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Siebel out front but rivals loom

Oracle, SAP and others continue to challenge the front-office software leader in the customer relationship management market--widely viewed as the next big software land grab.

    How long can front-office software leader Siebel Systems stay ahead of the pack?

    Business software giants Oracle and SAP continue to challenge Siebel in the customer relationship management (CRM) software market--widely viewed as the next big software land grab. But both have stumbled in attempts to topple Siebel's stranglehold, as the company accelerates its sales and holds on tight to its leadership spot.

    Siebel this week reported first-quarter profits that breezed by Street estimates, fueled by strong software sales and big client wins. The company, which makes software that automates a company's sales, marketing and customer service needs, said software sales doubled to $190.9 million from $93.4 million in its year-ago period.

    Meanwhile, both SAP and Baan, giants in the enterprise resource planning (ERP) market struggling to tackle the more lucrative front-office software area, posted weaker quarterly results this week.

    SAP, which has suffered from overall product delays with its own CRM suite, said first-quarter net income fell 43 percent to 56 million euros ($53 million), driven by higher business costs and tighter market competition. Some analysts say the German software giant is dumping its internal development efforts and intends to ink a licensing deal with smaller CRM software maker Clarify instead. Clarify was recently acquired by Nortel Networks.

    Cash-strapped Baan reported a wider loss of $26 million, compared with last year's $19 million. The company is also expected to spin off Aurum, a maker of sales-force automation software that it acquired a few years ago in an effort to gain early footing in the CRM market. Analysts say Baan ran into problems integrating Aurum's product with its flagship back-office software.

    All the major ERP players, including PeopleSoft, which acquired CRM software maker Vantive as part of its own push into the market, have lagged in their delivery of solid products to the general market.

    Despite these large companies' potential to nab sales by simply selling to their huge installed bases, analysts remain unconvinced that the top spot will be stolen from Siebel anytime soon.

    "Siebel will remain the No. 1 CRM vendor for the foreseeable future," said Erin Kinikin, an analyst at Giga Information Group. Kinikin said that while ERP firms have attempted to gain momentum in the market by either partnering to develop CRM products or doing it themselves, they still have to make huge leaps in order to catch up to Siebel, which has a six- to eight-year lead.

    "Siebel is not dumb and is not standing still," said David Boulanger, an analyst at AMR Research. "Even though SAP and Oracle are coming up with their (CRM) packages, Siebel, of course, is moving ahead...While Oracle and SAP continue their development efforts, Siebel is blowing money into development as well."

    Kinikin added that ERP companies also face the challenge of selling front-office software after what they have been used to selling for years--the back office, or applications that manage a company's manufacturing, human resources and accounting requirements. It's a much different sell, she said.

    "The front office is very different (from) the back office," said Kinikin. "CRM has different decision makers. Siebel's sales teams are pitching to the VP of sales and marketing (instead of the chief technology officer). These are very difficult cultural changes for ERP vendors."

    Although Oracle has also run into problems with shipping its CRM products as promised, analysts agree the database giant is probably the only one in the ERP group that has the potential to topple Siebel--a goal Oracle chief executive Larry Ellison has been pitching for some time.

    "Oracle is the only one Siebel has to worry about," said Chuck Phillips, a financial analyst at Morgan Stanley, who currently has an "outperform" rating on Siebel's stock.

    Last month, Ellison said Oracle's third-quarter sales of CRM software reached $49 million, up 179 percent from a year ago. He predicted sales will double next quarter. Ellison has been claiming that his company is second in the CRM market and vowed to knock Siebel very soon out of its No. 1 spot.

    AMR's Boulanger added that it is just a matter of time before Oracle gains more momentum in the market and that despite product delays, Siebel should be worried about Oracle's potential.

    "When Oracle and SAP come out with respectable packages, it may shift the balance of power a little (away from Siebel)," said Boulanger.

    Giga's Kinikin added, "Oracle is the wild card and has spent two and a half years and 900 engineers to try and develop a CRM app...Oracle understands CRM, but realistically they have so much more to do."