Siebel announced Siebel CRM OnDemand, a joint effort between Siebel and IBM to deliver hosted (i.e., application service provider [ASP]) CRM solutions. It is not surprising that Siebel has selected IBM as its initial go-to-market partner, given the strong ties the two companies have maintained and reinforced over the years. The joint offering is expected to be available this quarter.
The hosted CRM market - populated by players such as NetLedger, salesforce.com, Salesnet, and UpShot - has shown resilience to adverse (though undoubtedly improving) market and economic conditions. The value proposition of hosted CRM solutions is compelling: enabling users to get up and running quickly (e.g., one month versus several months or even years), with minimal configuration (assuming that configuration capabilities are sufficient for adapting the applications to meet user needs), and at a fraction of the cost (initially). Pricing typically takes the form of an ongoing, per-user/per-month cost. Although current hosted CRM solutions generally have some fundamental limitations (e.g., limited ability to customize, extend, and integrate; limited functional footprint and migration path), companies such as salesforce.com have recently started to tackle some of these limitations by developing more robust APIs and integrated development environment (IDE) extensions. While we are generally positive on these advances - though writing customizations to a hosted solution does somewhat compromise its “hands off” simplicity - they do not address a fundamental issue: providing a well-defined migration path from one deployment option to another (we discuss this issue in detail below).
Siebel and IBM will be devoting significant resources to this new initiative. Up to $15 million has been allocated to marketing efforts, and both companies are in the process of building a dedicated, co-located telesales organization to sell Siebel CRM OnDemand. In addition to the joint telesales channel, the solution will be sold via the Web. Channel compensation strategies have been put in place in an attempt to avoid channel conflict (e.g., between an organization’s existing Siebel representative and the telesales organization). We note that Siebel’s extensive interactions with the IBM sales channel are significant, giving it considerable access to the ubiquitous IBM customer base. Siebel will be responsible for customer support and billing, whereas IBM will physically host the applications and provide implementation and application management services. The solution will price initially at $70/user/month, with startup costs in the range of $5K-$15K (which covers initial process configuration as well as physical implementation).
There are several interesting product attributes of Siebel CRM OnDemand. These include:
- Broad initial CRM footprint (across sales, marketing, and customer service), though we believe the product will initially have the deepest functionality in sales automation (e.g., contact/account management, opportunity management)
- Embedded analytical CRM capabilities with a prebuilt data warehouse
- A new, simplified user interface that mimics common public Web sites (e.g., Yahoo), but incorporates more sophisticated navigational logic
- Consistent back end (e.g., data model, business logic) with Siebel’s on-premises applications Ability for customers to integrate the hosted applications to Siebel’s on-premises applications, in addition to migrating from a hosted implementation to one on premises (we note that Siebel and IBM are still working on how integration and migration will conceptually and physically work)
- Out-of-the-box (yet uncustomizable) workflow and business process templates, based on Siebel’s extensive CRM experience
- Siebel’s first foray into a J2EE architecture (running on IBM WebSphere), a significant step in Siebel’s ongoing architectural evolution
- Support for multi-tenancy (e.g., one “mega” instance with numerous stored profiles, each representing an OnDemand customer) to leverage deployment economies of scale for the hosting firm (IBM)
It is important to note that Siebel CRM OnDemand is not a “midmarket” solution per se (though it may be appropriate for small and medium businesses [SMBs]). Rather, it is a solution for organizations that do not require the functional depth of a full-blown enterprise CRM solution, regardless of size. Siebel is not the first enterprise CRM player to offer solutions targeted at organizations with less complex CRM needs, though not all offer those solutions in a hosted environment. Major application vendors are taking somewhat different approaches. For example, Oracle and SAP offer different solutions (i.e., different code bases, different data models) for their SMB versions: Oracle with Oracle Small Business Suite (NetLedger’s NetSuite under the covers) is an ASP approach, and SAP with SAP Business One (based on its acquisition of TopManage, targeted to the “small” end of the SMB market). Given the different code bases, the notion of an “upgrade” to the enterprise solution should be thought of as a “rip and replace” exercise. In addition to Business One, SAP offers mySAP All-in-One, which is targeted at the higher end of the midmarket and is a scaled-down version of mySAP Business Suite offered as vertical bundles. The migration from All-in-One to a full implementation of mySAP CRM or mySAP Business Suite is philosophically similar to Siebel’s upgrade approach, leveraging common data models and workflows. Finally, PeopleSoft Hosting hosts its enterprise solution, PeopleSoft 8, as well as its midmarket solutions (which are subject to change with the JD Edwards acquisition).
Siebel CRM OnDemand is significant to the market and users for a few key reasons. It extends Siebel’s relationship with IBM to create market opportunities in a growing space, and leverages Siebel’s CRM process knowledge to extend into new markets (e.g., SMB space). The strategy does not overemphasize the delivery model (i.e., hosted versus on-premises), but rather enables companies of any size to pick what is right for them. It also provides users with a migration and growth path (though the actual tools and services are still under development; see below) to an on-premises solution, a key limitation of many existing hosted CRM offerings. Finally, CRM OnDemand incorporates best-practice CRM workflows and processes (a Siebel strength) and is priced competitively to other hosted CRM offerings.
We believe CRM OnDemand affords existing Siebel users more choice around CRM technology implementation. A typical scenario faced by our clients is as follows: A large, multidivision company has standardized on Siebel, but is rolling the applications out in an iterative and coordinated fashion (e.g., division by division). Divisions that find themselves at the back of the implementation line are hamstrung because they must adhere to corporate policy, but have immediate CRM technology needs. With Siebel’s new offering, these divisions will be able to start off with CRM OnDemand, integrate to existing Siebel instances (end users must closely scrutinize Siebel’s middleware and integration development efforts, especially as these efforts pertain to security and guaranteed message delivery over the Web), and when the time is right, migrate to the on-premises solution.
Despite a few limitations in the first release, we believe that Siebel is on the right track and that existing Siebel customers will find the ability to migrate from hosted to on-premises compelling. Yet it will be incumbent upon Siebel and IBM to develop a strong migration and change management methodology (in addition to tools, utilities, and services to support the physical migration of data, business logic, rules, etc.), to support customers seeking to migrate to on-premises. We note that it is in their best interest to do a good job here. First, Siebel learned some difficult lessons when it transitioned customers from Version 6 to Version 7. Since CRM OnDemand is essentially a rearchitected product, yet shares common attributes with the on-premises applications (e.g., data model, metadata, business logic), there are still questions pertaining to how seamless migration will be (note that there is no such thing as a 100% automated migration process). Second, we believe that part of the CRM OnDemand strategy is based on promoting up-selling opportunities. In other words, the easier Siebel and IBM make the migration path, the more likely it will be for hosted customers to eventually become on-premises customers, which is still the bread and butter of Siebel’s business and where the higher software license margins and particularly implementation services revenues are derived. We can therefore conclude that CRM OnDemand will eventually reach a sophistication ceiling (e.g., based on functionality, process support), at which point customers that have more complex requirements than those that are provided with CRM OnDemand will be “incented” to move to the on-premises products. If a clear migration strategy is not developed by Siebel and IBM, and supported through a comprehensive set of tools and services (read: how much will this cost?), part of the incentive for migration will evaporate.
Finally, as with any new solution offering (and especially one that is hosted, thereby limiting an organization’s control over the applications, infrastructure, and physical networks), there are natural early-adopter risks. Despite extensive ongoing testing by Siebel and IBM, we recommend that prospective users start out small (e.g., attempt a limited pilot, explore the “try before you buy” promotion), in a non-mission-critical setting, prior to making a broader purchase or deployment decision.
With Siebel CRM OnDemand, CRM application buyers are no longer held hostage or constrained by deployment models. Over time, organizations will save time and resources by leveraging common underlying application components through a predefined migration path.
Despite a few limits in first-release capabilities, Siebel CRM OnDemand is good news for organizations that have emerging CRM needs and require a CRM solution and provider with which they can grow over time.
META Group originally published this article on 3 October 2003.