction of the CRM market at the moment.
If you had to look into your crystal ball, what percentage of the CRM
market will be hosted in one, two and three years?
Fulbright: What is a meaningful
'fraction'? Is 25 percent and growing meaningful? In the past four years,
we have gone from zero to 8,000 customers, zero to 110,000 users, and zero
to $100 million in revenue. During that period, the client-server CRM
market has shrunk in half. Siebel just announced quarterly SW license
revenue of $110 million, some of which is not CRM at all. Part of that is
due to the flaws in the software that's being sold. A great part of it,
however, is due to customers choosing us as an alternative to that model.
SAP's ERP license revenues aren't down 50 percent. Only CRM license
revenue has dropped so dramatically, which is exactly the market we've
entered.
Siebel itself quotes the Aberdeen Group as saying the hosted CRM
solution market will be a $2.7 billion market by 2006. That would be three
times the size of the current client-server CRM market today. We are
clearly the leader in this market. UpShot just admitted they had only
1,000 customers and 8,000 subscribers. That is one-fourteenth of our
subscriber base and presumably one fourteenth or less of our revenues. To
the extent Siebel embraces this model, it will only accelerate the demise
of the client-server CRM software model and its replacement with
software-as-service. Keep in mind that these multimillion dollar software
systems are not even in the ballpark for the 99 percent of companies that
are 1,000 employees or less, and this is where the action is. Large
enterprises spending $50 million on a Siebel implementation is not a
growth market. In the next three years, there is the potential for
software-as-service to be the dominant part of the CRM application market.
RT: Is the hosted approach right for all organizations or are there
some instances where a company is better off with in-house software?
Please elaborate, giving examples of companies that might be better off
with either approach or both.
Fulbright: We believe that just as
companies have outsourced their water, electricity, heating and
telecommunications to utilities, they will outsource their information
applications to utilities, because these are not their core competencies.
Why should companies take four times as much time and spend five to ten
times as much to build a solution in-house, only to have it rejected by
users and suffer from lower quality and lower reliability, when they can
subscribe to a software-as-service solution that better meets their needs
at a fraction of the cost? How many companies are doing their own payroll
in-house? With the combination of the salesforce.com application and the
sforce platform, we are proving that companies of all sizes can now get
everything they need from this model.
I also approached Siebel Systems, which declined to answer our questions
directly related to Siebel's stance on its new hosted venture vis-'-vis
salesforce.com, but instead elected to provide some answers from the
perspective of its recent acquisition, UpShot Corp.
CIS spoke with Julie Choi, vice president of product marketing for
UpShot.
CIS: How will the hosted CRM landscape change with Siebel's
acquisition of UpShot?
Choi: The partnership with IBM,
introduction of CRM OnDemand and acquisition of UpShot all signal a coming
of age for the hosted segment of CRM. The landscape will change
profoundly. The dividing line between hosted and on-premise delivery will
become an obsolete notion. There is a simple elegance in telling customers
they no longer have to choose between models and providers. Hybrid
delivery ' combining hosted and on-premise ' to suit customer need will
become a 'must have' to compete effectively in this arena.
CIS: How did your customers react to the news of the acquisition?
Choi: Our decision to merge with
Siebel has been reinforced by the enthusiasm we're seeing from new and
existing customers. Siebel's strong financial standing and its commitment
to support UpShot's customers indefinitely are viewed as positives
across-the-board. At some point in the future, a natural migration will
occur as we upgrade the two products ' Siebel CRM OnDemand and UpShot '
and they will ultimately converge into a single offering. As the products
converge, UpShot customers, in addition to Siebel CRM OnDemand customers,
will clearly benefit from solutions that combine Siebel's world-class CRM
expertise with UpShot's hosted CRM innovations, resulting in functionally
superior products that are easy, fast and affordable. This, coupled with
seamless integration with or migration to an on-premises deployment of
Siebel, will provide customers with the choice to select the CRM solution
and delivery method that best suits their needs. At the end of the day,
customers want to know that their CRM initiatives will be successful.
UpShot's relationship with Siebel ensures that long-term success as their
business needs change.
CIS: The noisiest hosted CRM provider has been salesforce.com. Now
that Siebel is introducing its OnDemand CRM, and is also working with
UpShot, what's in the cards for salesforce.com?
Choi: Siebel's new business approach
is CRM for everyone. This means that Siebel's strategy is to provide
industry-leading CRM solutions to any type of user, any size company, in
any industry, in any way users prefer. Siebel is now uniquely positioned
to deliver on that strategy because of their market leadership, CRM
expertise, extensive partner network including IBM, depth of resources and
the addition of UpShot's history of innovations and years of expertise in
hosted CRM. What this means for niche hosted players is really anyone's
guess.
CIS: Will UpShot stop innovating its products?
Choi: No. In fact, exactly the
opposite. The rate of innovation will accelerate as we combine UpShot's
hosted CRM expertise with Siebel's CRM expertise and significant
resources. Next month, we will be announcing a major product release which
further demonstrates our commitment to deliver world-class CRM
functionality. Future releases, as we converge the two products will add
greater depth and breadth of functionality, industry-leading analytics and
vertical industry-specific functionality. Customers can and should count
on continued innovations. This is only the beginning.
Sincerely,
Rich Tehrani
Group Publisher,
Group Editor-in-Chief
[email protected]
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