Rivals vie for Siebel's customer spoils

With fewer deals being signed, the fight for new business has become intense. When courting customers, a competitor's client defections and customer complaints are the weapons of choice in the brutal business software market where perception counts. Barbed exchanges between software companies have included everything from charges of unfair advertising to customer losses.

"The whole worldwide IT market is declining, and everyone is fighting for market share," said David Schmaier, an executive vice president at Siebel.

Siebel should know. The leading provider of customer relationship management (CRM) software, found itself on the defensive this week after a survey highlighted complaints from its customers. Meanwhile, rival PeopleSoft boasted about a handful of customers it snagged from Siebel.

Nucleus Research, a technology research group, reported that out of two-dozen Siebel customers it surveyed recently, more than half reported that the cost of their Siebel projects exceeded the payoff. The report echoed recent studies indicating that nearly half of all CRM projects fail to meet customer expectations. CRM software is designed to help companies keep track of information about their customers and sales opportunities, as well as fine-tune customer service and plan marketing campaigns.

"These are Siebel's reference customers and we expected to find customers overwhelmingly pleased with their deployments and able to offer insight into their paths to return-on-investment success with Siebel software," said Nucleus in its report. "What we found was a surprising percentage of respondents dissatisfied with their deployments and their lack of positive returns."

Siebel denied that it has a customer-retention problem, noting that it is signing up hundreds of new customers and calling the number of customers surveyed "statistically insignificant."

Nevertheless, the report could hardly come at a worst time. Siebel's second-quarter software licensing revenue was down 40 percent from a year ago, while SAP's fell 23 percent, and PeopleSoft's dipped 20 percent.

As the CRM software leader, Siebel is a popular target. Although the company has been humbled by declining sales, revenue controversy and a sliding share price, it still has an estimated 45 percent share of the CRM software market, with just over $2 billion in revenue last year. Just behind are SAP with 16 percent, PeopleSoft with 8 percent and Oracle with 7 percent, according to investment bank ABN AMRO. (Siebel's rivals also sell other kinds of business applications, and most don't break out revenue separately for their CRM products.)

Siebel beat SAP, PeopleSoft and others to the CRM market by several years, and made inroads selling specialized applications to its rivals' customers. Now, say analysts, SAP, PeopleSoft, Oracle and others want to win back business they lost in those years.

"The competition is very, very intense out there," said Josh Greenbaum, an analyst at Enterprise Applications Consulting. "To a certain extent it's gotten personal. These companies feel Siebel has stolen their customers and they're pissed off."

Pile-on Siebel?
In one example of retaliation, PeopleSoft recently bragged that it has displaced Siebel as the CRM software provider to six different companies since April. They include IT systems integrator Crestone International, supply-chain software company Manugistics, telecommunications equipment maker Norstan and database company Sybase.

Crestone and Sybase, which are both PeopleSoft business partners, said they are chucking Siebel technology in favor of PeopleSoft. One reason is because they already use PeopleSoft applications in their bookkeeping and human resources departments. By switching to PeopleSoft for all these needs, the companies said they will have fewer software environments to maintain and fewer development tools to support.

Siebel doesn't make bookkeeping, human resources or other so-called back-office applications, and that's now putting the once high-flying software company at a disadvantage, analysts say. More companies are demanding one-stop shopping for business applications and seeking back- and front-office, or CRM software from the same source. Also, SAP, Oracle, PeopleSoft and JD Edwards are improving the quality of their CRM products, analysts say.

Crestone, a 300-person IT systems integration company in Alpharetta, Ga., said difficulty in working with Siebel helped to justify the move to PeopleSoft. After three years of using Siebel's software, the company expects to switch to the new PeopleSoft system in November.

"They nickel-and-dimed us for all types of things," said Sean McCormack, Crestone vice president of operations. "They charged us separately for development tools, for instance. Every time we turned around there was something like that."

JD Edwards, another Siebel competitor, said recently that Fidelity Investments purchased a set of its business applications that will replace Siebel's software. But both Fidelity and Siebel denied that claim. Instead, both companies said Fidelity chose JD Edwards' CRM applications for a project in its employer services division. As many as 7,000 call-center agents in its retail division--a separate business unit--will continue to use Siebel.

Siebel defended its retention record and countered that it replaced a PeopleSoft CRM project at Gateway last year.

"The reality is we have 3,500 customers. We had 400 new orders for software and added 200 new customers in the second quarter alone," said Siebel's David Schmaier. He also said there was absolutely no data that indicated a customer-defection problem.

Frayed nerves

It may be early to claim Siebel is losing customers. After all, Siebel products aren't exactly disposable; they typically costs millions of dollars to license and install, and can take more than a year to get up and running.

Yet customer-defection claims and the Nucleus report hit a nerve with Siebel, which boasts a customer satisfaction rating of up to 98 percent. The company issued a press release Thursday, vaunting "the highest levels of customer satisfaction in the information technology industry."

"We're starting to see some cracks in the armor of a company with much vaunted and highly suspicious customer satisfaction rating," said Greenbaum. "They have only themselves to blame if they start getting shot out of the water on this issue. They set the expectation that they have a 98 percent approval rating."

Siebel's customer satisfaction statistics come from an outside auditing firm called Satmetrix, which was hired to survey customers on a quarterly basis. Siebel holds an equity stake in the firm.

Nucleus surveyed just a fraction of Siebel's more than 3,500 customers, but all those it contacted were featured as success stories on Siebel's Web site, said Rebecca Wettemann, vice president of research at Nucleus.

"If their success stories are having a difficult experience, what does that tell you about the broader population of Siebel customers?" she asked.

Though much of the research Nucleus conducts is commissioned by companies in high-tech and other major industries, the company said no one underwrote the Siebel study, which is free by request through the company's Web site.

Siebel representatives accused Nucleus of publishing the study to gain publicity. However, Siebel did pull down the customer section of its Web site the day Nucleus published its report. The company said it is calling the customers listed on the site to reaffirm their stance, a representative said.

Doubts about Siebel are weighing on the stock, which closed at $6.49 Thursday, just pennies above its 52-week low. The shares have traded as high as $38.38 in the past year.

Criticism that CRM software has not lived up to the hype has been available for some time. So why are Siebel investors growing pessimistic now?

For one thing, the love affair between Siebel and Wall Street has taken a while to cool after a heady beginning. Siebel skyrocketed to the top of the CRM market to become one of the fastest-growing software companies in history. After just seven years in business, the company surpassed the impressive $1 billion revenue mark, growing 121 percent in 2000.

Additionally, the investment community was wooed for too long by "the sheer force of the personality of Tom Siebel," the company's charismatic chief executive, said Pat Walravens, an analyst at JMP Securities.

"It's taken a long time for the customer war stories to catch up with the stock," Walravens said. "I think it's finally happening."