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Rich Tehrani

Siebel Comes Out Swinging

By: Rich Tehrani, Group Editor-in-Chief,
Technology Marketing Corporation


The CRM market has certainly been full of excitement recently. I wrote about Siebel's new CEO, George Shaheen, in the May issue of this magazine (tmcnet.com/151.1). I had expected to interview Mr. Shaheen along with Marc Benioff of Salesforce.com at that time. As it turns out, Siebel did not make Mr. Shaheen available for interviews with any publication at the time of my writing, though I had already contacted Salesforce.com. The result: I had an interview with Mr. Benioff, but I had to do an 'unauthorized' interview with Shaheen. I figured if you can write an unauthorized biography, why not an unauthorized interview? So far, I haven't been contacted by anyone's lawyers, so I'm beginning to think I'm safe ;-)

Siebel has always been more tight-lipped than most other companies I deal with. It has been a frustration of this magazine that we cannot get as much information out of the company as we would like. As the leader in CRM and contact center technologies, we need input from a software giant like Siebel to do our jobs correctly. I was discouraged by the fact that the new CEO seemed to be following the same information blackout policy.

Worse, it was no fun covering the space, as Salesforce.com routinely trashed Siebel in this magazine and Siebel wouldn't respond. As an objective reporter, I would do my best to provide fair articles to both parties; but with little Siebel input, it was really tough to do.

Recently, out of the blue, I received an e-mail from Bruce Cleveland, SVP and GM of Siebel's OnDemand and SMB divisions. Mr. Cleveland's e-mail denigrated Saleforce.com by pointing out a slew of advantages Siebel has over the newer, hosted-only CRM company. I was amazed. Rather, I couldn't believe it. Siebel was fighting back! More important, Siebel was providing information on how the company differentiates itself.

I posted the letter on my blog at Tehrani.com and asked Salesforce.com if the company had a response. A few days later, I received feedback from Salesforce.com Vice President of Worldwide Marketing Phill Robinson. This response was covered in my High Priority! in the July 2005 issue of this publication (tmcnet.com/152.1).

To be fair, I reached out to Cleveland's office and decided this was a great month to get Siebel's comments on a whole bunch of questions I had been saving for a while and, just as important, I wanted to get some of Mr. Robinson's points addressed. I found that Cleveland is a straight shooter, answering virtually every question I had without pause. I really learned a great deal about what Siebel is up to, and here I will share the details of my conversation.

I started by asking Cleveland to tell me where his company stands. He proceeded to tell me that he started with Siebel at the company's inception and has seen it expand from sales information systems to sales, marketing and customer service functions. He continued by saying that from 2000 to 2001 many companies purchased software licenses with the full intention of consuming them. When the recession hit in 2001, sales, marketing and customer service expenses were cut in many companies and, as a result, many of these organizations put new-license acquisition on hold. He says this is why license growth has been more or less flat recently.

In response to a bad quarter and the various stories attacking Siebel's financial situation, Cleveland proceeded to tell me that although license growth has declined from 290,000 seats in Q1 to 264,000 seats in Q2, the company has 3.4 million active users and, most important, maintenance revenue grows every year. According to Cleveland, 'If there were such a problem, there wouldn't be the deployments and revenue from maintenance.' To put the icing on the cake, Cleveland told me that Siebel has $2.2 billion in cash and generates $50 million in cash each quarter.

Our discussion led to the days when CRM was said to be failing. Apparently now, Siebel customers are happier than ever. One reason is that customers are now beginning to understand how to integrate the application(s) into their organizations. He mentioned that this is similar to what happened to SAP from 1990 to 1991. Once customers came up to speed on using SAP, sales started to take off.

In addition, the market for Siebel has changed in the last few years. As Cleveland pointed out, the company went from a market that had little-to-no competition to an intensely competitive one.

Our conversation got very specific when it came to on-demand solutions, as this is where Salesforce.com really focused its attack last month. According to Cleveland, in the most recent quarter, there has been a 245 percent increase year-over-year for on-demand solutions, and 90 percent growth quarter-over-quarter. Granted, they started from relatively small numbers.

More interesting statistics from last year: In Q1 the company won 10 percent of the business when it was up against Salesforce.com; in Q2 it was 17 percent; and by Q2 of 2005, Siebel won 58 percent of the business when up against Salesforce. Of course, I haven't had a chance to query Salesforce.com officials about their perspective on these numbers.

Cleveland's assessment of Salesforce.com is that the company is winning the ACT! and Goldmine replacement market and is using this revenue to fuel growth in the enterprise space. Although Salesforce is winning some large accounts, Cleveland was quick to point out that hosted solutions are not a panacea for success, as process, people and integration are crucial. This is where my column last month comes into play, as Cleveland discussed Salesforce.com's minimal R&D spending. He said that without spending, customers get only basic integration.

Cleveland said of Salesforce.com's Customforce: Any situation in which 'a customer gets the dubious pleasure of doing the integration themselves is fraught with peril.'

The differences between the companies may just come down to philosophy. Where Siebel believes the onus is on the vendor to lower the TCO and do the integration, Salesforce.com is focusing on having partners do the integration. Cleveland pointed out that reliance on partners works better in the desktop productivity application space than it does in the enterprise space.

He told me Siebel has closed the functional gaps between the two services and, therefore, Salesforce.com is going to face a lot more competition in the future ' a situation, Cleveland stated, that Salesforce hasn't been accustomed to in the past.

Another interesting point is the discussion Cleveland and I had about code streams. Last month, Robinson pointed out that Siebel has so many different code streams to maintain that it's actually hurting the company. Robinson explained that much of Siebel's R&D spending is being done just to ensure the different products run on different operating systems and integrate with a variety of databases.

Before I even got a chance to shoot off the question about this issue, Cleveland said that he is now in charge of not only On Demand, but of all products at Siebel. One of his first jobs is to integrate the code streams of the On Premise (7.x) service-oriented architecture (SOA), otherwise known internally as Nexus, and the on-demand code streams. This will allow unified development, quality assurance and localization.

When this is done, Cleveland claims it will be difficult to compete with Siebel, as the company will have 1,500 developers focusing on the UI and functional work while Salesforce.com has about 100. Siebel's upcoming Nexus project is going to be very interesting (in his words), as hosted components will be easily mixed and matched.

When I finally got around to tackling the platform question, asking how much of Siebel's R&D spending is devoted to developing applications that run across various platforms, Cleveland responded that partners such as Microsoft and IBM help in this area (so there isn't as much cost as you would think). He added, 'Siebel's rich set of software programs is unrivaled, consisting of marketing automation, incentive compensation and analytics. Salesforce.com will have to catch up with 12 years' of development.'

I asked for a breakout of on-demand profitability, as this seems to be where Salesforce.com really hammers Siebel in the media. Cleveland told me that formerly this wasn't possible, as he didn't have a handle on those specific costs in the past. Now he does. Expect to see these sales broken out much more visibly in 2006.

Another issue we discussed was Salesforce.com's implication that going to a hosted model will be bad for Siebel's shareholders. In response, Cleveland told me that any revenue is good revenue, and a hosted revenue stream would take some of the lumps out of the sales chart. What is most exciting about this answer is its implication that this will force Siebel to focus more heavily on keeping customers happy. This is exactly what Robinson said to me about Salesforce.com's products. My comments (in last month's column) about the customers being the winners seem to be echoed by both companies.

I also hinted at a potential price war to gain market share, and to this Cleveland said that Siebel won't use price as a way to win business; Siebel plans on competing with functionality. Siebel will likely stay out of the $25 million-per-year revenue market, which is more price-sensitive.

A few parting thoughts: Cleveland wonders why Benioff spends so much time attacking Siebel when he might be better served taking out companies like FrontRange and its Goldmine product. Finally, he told me that there are some amazing things coming down the pike from Siebel ' things that are tough to discuss in the midst of a 'crappy quarter' (his words, not mine) ' but they will soon blow us away as they give us next-generation CRM. I can't wait.

SugarCRM Versus vTiger

I was reading David Sims' First Coffee column (tmcnet.com/153.1) on TMCnet in which he discusses SugarCRM in context with vTiger, an offshoot of SugarCRM with some modifications and additional support. The article reminded me of a recent discussion I had with Mark Spencer of Digium and Asterisk at the VoIP Sizzles show in Texas.

Mr. Spencer told me that he thinks there is a plug-in ' or one is in the works ' that will link SugarCRM with Asterisk. To paraphrase Spencer: That is when this stuff gets really interesting [when open source products start to connect with one another]. He went on to say that the solutions in the contact center market are so expensive, a reseller can make a good deal of money selling customer contact center solutions based on open source.

This opportunity is not lost on the open-source CRM vendors and, according to Sims, there is some controversy between SugarCRM and vTiger, as the latter claims SugarCRM sees vTiger as a competitive threat and even discussed legal action. I am not a lawyer, but it does seem that, based on the limited knowledge I have of this case, what vTiger is doing is legal based on an adapted version of the Mozilla public license.

In the open-source PBX space, there are two strong choices: Asterisk and Pingtel. I wonder if vTiger will become the SugarCRM alternative in the CRM space.


VoIP continues to take the contact center by storm, and if you aren't embracing this technology in your contact center, you aren't taking advantage of the enormous cost-saving opportunities afforded by transmitting voice, video and fax over IP. The best place to learn about VoIP is at the INTERNET TELEPHONY Conference & EXPO, October 24th to 27th in Los Angeles.

This year we will have the most impressive speaker roster we have ever had: from Carly Fiorina, formerly with Hewlett-Packard, to Michael Powell, former FCC Chairman, to Niklas Zennstr'm, the founder of Skype. It gets better, but I don't have the space to write about it all, so please visit and register today. There will be solid contact center content and exhibitors at the show; so take a moment to sign up, and save money by registering in advance. In case you are wondering, a VIP exhibit hall pass allowing access to keynotes is free if you register online before the show. CIS

Sincerely yours,

Rich Tehrani
Group Publisher, Group Editor-in-Chief
[email protected]

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