Improvements in the broader economic and IT climates are having a positive effect on the customer relationship management (CRM) space. Since September 2003, we have observed a healthy increase in both end-user client inquiries and overall CRM deal flow. Consistent with these observations, Siebel appears to have turned the corner after several difficult quarters, announcing promising 4Q03 and 1Q04 financial results. Following on the heels of this momentum shift, Siebel made a series of announcements at its recent user conference in Cannes, France. These include the release of Version 7.7, the acquisition of retail banking system vendor Eontec, a strategic alliance with Teradata, and the European release of Siebel's hosted CRM offering, CRM OnDemand. Here, we explore each of these announcements in detail.
Siebel 7.7 Release
The third release of Siebel’s 7x architecture, Siebel 7.7, is not quite a major release (users will have to wait for Siebel’s next-generation architecture), but it offers more than a typical point release. Architecturally, Siebel 7.7 builds on, but does not logically differ from, its predecessor, Version 7.5.3. The following are examples of 7.7 architectural enhancements worth mentioning:
Over the years, we have observed a profound increase in the complexity and scope of Siebel implementations, as well as in the complexity of the application itself (which is largely a result of an increasingly broad product footprint). In many cases, customers followed “worst practices” and tried to make the software do much more than it was originally designed to do by customizing it extensively, thereby creating challenging upgrade scenarios. Concurrently, systems integrators often operated autonomously and with little governance from Siebel, and Siebel focused less on managing change (e.g., upgrades) and complexity than it did on selling software. Yet recent evidence and dozens of conversations with Siebel customers during the past year reveal that the tide is beginning to turn. We believe Siebel is making an effort to fix issues with its support organization, improve application manageability, and reduce TCO. One thing we would like to see Siebel do moving forward, however, is begin synchronizing its application release schedule rather than releasing applications or platform enhancements on an ad hoc basis (e.g., Analytics, Incentive Compensation, OnDemand, UAN).
We should note that we are skeptical of any vendor claim relative to cost savings of a newly released upgrade in the “real world” and therefore are not convinced that V. 7.7 will result in cost savings of 39%, as Siebel claims. After all, how can TCO be reasonably calculated for a product that has just been released in controlled availability and has no customers in full production (despite the fact that some data was gathered through beta deployments)? Nevertheless, we believe Siebel is fundamentally moving in the right direction and has become more attuned to customer issues and challenges. Of course, we will continue to observe Siebel’s execution in these matters.
Perhaps the most significant of Siebel’s announcements in Cannes was the acquisition of Eontec, a Dublin-based vendor, for $70M in cash and up to an additional $60M in cash in stakeholder incentives. The acquisition highlights Siebel’s ongoing commitment to developing deep vertical capabilities, especially outside traditional manufacturing industries where ERP vendors such as Oracle and SAP have become increasingly competitive. About a year ago, Siebel partnered with IBM to co-develop a retail banking solution; however, this joint development effort was cut short in favor of a partnership with Eontec. IBM will still play an important role in application delivery and services; in fact, IBM also has a pre-existing relationship with Eontec.
Eontec provides J2EE-based branch-teller and Internet banking solutions, which, when married to Siebel’s applications, enable relationship management capabilities (e.g., up-sell/cross-sell, alerts/notifications) to be exposed to users (e.g., bank tellers) during the course of everyday banking transactions. Due to Siebel’s original partnership with Eontec, loose integration is enabled today (e.g., UI integration, data-oriented). In future releases, we expect much tighter integration (e.g., data model, object-level, and toolset integration). This effort of deeper integration will likely provide Siebel with critical experience as it continues developing its next-generation architecture.
Furthermore, we expect Siebel to continue its strong emphasis on verticals by acquiring and building capabilities to enable it to push deeper into industries such as telecommunications, insurance, public sector, and life sciences. Although Siebel has made it clear over the years that it will not acquire back-office ERP capability (e.g., financials, order management for manufacturing), its vertical strategy is pushing it to become more entrenched in back-office processes. In Eontec’s case, the back office is core banking transaction systems. For those back-office processes that Siebel decides not to own, we anticipate that UAN will play an increasingly important role in Siebel’s strategy to enable integration. However, we would not be surprised if Siebel moves to become more competitive in other vertical back offices, particularly billing, which is prevalent in industries such as telecommunications and utilities.
Although we believe Siebel is headed in the right direction by picking specific verticals and making acquisitions where necessary to develop a deep footprint, there are a few cautionary notes with respect to its strategy. In Eontec’s case, Siebel has acquired a small (140-employee) software company with roughly a dozen customers and little presence or credibility in North America of which to speak. In addition, Siebel’s entire strategy is based on teller desktop replacements (from character-based, legacy technologies to modern Windows-based systems that run IE) exploding during the next few years. Although there is evidence to suggest that this desktop replacement cycle is imminent, without the widespread technology overhaul, there is little place for Eontec and Siebel.
Finally, Siebel is entering a new and different market (the transaction processing side of retail banking, versus simply the front-end side) and must develop a core competency to succeed, in addition to managing a software company 6,000 miles away. The market for transactional banking systems is nothing like the CRM space, though Siebel appears to understand the potential benefits relative to retail banking challenges (e.g., increase revenue per customer, increase wallet share) of tight integration between these systems and the processes they support. Clearly, the Eontec acquisition can facilitate critical knowledge transfer, much like Siebel’s acquisition of UpShot provided for hosted CRM. In fact, Siebel is planning to have members of the Eontec management team run the Siebel Retail Finance vertical.
Siebel and Teradata announced a partnership whereby Siebel will be integrating and optimizing its analytical platform and several horizontal and vertical analytical applications for Teradata Warehouse. On the surface, this partnership appears to be a win-win: the two firms will go to market together to drive sales of both Teradata Warehouse as well as Siebel analytical applications. Indeed, Teradata CRM has itself served in part as a vehicle to drive Teradata Warehouse sales (e.g., key application components such as Touchpoint Server have been embedded directly in Teradata’s Active Data Warehouse solutions) and thus the Siebel partnership provides Teradata Warehouse customers more choice as to analytical applications. Concurrent with this announcement, Teradata has reinforced its commitment to its own analytical application, Teradata CRM, by quietly positioning itself (finally) for a near-term architectural overhaul along with a new role-based UI in Version 6 (targeted for 2005).
However, there are key functional overlaps among several of Siebel’s analytical applications (most notably Siebel Marketing and Segmentation Analytics) and Teradata CRM, with Siebel’s applications a market leader (along with E.piphany and Unica) according to the recently published Enterprise Marketing Management (EMM) METAspectrumSM. Given this overlap, as well as Siebel’s strength in the market, we speculate that this partnership portends a change in emphasis for Teradata: the data warehouse becomes even more strategic and the application is merely a supporting player. In fact, if the partnership is solid enough, Siebel could provide as good (or better) a sales lever for Teradata Warehouse as Teradata CRM does, especially given the level of investment (particularly in technology and architecture) it will likely take to bring Teradata CRM up to par with the broader EMM market. In addition, there will be inevitable channel conflict to manage because Teradata and Siebel will go to market jointly. The vendors will have to develop clear rules of engagement for the channel to make choices about which analytical application to position in which deals. We note that Teradata and Siebel have only rarely competed head to head in the marketing application space, so Teradata sales representatives will need additional training if they are now to do so. Until the relationship finds its footing in the field, customers considering marketing and segmentation analytics for Teradata Warehouse will have to take it on themselves to weigh the benefits of an all-Teradata solution versus a combined Teradata/Siebel solution.
We believe this announcement is great news for NCR at the corporate level but raises questions as to its long-term commitment to the Teradata CRM marketing application. Of course, the announcement is also good news for Siebel customers that wish to run Siebel analytics atop Teradata Warehouse. Yet we believe that IBM still retains “favored son” status from an application-to-DBMS development perspective, meaning that development on IBM platforms will likely be the priority. There is not only the strong Siebel-IBM relationship to consider, but also the fact that IBM does not compete with Siebel for CRM applications, whereas Microsoft, Oracle, and Teradata do.
OnDemand Availability in Europe
The announcement that Siebel CRM OnDemand is now available in Europe is an important step in the company’s “CRM for Everyone” strategy - assuring us that they now include everyone outside the US. The multilingual, multicurrency, and regional setting support is largely a result of the leverage gained from its acquisition of UpShot, a sign that this acquisition is supporting Siebel’s broader strategic objectives. However, demand for hosted CRM solutions is nascent at best. Although we have observed some interest in the UK, there is virtually none in mainland Europe today. Although the availability of localized solutions from vendors such as Siebel and salesforce.com is a critical first step toward meeting the requirements of European firms, we believe it will be another 12-18 months before we see hosted CRM gain traction in Europe.
Coming hot on the heels of salesforce.com’s upcoming and high-profile IPO, the broader availability of Siebel CRM OnDemand is a substantial shot across its competitor’s bow. To start, Siebel’s CRM for Everyone strategy rightly embraces the notion that the hosted and on-premises models will coexist rather than compete. Enterprises must accept the fact that they will implement applications on-premises, opt to use hosted solutions, and even outsource entire functions and systems (e.g., call center) of their CRM portfolio. The issue is not which deployment approach is best, because there is no single answer for all situations, but rather how the different deployment options will dynamically work together. In this new world order of deployment choice, the key issue will be how to integrate, manage, and evolve the hybrid CRM portfolio, and how the portfolio ultimately will support the enterprise CRM strategy.
The growing availability of Siebel CRM OnDemand and now Siebel Contact OnDemand (i.e., hosted contact center offering based on its recent acquisition of Ineto), not to mention the soon-to-be-released Integration OnDemand and UAN OnDemand, is rapidly eroding salesforce.com’s “no software” differentiation. This tagline is fraught with irony since salesforce.com is now promoting application development (with Sforce) and integration (with Dream Factory) to enable extension and integration of its applications. Yet over time, arguments as to the architectural elegance of one hosting model over another will be lost on customers who care only whether it works and what service levels are sustainable. The result is that salesforce.com will be increasingly pushed into competing on the basis of functional depth, in addition to industry-specific capabilities, which we believe salesforce.com must develop to be successful in the long run. This is a battle Siebel is more than prepared for should it even wish to bother.
We are now left wondering whether salesforce.com’s outspoken founder Marc Benioff has made the same mistake that Mark Andreesen made with Netscape - picking a fight with a company that has a flexible business model and technical architecture, plenty of cash, and a driving desire to retain their market leading position. Perhaps metaphorically, we observed that minivans emblazoned with salesforce.com logos were used to shuttle Siebel User Week attendees from the airport to the venue, and then were mysteriously unavailable for the duration of the conference.
Bottom Line: Siebel's announcements at User Week in Cannes offer a little bit of everything to everyone, not surprising given the company's "CRM for Everyone" strategy.
Business Impact: Although it is too early to reasonably ascertain the impact of Siebel's announcements, end users should be confident that both Siebel and the CRM space in general appear to be moving in a positive direction.
META Group originally published this article on 30 April 2004.