Sales.com closure unlikely to draw copycats

The San Mateo, Calif.-based software maker on Saturday will shut down Sales.com, the company's online service that lets sales teams manage account leads and track client information over the Web. Siebel, which spun off Sales.com about two years ago amid much fanfare, quietly folded it back in earlier this year.

And although Siebel is the longtime leader in sales-force automation software, analysts say the move will not affect other companies' online efforts.

It "only proves that Siebel couldn't do it," said Denis Pombriant, an industry analyst at Aberdeen Group.

In fact, Siebel's competitors are expanding their online efforts. Salesforce.com has moved even further into the online software market. Earlier this year, the company launched online customer relationship management (CRM) applications in addition to its service that allows salespeople to track leads and account information online.

CRM applications help organize and manage a company's customer service, sales force and marketing activities.

Salesnet, another competitor in the online sales application market, recently revamped its service and plans to offer former Siebel customers incentives, such as free application set up, to expand its market share.

Analysts see a growing demand for this type of service, driven mainly by the large number of small businesses remaining that need a quick, easy and inexpensive way to manage sales and accounts.

The biggest challenge for all the competitors will be establishing a steady stream of paying customers and keeping them coming back for more.

Sheryl Kingstone, an analyst with The Yankee Group, said companies will also need to continue educating customers about the new model. "Retention will be key," she said.

Added Aberdeen's Pombriant: "It is a lucrative market. Probably not yet, but it's got tremendous potential."

Siebel thinking big
Siebel's expertise is in selling software licenses to larger companies. Company executives said they are closing the unprofitable Sales.com, which targeted small businesses, to instead focus on tapping into the vast midsized-company market. Siebel, which nabbed $27 million in private financing for Sales.com at the time of the spinoff, had intended the service to be a destination point on the Web for sales teams at small businesses.

Siebel would not disclose how much it made or lost on the Sales.com service or whether operating the unit ever hurt its earnings. The company announced plans to shutter the service at the same time it released better-than-expected first-quarter earnings in April.

Some analysts said it was a good strategy at the time for Siebel to potentially entice start-ups, as they grew bigger, to begin licensing some of the company's more expensive and larger applications. Pombriant said it was apparent, given the cooling down of the dot-com craze, that there were fewer companies rapidly maturing from the start-up phase.

"As a strategy for building up a pipeline (of customers), it no longer made sense, so they dropped it," Pombriant said.

Kingstone said Siebel may be able to get larger deals by selling software licenses to midsized companies instead of to small businesses.

Selling them to small businesses was "very hard for them to do, and they also didn't see the need for it," Kingstone said.

But other players stand behind the Web-based plan, boasting increased customer adoption rates and strong growth. By using an online software service instead of buying software licenses, companies can begin using the software faster and do so with little up-front costs.

Smaller companies using the online strategy, such as Salesforce.com, Salesnet and UpShot, charge a nominal monthly subscription fee. They also host the software remotely, ridding companies of the headache and costs tied to software installation and maintenance. Small businesses are ideal targets because they typically do not have the resources to support that type of implementation.

But even bigger companies are moving online, such as Siebel rival Oracle, which launched a similar online service in August called Sales.Oracle.com. Several years ago, Oracle launched its own application hosting unit--then called Business Online (BOL)--that offered Oracle software for rent over the Web.

Oracle has since unveiled Oracle.com, which houses BOL. It is the company's online services division offering traditional hosted applications that fell under BOL, as well as other online services including one geared toward sales. Oracle said BOL has hit the break-even mark.

"Oracle's goal is to have all of its applications delivered over the Web and make them as simple as possible to set up and get running quickly," said Jeremy Burton, senior vice president of product and server marketing for Oracle. Although the company acknowledges that the market has been slow to catch fire, Oracle said it believes more customers will soon latch on to the concept of hosted applications.

This week, Oracle made an aggressive push with its overall software-as-a-service strategy by saying it will give customers several delivery options for software hosting. The Redwood Shores, Calif.-based company, which has had its own set of challenges fine-tuning the software hosting model, also turned its attention to small businesses by unveiling a collection of services designed for those clients.

The new delivery options are thought to be a way for Oracle to attract a wider range of customers--small and large--and an attempt to be flexible to companies' varying needs when renting Oracle applications over the Web.

It is unclear whether Oracle will succeed where Siebel failed, analysts say.

Will Oracle profit?
On one hand, Oracle is primarily a corporate software maker and may struggle to attract and retain customers for Sales.Oracle.com. Customers may latch on to the no-cost service but may not upgrade, which is where Oracle will actually see profits.

Although the service offers Oracle's core sales-force automation software for free, there are fees for additional components, such as sales compensation software. But offering the hosted service gives Oracle customers another option to use its software.

"How many users that are using it now while it's free can they actually convert to paying customers?" Gartner analyst Beth Eisenfeld said. "It's not just about attracting users, it's getting them to come back and drink from the well over and over again."

Kingstone said Oracle is simply testing the market and staking out its own spot in the industry.

"It's not a pricing issue. It's not a business model issue. It's a perception issue," said Kingstone, adding that Oracle just wants to create awareness that the option is available.

With Sales.com shutting down, Oracle and other online services are looking to grab new customers. Along with Salesnet, Oracle is offering a migration kit to help Siebel customers move their sales and customer data to Sales.Oracle.com. Salesnet is offering a free one-time setup to Sales.com customers that use its service.