Siebel buy will boost Oracle CRM in Asia

update The acquisition also indicates Siebel's recognition that the standalone CRM market is too difficult for business buyers to justify turning away from bigger players, analysts say.

update Oracle's acquisition of Siebel will boost its footprint in the CRM market in Asia, according to industry analysts.

Alan Tong, IDC's research manager for enterprise applications, told ZDNet Asia that Oracle has not achieved much success in capturing the region's CRM (customer relationship management) market.

Kristian Steenstrup, research vice-president of Gartner, concurred that Oracle, as well as SAP, do not have broad success with CRM deployments. "(They) have managed to freeze the market by selling to IT departments on long-term total cost of ownership (advantages), license bundling and integration advantages," he explained.

According to a Gartner study released in January this year, inhibitors to CRM deployment in the Asia-Pacific region include a strong focus on ERP (enterprise resource planning) rather than CRM implementations, the lack of success stories and a manufacturing culture that lacks customer focus.

Notwithstanding, the study noted that CRM software licensing revenues in the region is expected to hit a compound annual growth rate (CAGR) of 9.6 percent from 2003 through 2008, reaching US$264 million in 2008.

Oracle said yesterday it will acquire rival Siebel Systems in a deal worth US$5.8 billion. The acquisition, subject to regulatory approval, is scheduled to be completed by the end of next year.

Oracle and its closest competitor SAP, declined to comment on the impact of yesterday's announcement on the Asia-Pacific CRM market.

The acquisition also indicates that Siebel has conceded the standalone CRM market is too difficult for business buyers to justify turning away from bigger players like Oracle and SAP, Steenstrup noted.

The market, he explained, is split between large enterprise vendors offering entire architectures, versus focused ones such as those from and NetSuite. In addition, there are specialized vertical vendors such as Amdocs in telecommunications, Unica and Aprimo in marketing automation.

"Siebel was caught in the middle, despite (having) broad and proven functionality and the largest user base in the CRM business," he said.

"The deal is a short-term setback for new customers, as there are now fewer independent choices for industries such as telecommunications, utilities, pharmaceuticals and consumer goods."

For present Oracle customers like Yellow Pages Singapore, the Oracle-Siebel deal spells bad news.

"The increasing number of mergers and acquisitions of IT companies is worrying, as choices in the software market have become more limited," said Alan Siow, director of information technology at Yellow Pages Singapore.

"Besides the high likelihood of pricier software license fees, the lack of choice will undoubtedly be bad news for end-users… such a day will not be too far away if there is no let-up in merger-and-acquisition activities going forward," he added.

On the potential hiccups that could emerge from the acquisition, Steenstrup said the company will need to overhaul its application support team to service Siebel's users worldwide, including those who deploy predominantly Oracle technology.

Oracle has maintained it will continue to support Siebel's CRM technology, which will also be part of its Project Fusion plan to integrate Oracle and PeopleSoft products.

Tong noted that Oracle should have learnt a lot from its earlier acquisition of PeopleSoft, and he expects the company to please Siebel customers.

"There is a need to provide assurance during the transition period," he said. "At the end of the day, maintaining customer base is part of the (Oracle) cash flow."

Although Siow lamented about having fewer choices after the acquisition, he is confident that Oracle will be able to integrate technology from Siebel into their products "while protecting the existing investment of customers like Yellow Pages", he said.

Responding to concerns that on-demand Siebel CRM customers--with hosted assets on IBM datacenters--may be forced onto Oracle's platform, Tong said Oracle might most likely support non-Oracle database and middleware products.

"There is a shift in the whole dynamics of business application consumption to an on-demand model," he said. Oracle sees that as a critical factor for a successful CRM business, he noted, adding that it would not be in the company's interest to upset on-demand Siebel CRM customers running DB2 and Websphere.

Impact on SAP
But if Oracle is hoping to steal significant market share from its nearest rival SAP, with the Siebel merger, it might have to look for an alternative strategy.

John Segrich, an analyst at JP Morgan, does not think Oracle's latest acquisition will put a dent on SAP's market position in business applications.

"While this deal will clearly add market share to Oracle’s application business, we do not believe it makes Oracle a stronger competitor to SAP," Segrich said in a statement. "We continue to believe SAP will gain market share against the larger Oracle, who has yet to demonstrate organic growth in its application business."

Segrich noted that Oracle and SAP, at this point, represent an effective duopoly in the enterprise software market. This could result in a more aggressive pricing environment as Oracle tries to grow its applications business, he said.