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Siebel, IBM preparing online CRM service

The companies are developing a hosting service for customer relationship management software, reviving an effort Siebel abandoned two years ago.

Siebel Systems and IBM are developing a hosting service for customer relationship management software, reviving an effort Siebel abandoned two years ago.

According to sources familiar with the project, the companies intend to market a service in which Siebel's business applications will be hosted by IBM Global Services, the computing giant's consulting unit. The companies may announce the new service within the next several weeks, the sources said, although the plans could change.

Like similar services from and Upshot, the partnership between Siebel and IBM will offer a slimmed-down version of Siebel's sprawling CRM applications delivered over the Web for a recurring fee, the sources said.

Application hosting services promise to remove the hassle and start-up costs of purchasing such software by handling installation, maintenance, support and updates. The companies offering such services, application service providers (ASPs), run and maintain the software on their own equipment at their own facilities, meaning the business customers can reduce their infrastructure costs as well.

Representatives for Siebel and IBM declined to comment.

Siebel launched a similar service, called, in 1999. After spinning the unprofitable unit out as a separate company, Siebel later folded it back into the company and eventually shut it down in 2001. At the time, the San Mateo, Calif.-based company said it closed, which was aimed at small businesses, to focus on larger customers instead.

Siebel, however, may have given up too soon. A handful of privately held ASPs providing hosted CRM applications are reporting success., for example, recently said it turned its first profitable quarter and that it has begun signing deals with some of Siebel's customers. Oracle has also touted an equivalent service, called Oracle Outsourcing, as one of its fastest growing business opportunities. Although Oracle would not provide details on the number of businesses using the service, it touts more than 200,000 individuals using the software.

In addition, IT research firm Forrester predicts that growth in hosted CRM revenue will outpace traditionally licensed CRM revenue over the next four years. However, hosted revenue will remain a fraction of the total CRM software market.

But Siebel has been slow to identify the trend. Last year, Chief Executive Tom Siebel downplayed the demand for such services, saying, "It makes an intuitively comfortable argument--but for some reason, it's just not how people want to buy software."

Meanwhile, Siebel has suffered from the decline in the business applications market during the last two years. Earlier this month, the company warned it would miss Wall Street expectations for its second quarter and that it plans to cut jobs as part of a restructuring.

For its part, IBM has application hosting agreements with several software companies, including Siebel rival Onyx Software, as well as HRsmart and Employease. IBM Global Services sells hosting services for those companies' software as part of its "on-demand" computing initiative. IBM and others have said the on-demand, or "utility," computing model will reshape the way IT companies package and sell their wares.

Application hosting is also one tool IBM is using to court small- and medium-sized companies, a growing market segment for IBM. Revenue from these smaller customers accounted for $4.9 billion, or 22 percent, of IBM's second-quarter revenue, up 17 percent from the same quarter a year ago, the company reported this week.

According to Sheryl Kingstone, an analyst at The Yankee Group, Siebel is smart to team up with a big partner like IBM in its second stab at the ASP market, because Big Blue can lend valuable marketing, service and technical support to the effort. However, Siebel faces some technical obstacles if it is to succeed, she said.

"They have to rewrite their applications so that they can be delivered more simplistically," Kingstone said. "Siebel is a very functionally rich application, but what companies liked in and Upshot is that they are user-friendly."