Down but not out

It hasn't been an easy year for Siebel Systems. The customer relationship management specialist has been forced to ward off attacks from rivals of all shapes and sizes, endure rumors of an impending acquisition and tackle changing market dynamics that have challenged its place in the market.

Having survived, the company defends the approach of its new management team and emerging applications strategy, which have positioned the firm to battle anew for a place on the IT budgets of the world's largest businesses. According to Bruce Cleveland, Siebel's new senior vice president of products, the software maker's history in sophisticated enterprise systems will only serve as an advantage in embracing new trends such as services-oriented architecture (SOA) and on-demand CRM applications.

In a recent interview with CNET News.com, Cleveland, who also oversees Siebel's OnDemand hosted CRM offerings and the company's small and medium-size business division, said that trends may come and go, but his company's devotion to building tools that truly serve customers' needs will help the firm regain some of its former luster.

Customers are creating better business practices and smarter processes in order to link their companies together, rather than investing more money in old resources. That's why companies are interested in on-demand.

Q: We've heard a lot about Siebel's "Project Nexus," which echoes the sort of platform approach we've heard from players such as SAP, with its NetWeaver development package. How will Project Nexus change the way the Siebel builds its products?
Cleveland: When we define the market for CRM, it's really segmented into what we'd qualify as a $100 billion market opportunity, broken down into several segments. The traditional segment, for packaged applications that we've been in for over 12 years, is worth roughly $5 billion today, and growing in the single digit range every year. That's the market that we helped to create and continue to lead with 3.2 million deployed seats, 290,000 of which were added last quarter. It continues to be the breadwinner.

But there are new market opportunities that we have only recently chosen to go after because we think they present significant growth opportunities. One of those opportunities is the area we call the component-based market, and some people think that's worth $25 billion. These are companies that still prefer to build their own solutions, so with our next-generation architecture we'll allow companies to effectively pull from a complete palate of components that have been pre-developed to solve CRM problems. Companies can mix and match those with their other services-oriented architecture components to create composite applications that address their very specific requirements.

What are some of the other opportunities you see as ripe for Siebel to move on?
Cleveland: Well, over 50 percent of the $100 billion opportunity on the market is for customer-facing applications, products for bank tellers or point-of-sale. So we'll continue to build and deploy applications through either acquisition or development into that market space.

Another area of growth is the customer analytics space, which expands into full business analytics and allows us to provide the intelligence that sits over the transaction engine. Being able to turn insight into action is a key part of that. This is where you get the information from the nervous system of the CRM system, order management or manufacturing, and pull previously uncorrelated information together and make discreet actions on that information. It's an aggregation process that's actually our fastest growing product line.

Clearly, on-demand applications have become the biggest trend in the CRM space over the last year or two. Why is Siebel's hosted CRM strategy so important to the company's future?
Cleveland: The reason on-demand is so critical for us is that we believe that many companies are faced with the issues of needing to rapidly deploy their applications in a cost-effective way. A lot of companies are beginning to evaluate the use of software as a service or utility model because it allows them to effectively outsource pieces of their IT organizations under service-level agreements that have been pre-defined. This is allowing them to focus on more strategic areas of their companies. What are the immediate benefits of adopting an on-demand CRM system?
Cleveland: Customers are creating better business practices and smarter processes in order to link their companies together, rather than investing more money in old resources. That's why companies are interested in on-demand. As the infrastructure hardens, as the Internet becomes more reliable, as Web services become more interoperable, and as SOA-compliant architectures are better delivered, vendors and customers will be able mix and match various deployment options based on their financial requirements and strategic initiatives. Would Siebel be in this market today if Salesforce.com hadn't pushed the envelope and forced people to take notice of on-demand CRM?
Cleveland: We're getting pulled in this direction by our customers. Whenever there's a vacuum like this if you want to be in the business you have to respond to that, that's what's pulling us into supplying our products in an on-demand form factor. Our current product line is a redacted version of the on-premise technology we offer, but over the next 12 to 24 months we'll make virtually anything available in the on-premise stack available in on-demand as well. As we move to SOA via Nexus, you'll see our ability to have any on-premise component that we've built available on demand. We believe customers will like that, because it offers them whatever they want in the form of a hybrid model. But does Salesforce.com get some of the credit for creating demand?
Cleveland: There were companies in the late '90s that foreshadowed on-demand before Salesforce, we just didn't have all the infrastructure in place to support them. What Salesforce has done is prove that you can deliver sufficient functionality in a form factor that's easy to consume. They did create an awareness and interest in this, much like what Netscape did for Web browsers. But the bigger question is how a company like Siebel gets comfortable in adapting to this type of delivery model, based on the sophistication of our products. Salesforce.com clearly wants to play in larger CRM deals, where Seibel has its main focus. Will that be a continued threat to Siebel?
Cleveland: Well, everyone read the JMP Securities piece on the problems for Salesforce.com at Cisco. What that shows is that it's fine to start off with a lightweight product, but companies figure out quickly that they need to integrate with order management, they need to be able to do complex forecasting, and a product like Salesforce.com that was developed as an alternative to ACT (customer management software) is not going to give you that. And while it seems like a great idea from a marketing standpoint to say "no software," the fact of the matter is that this is all software and it's only the deployment options and financial vehicles that are used to deliver them that have changed, and offer real value.

Companies want to mix and match applications, and turn on tools as they go, and pay for them based on their needs. That's what we've learned.

Are companies still somewhat sour on CRM based on earlier failed projects, or perceptions of those shortcomings?
Cleveland: I think that what we're seeing is that CRM is more of a strategy than it is a product or a deployment option. What a lot of companies have found is that it doesn't matter what type of product that you throw at it or how you choose to deploy it. If you don't have a very well-defined set of business processes in place for how you're going to do your forecasting or order management, or how you link your call centers into your sales and service organization, it really doesn't matter what product you throw at it. Is that what Siebel was forced to learn in regards to some failed CRM installations?
Simply dumping a very highly configured large-scale application in front of your employees is a recipe for failure. I think that we have been very vocal about this for years, that companies shouldn't do this, and people in a lot of cases have defied that advice. The results have been predictable. As a vendor we can't walk away from sharing the blame but the fact is that you can't go to Harvard Business School for CRM.

The only way to learn about CRM is to strategize, design, develop, implement, manage, maintain, test and refine your plans. We do need curriculum in the universities that assists students in thinking about CRM and design operational systems. Providing people with deployment alternatives is not the only answer, for instance.

Siebel has been a champion of best-of-breed for a long time. Looking at all these delivery models for CRM, is the hybrid model for on-demand simply today's best-of-breed approach?
Cleveland: My feeling is that there is an appetite for all of the delivery models. And while we don't see a lot of companies executing on hybrid yet, they're buying an option to do that. For instance, a lot of our customers have on-premise products in remote locations and geographies where they don't have a lot of IT resources. They like the idea of moving to an on-demand model there and being able to integrate those operations into the larger system. It's still early for this but a lot of customers are going through intensive analysis around that sort of project. And we win deals against Salesforce.com because of our ability to offer choice.

In the small and mid-size business space we're seeing more on-demand deals, but a lot of companies still tell us they want to grow large enough to consolidate and roll into an on-premise system someday. Overall, on-demand remains more of a selling feature than a widely deployed option at this point.

So, as SAP has now said with its hosted plans, on-demand is something we should still view as a potential gateway to on-premise CRM?
Cleveland: A lot of companies are doing that. In sales force automation, people want a lightweight tool, and we've always tried to deliver that while giving people the ability to do pipeline analysis or forecast review, or to link to order management. Those are the elements of a sales operations organization. But the sales force itself has typically been given the same applications as management, which might make sense to a vendor, but in the sales organization a lot of workers want something that's simpler.

So, a lighter-weight tool that rolls into the operations piece of it is extremely beneficial. But you also have to understand that on-demand doesn't have to be lightweight. Over time, as the sales and marketing workers become more comfortable and demand more, you can selectively turn on pieces as needed, rather than dump it all on them right away.