Siebel, Oracle go head to head

Although never on the best of terms, Siebel, run by former Oracle exec Tom Siebel, and database software giant Oracle had hammered out a coexistence based on market necessities: Siebel needed Oracle's database software for its customer relationship management applications, and Oracle, without a customer relationship management product of its own, referred its customers to Siebel.

But times have changed. Now, the two companies are battling head to head for supremacy in the front office software market.

Last week, Siebel inked a deal with Microsoft to ship its front office applications integrated with Microsoft's SQL database server. In the process, Siebel affirmed that it no longer needed Oracle and that Oracle was now clearly competitor No. 1. To add insult to injury, Siebel said it will offer an upgrade to its customers for just $170 per user to switch from an Oracle database to SQL Server.

Even further incursions onto Oracle's turf are in the works. Next week, Siebel is poised to make a wide ranging partnership announcement, most likely in e-commerce. While details are sketchy, Siebel may possibly be acquiring an e-commerce firm, analysts say. That would put the company even more directly in competition with Oracle, which has targeted e-commerce with its entire product line.

Oracle, not known for its retiring ways, has declared war in the customer relationship management market as it moves aggressively forward with its front office strategy, vowing to surpass Siebel, the No. 1 market leader.

Siebel-bashing has become the favored sport of Oracle executives, with the battle between the companies taking on a more personal tone recently. At an Oracle press conference last month, Oracle chief executive Larry Ellison did his best to portray Siebel's company as technologically limited, and one whose days as customer relationship management market leader are numbered. "We think we are going to pass him [Tom Siebel] in CRM in a couple of quarters. Head to head, we beat them pretty much across the board," Ellison proclaimed.

Customer relationship management software, sold by Siebel, Vantive, and others, has grown in popularity in recent years as companies seek to extend their business applications to manage complex sales, marketing, and customer service functions. The software is in many ways an extension of enterprise resource planning applications popularized by Oracle and companies such as SAP and Peoplesoft.

As enterprise resource planning demand slows, Oracle and its competitors have sought out new revenue streams, with customer relationship management at the top of the list.

While both companies are up to the challenge and can deliver substantial customer relationship management product lines, the battle itself is more of a war of words, focused on marketing messages rather than technological abilities, analysts said.

"I think the war between Oracle and Siebel is being fought in the marketing front, not the functionality front," said Joshua Greenbaum, head of Enterprise Application Consulting in Berkeley, California. He added, "[Tom] Siebel or [Larry] Ellison frankly don't care that much about winning on functionality as long as they have the most market share...That's not to say functionality is meaningless, but just that this is obviously a market battle."

Harry Tse, an analyst with the Yankee Group, said "supposedly this is a big battle" but explained that while the two companies indeed compete in the customer relationship management market, few sales situations come down to us-vs.-them--at least yet. "Oracle and Siebel aren't battling in their everyday deals. That's not the case."

Still, analysts say that if there's one competitor that has the goods to steal the spotlight from Siebel in that space, the perfect thief would be Oracle.

"Siebel is the well established dominant leader in the CRM market across all markets today," said Judy Hodges, an analyst at International Data Corporation. "Indeed, it would be extremely difficult to topple Siebel. However, I do think Oracle, as a powerhouse, has the ability to do so, especially with its established install base, which is one way Oracle can be successful in the short term to the mid-term."

In its fourth quarter, Oracle had reported that its core applications business for enterprise resource planning software increased 7 percent with the bulk of the application growth coming in two new segments--online procurement software and customer relationship management software. The latter earned $44 million, up 138 percent from a year ago.

Mark Berrenechea, Oracle's vice president of customer relationship management software, said Oracle "will see a steady rise of customers and CRM revenue" in the coming year. He said that also in the company's last quarter, Oracle had signed on 105 customer relationship management customers.

Oracle's biggest edge is that in addition to customer relationship management, it sells enterprise resource planning and database software, giving the company a soup-to-nuts package that covers most any busienss software requirement. "Oracle does sell much more than what Siebel does, " said Peggy Menconi, an analyst at AMR Research. Menconi said that Siebel doesn't have the back office capabilities that Oracle does, giving the customer a more "complete system."

Berrenechea added that Oracle has made a major effort to push its Internet-enabled CRM applications, especially with the recent release of customer relationship management 3i, the company's Internet-enabled marketing, sales, and service applications, claiming that Siebel is not fulfilling this customer demand.

Analysts have said that a controversial debate had been brewing on whether or not customers are ready for more complex, Internet-enabled customer relationship management applications, but that this is clearly another area where Oracle and Siebel are sure to compete head to head.

"Whether or not the Web technology is being used is not the case, but just the fact that it's there represents a good selling point of the software [for each company]," Greenbaum said.

In a market space that is gaining momentum and projected to reach about $11 billion in 2003 from $1.9 billion in 1998, according to IDC, analysts believe that this is one battle that will only continue to escalate.

Oracle's front office revenue is starting to take off and starting to have an impact on the market, said Steve Bonadio, an analyst at the Hurwitz Group. He added, "It's clear from [discussions with] Oracle that they're very serious about this. It's going to take front stage for now. CRM is what they want."

"This is the case of two very aggressive heads of two very powerful companies," Menconi said. "Oracle is so much larger than Siebel. Siebel is this upstart that snatched a market from Oracle that Oracle could have had. Nevertheless, this sends a clear message to the market--Oracle is here, it has products, and they are selling, and I do think Siebel has something to worry about."

News.com's Tim Clark contributed to this report.