Besieged By The CRM Throne Aspirants, King Siebel Delivers "The Magic No.7" Part 2: Market Impact

Part 2: Market Impact
P.J. Jakovljevic - December 28, 2001

Event Summary

With the release of the following statement Siebel Systems, Inc. launched Siebel 7.

On November 26, Siebel Systems, Inc., the leading provider of customer-centric eBusiness applications software, shipped Siebel 7, the seventh major release of Siebel eBusiness Applications. Siebel 7 (formerly referred to as Siebel 2001) reportedly provides the most comprehensive suite of packaged applications for customer relationship management (CRM) and employee relationship management (ERM), with the lowest total cost of ownership (TCO) so far. The enhancements worth pointing out are:

• A new Web-based architecture
  
  
• A formalized product upgrade and enterprise application integration (EAI) strategy
  
  
• Enhanced features across all application, including new industry-specific versions
  
  
• The formal launch of Siebel Employee Relationship Management (ERM)

This, Part Two of a two-part News Analysis discusses the Market Impact and makes User Recommendations. Part One details recent Siebel 7 product release. .

Market Impact

At first glance this announcement reflects too much of CRM related functionality (as seen by the length of the announcement), insufficient extended enterprise functionality (ERM portals and business intelligence have long been offered by many), an adequate architecture, and all these somewhat too late. The era of Siebel's uncontested supremacy in the CRM market for the past several years seems to be nearing the end, as one is to wonder whether the above-mentioned impressive CRM functional enhancements will suffice for fending off the competition.

In the current economic climate, Siebel's CRM-centric functionality bells-and-whistles may look ever less compelling, as enterprises with heavy ERP investments from ERP leaders-turned CRM wannabes will likely settle for currently less powerful CRM offering of those, in exchange for the potential long-term benefits of extended enterprise applications integration and subsequently lower TCO. The fact is also that the CRM functionality offered by ERP leaders will not necessarily be inferior in every case either. As the CRM market is maturing, most major players are functionally converging, which forces users to consider many other order winning criteria in their selection process.

Although Siebel's functionality in marketing campaigns, SFA, interactive (guided) sales, customer service, and PRM remains the deepest in the pack, SAP, Oracle, PeopleSoft, J.D. Edwards, and Baan have slowly but surely been closing the gap. As a matter of fact, many vendors often provide more CRM functionality than many customers require. Conversely, customers' perception of the scope of CRM does not often coincide with the pure CRM vendors' one.

As an example, many prospects view the order fulfillment and content management as a part and parcel of CRM, which is often not the case with many traditional CRM vendors. As a result, if the importance of order management and content management in a user's business strategy is great, one should not be terribly surprised if SAP or any other traditional ERP vendor outscores Siebel in the enterprise applications selection. This begs the question: when will Siebel move beyond fancy order capturing, contact management, and/or call center, and take on the user's entire order management process? In addition to order management capabilities, Siebel lacks a solid strategy to support a Private Trading Exchange (PTX), both of which are increasing in importance especially from a Business-to-Business (B2B) e-commerce customer management perspective.

Siebel has indeed shown a little support for transactional and order fulfillment capabilities so far, whereas many ERP vendors can offer the support for each stage of the customer life cycle - engage, transact, fulfill, and service afterwards. In any case, each of these is critical customer-facing process, and Siebel seems to be excelling only at the first and the last. As the Siebel 7 opportunity to deliver these was missed, time will only tell whether the company will deliver these sooner than its opponents will catch up within their sub-optimal areas.

The New Architecture

Possibly more prominent enhancement in Siebel 7 is the new architecture, with the Siebel's definition of a zero-footprint client. Given the depth of functionality in Siebel's long maintained traditional fat client/server environment, this was an immense effort and a strong step forward. Siebel deserves accolades for providing all of its rich functionality in a highly interactive environment while also minimizing the impact to an organization's network.

To achieve that, it has transitioned from a fat Windows client to HTML and Java script, while the underlying backbone and the data model on the server has not basically changed. If one is to be nitpicking, the client footprint is not exactly zero - it requires some memory for Java script and several Java applets for administrative processes to support Computer Telephony Integration (CTI), its menu structure, and some of the graphical elements to be downloaded at the start of the session.

As Java applets require a Java Virtual Machine (JVM) loaded and maintained on the client, Siebel, likewise Oracle and SAP, had to turn to that in order to maintain its proprietary graphical user interface (GUI) tailored for power users in, e.g., sales departments or call centers. PeopleSoft, on the other hand, has allegedly opted for the simplicity of a native Web browser experience (although many claim that it was the easiest way out of the fat two-tier client/server architecture). One client option is not universally better than the other, as it is time and again subject to the needs and the preferences of each user class. PeopleSoft should therefore start rethinking its value proposition scope beyond the already hackneyed mantra "no code on the client" - touting that to a less technologically aggressive enterprise would have a similar effect like a car dealer touting the sport alloy wheels to senior citizens.

Integration

Nevertheless, while Siebel applications will also support interoperability with Component Object Model (COM), Common Object Request Broker Architecture (CORBA), and Enterprise Java Beans (EJB) environments, the provided applications programming interface (API) connectors to third-party product will integrate at merely a superficial data level.

In maintaining its functionally overwhelming and monolithic product, Siebel is showing another aspect of resemblance to SAP's predicament of the late 90s. Although Siebel's moves towards delivering industry templates and the solutions for mid-market are commendable, not much will change until the company breaks its suite into more granular components and delivers implementation and customization tools. Customers will increasingly opt for competitors products that may have less functionality, but are much more implementation and customization friendly. The recent fallout with J.D. Edwards (see J.D. Edwards Fires Siebel, Hires YOU), as well as Microsoft's polygamy with Pivotal are some examples. Moreover, some mid-market ERP vendors already offer sound CRM offering (e.g., Epicor Software, Infinium), many current Siebel ERP partners are increasingly delivering their CRM capabilities (e.g., Navision), while many smaller ERP vendors without CRM offering will rather opt for an alliance with the likes of Interact Commerce.

Consequently, sooner or later, Siebel will realize the need to open and/or componentize its product. At the moment, we believe the company is torn between pro et contra of the approach - while it could incrementally (module by module) penetrate and possibly grow to a major presence in accounts where it currently has none. Conversely, its leverage in current accounts may wear away module by module, as the customer's ERP provider comes up with an equivalent CRM functionality.

Upgrades

Like many other applications vendors, Siebel faces the challenge of offering existing customers painless upgrades too. While the fact that more than 90% of Siebel's customers are on the current version (Siebel 6/Siebel 2000), one should note that the previous product releases all shared almost identical client/server architecture. Therefore, upgrading to the new Web-based architecture of Siebel 7 will require a more painstaking approach than it was the case with previous feature/function release enhancements only. The new Web client will not support most of the client-side customization (through, e.g., Visual Basic or COM components) that customers might have had to turn to in the previous releases.

Siebel has traditionally provided its Siebel Application Upgrader to facilitate customers through the migration process, but Siebel 7 Upgrader will not seemingly provide any conversion assistance for client side. As customers will have to reconstruct existing client-side customizations on a server, one should reckon with spending significant time, money and human resources. Customers will also have to learn new methods of GUI customization, given that Siebel has introduced new client-side technology. Siebel's lack of system management and testing capabilities (like e.g., SAP Computing Center Management System (CCMS) or PeopleSoft OEM-ing Tuxedo) is becoming ever more noticeable. Therefore, the cost/benefit ratio of a transition to the Siebel 7 may be less compelling to customers, which will likely postpone the upgrade until the benefits are much clearer than a mere thin-client offering.

Competitive Pressures

While Siebel remains strong company, with more than $1.5 billion in cash and yet to report a losing quarter, with the largest roster of trained and certified system integration (SI) partners, and with strong industry focused CRM offerings, for the first time, it may have to consider more competitive pricing and a less conceited sales approach. As the competition will fly from all directions and the license revenue will likely decline, the company will have to make it up by emphasizing own professional services revenue. Its external partners will therefore be unimpressed by a constricting size of the SI pie slice, and will be tempted to switch to competitors' products. Time will only tell how Siebel will overcome first major hardships in its until now spotless history.

User Recommendations

Given the steep change to Siebel 7 product architecture, current Siebel customers would be best off to apply the wait-and-see approach, unless newly released functionality will positively contribute to their business strategy (through, e.g., strong vertical industry offering). Customers in the middle of an older Siebel release implementation should stay on course, unless current project scope expands beyond the timeframe the product will be supported. However, client-side customizations should be brought to the absolute necessary minimum as to assist in the eventual upgrade to the new Siebel 7 architecture. By the same token, existing users should scrutinize carefully the amount of client side customizations and try to ascertain the magnitude of effort and costs to reenact these in Siebel 7. Current users of a business intelligence product Siebel delivered thorough original equipment manufacturer (OEM) relationships (with, e.g., Business Objects) should question any ramifications Siebels's acquisition of nQuire could have on their investment.

On a more general note, as applications vendors have been reaching parity across many CRM areas, new users should base their software purchase decisions on many other criteria like impending EAI costs, product usability, product architecture, and Total Cost of Ownership (TCO).

This concludes Part Two of a two-part News Analysis. Part One contains the details of the product release.