Siebel's SMB Story: Close, But Still No Cigar

Until recently, Siebel was absent in the small and medium business (SMB) market segment. However, during the past six months, Siebel has launched two new product initiatives - Siebel OnDemand and Siebel CRM Professional Edition - offerings designed with a more holistic view of what constitutes an SMB. Although there is significantly more appeal in its new approach, Siebel is still bedeviled by challenges that have kept its previous attempts from being successful.

META Trend: During 2004/05, external pressures to leverage new technologies (e.g., RFID, UCCnet), provide customized services, and improve visibility will drive companies to upgrade supply chain execution applications (e.g., warehousing, transportation, manufacturing). Concurrently, international trade, security, and compliance pressures will motivate companies to upgrade global trade, health/safety, and contingency planning solutions. Through 2008, companies will merge information processes among CRM, SCM, and PLM applications to holistically scrutinize demand/revenue flows across customer and product life cycles.

Siebel has been challenged to find its footing in the midmarket, and despite some false-starts (e.g., hosting via US Internetworking) and outright failures (e.g., private-label version for Great Plains), the company is finally starting to “get it.” During the past six months, Siebel has made significant strides with its SMB strategy by launching new products and packaged-delivery approaches that will appeal to a much broader range of SMBs than it has been able to do in the past. But the company continues to face challenges in how to scale the Siebel platform to those outside its traditional base of enterprise customers.

To Siebel’s credit, it has embraced a more inclusive definition of the SMB market that recognizes the business units and subsidiaries of Global 2000 (G2000) organizations are as much SMBs as they are distinct firms of a particular revenue or staff size. This was particularly important for Siebel, because it was losing opportunities with these organizations to an array of midmarket vendors, despite the fact that the associated central IT organization had “standardized” on Siebel Enterprise. Simply put, these midmarket customer relationship management (CRM) vendors (e.g., FrontRange, Onyx, Pivotal, SalesLogix) were offering faster-to-deploy and less expensive solutions than what the G2000 division could get through a departmental deployment of Siebel or via a chargeback mechanism if using the corporate version of Siebel. Siebel has sought to solve both these problems as well as the competitive shortcomings of its existing Midmarket Edition by leveraging its existing Enterprise platform. The result is two new products - Siebel OnDemand and Siebel CRM Professional Edition - hosted and on-premises solutions, respectively.

On the positive side, this approach builds in co-existence between these two deployment models and, particularly in the case of Siebel OnDemand, provides a clear reason for the interdependent organizations of the G2000 to stay with Siebel. In fact, we expect that during 2005 leading organizations will begin embracing hybrid delivery models for CRM deployments (i.e., deploy with options from along a continuum including hosting, outsourcing, and licensing). Siebel CRM Professional Edition, on the other hand, is best considered a stopgap measure. Although it is a distinct engineering effort designed to simplify an intricate CRM environment, Siebel’s long-term success with on-premises SMB solutions is tied not to new product definitions, but to the simplification of the Enterprise platform. As a result, by 2006, we expect Siebel to remove the distinctions between its Professional Edition and Enterprise products in favor of using the former as a low-cost deployment model for all its on-premises customers.

For potential Siebel customers to understand Siebel’s SMB strategy, and where they could potentially fit, they must start by understanding the company’s underlying architecture (see Figure 1). Although deployment models differ, all Siebel products are based on the same data and object models. Theoretically, Siebel OnDemand - its hosted solution - has access to the entire breadth of functionality available to the other products. The analytics capability of Siebel OnDemand is an example. By applying its analytics tools and technology to its own multitenancy deployment, Siebel OnDemand has the strong likelihood of becoming the company’s largest single analytics reference site. Therefore, Siebel OnDemand can cherry-pick from a broad range of functionality to stay competitive, but the reality is that the product will probably never become the functional equivalent of the Professional Version and Enterprise product. The reason is that OnDemand is Siebel’s “reverse Pareto” model - delivering the 20% of functionality that 80% of all customers need. Hosting, in this context, is a means to an end. It is a way to reduce infrastructure complexity in addition to application complexity. This is a substantial demarcation from hosted CRM vendors like salesforce.com that are committed to delivering increased functional depth over time. It is an astute move on Siebel’s part and is recognition that for many customers good enough is good enough.

The next step up the Siebel food chain is Siebel CRM Professional Edition. Again, under the hood, Professional Edition is essentially the same as its Enterprise product and therefore largely represents an attempt to package away the cost and complexity normally associated with its bigger brother. In this regard, Professional Edition is little different from Siebel Midmarket in approach, but it is much different in execution. To start, Professional Edition provides customers a broader range of functionality packaged as a core set of capabilities through a base application and six additional capabilities that customers select from three additional feature “buckets” - General, Service, and Sales. Furthermore, Siebel has capped the price to $995 per user ($1,595 for call center, which includes sales and service functionality) and has taken the fixed-price deliverable model of competitors like Oracle to deliver the solution for a set price of $54,000 (based on a maximum of 200 users). The fixed fee model is tied to a six week deployment time which includes discovery, configuration, and data importation, along with administrative and end-user configuration. International pricing will be based on the same activities, within the same time frame, but at locally relevant rates.

At issue though is whether the differences in Siebel CRM Profession Edition’s execution trump the inherent flaws in the approach originally manifested with its Midmarket Edition. To start, Professional Edition retains limitations designed to protect Siebel’s Enterprise product, like limiting the range of functional modules or the number of external application connections. If an organization exceeds either, the only choice is to upgrade to Enterprise - a challenge because the trajectory on license fees increases to the enterprise level for all users. In addition, Siebel has introduced a new range of execution challenges that it will need to meet. Analytical CRM is still a problem for Siebel CRM Professional Edition because there is no prepackaged simple solution as there is for OnDemand. Additionally, the fixed-price deliverable model is tied to the initial deployment, not to subsequent engagements needed to enhance the system. More significantly, Siebel Professional Edition’s fixed-price deliverable model is partner-delivered. This will prove to be a significant challenge to Siebel as channel governance has never been a core competency of the organization. Furthermore, Siebel will be challenged in an increasingly competitive environment to attract and retain the best partner organizations willing to focus on SMBs. The reason is that Siebel’s channel strategy is heavily focused on service delivery and has little accommodation for partners interested in extending the product with their own intellectual property. Therefore, Siebel CRM Professional Edition represents some original thinking in the way enterprise applications are packaged - enabling customers to pick from a menu of functional capability, as opposed to packaged modules - and some required thinking with regard to fixed-price service delivery models. Both are important steps toward commercializing service-oriented-architecture-based products. But considering the product in totality reminds us of the old adage that the best way to eat an elephant is one bite at a time - not by serving up a smaller elephant. Therefore, there is little Professional Edition can do to wave away the inherently complex architecture of Siebel 7. Ultimately, broader success in the SMB market will be tied to the simplification of the entire platform, work which Siebel has stated it committed to in order to achieve speed and ease of deployment in addition to product affordability and which is a key focus of Siebel 7.7. As it progresses down this path, Siebel CRM Professional Edition will be seen for what it rightly is - a packaging approach to support rapid low-cost deployments for all customers, as opposed to a distinct product in and of itself.

Bottom Line: Siebel has made significant strides in improving its SMB strategies. The combination of Siebel Enterprise and Siebel OnDemand provides the most compelling case for rapid/no-capital-expenditure-based solutions to interdependent SMBs. Siebel Professional Edition will have a more limited appeal compared to purposely built SMB CRM applications.

Business Impact: Siebel's OnDemand enables Global 2000s to maintain a consistent single-vendor CRM strategy through a mixed-deployment model. Professional Edition will save money on a Siebel deployment for SMBs with focused and static CRM requirements.

META Group originally published this article on 7 June 2004.