2HRS2GO: Oracle report shouldn't worry Siebel

This might have been the most expensive dinner in history for Siebel Systems (Nasdaq: SEBL).

Siebel didn't pay for it. Heck, the company wasn't even there.

But by the time Lehman Bros. analyst Neil Herman finished his meal yesterday with the Oracle (Nasdaq: ORCL) executive who runs R&D for customer relationship software, Siebel stock was marked for a bad day.

Shares of Siebel at one point this morning shed 16 points after Herman released a note on Oracle's plans to release a free, hosted version of its software for sales and customer service automation. SEBL had recouped some of its loss by mid-afternoon, but its market cap remains nearly $1 billion below yesterday's close.

"A major strike at Siebel" is how Herman described the plans, which he learned about during the aforementioned dinner. That Wall Street buys into this undermines my confidence in investors.

Oracle always hyped its battle with Siebel, even when CRM was nothing more than a gleam in Larry Ellison's eye. More than anything, today's Siebel action ought to amuse you, unless you're a major shareholder who was planning to sell this afternoon.

But if you can ride out the wave, you should laugh.

Laugh when you realize that Oracle, once again, is emulating Ellison's perceived arch-enemy, Microsoft (Nasdaq: MSFT).

The antitrust case against Microsoft rests on the argument that the company crushed Netscape by giving away Internet Explorer and bundling the browser with the dominant Windows platform. Now Oracle is giving away its CRM software, which it touts as being integrated with its entire product line, including its dominant database.

Laugh when you realize that businesses aren't going to choose something as complicated as a CRM installation merely because it's free. This isn't a Web browser we're talking about, but a complex program that directly affects the bottom line of a company.

And ask yourself: if you were running a sizable operation, would you trust your entire sales force automation to a server run by a company with little hosting experience? Maybe at some point, but in the foreseeable future? Not likely.

Laugh when you realize customer relationship management software is far from a zero-sum game. Even Oracle will admit it doesn't run into its CRM rivals very much during contract competitions, because the field is huge and mostly tuntapped

Laugh when you realize Herman doesn't cover Siebel. The Lehman analyst wasn't taking a shot at Siebel; he was talking about Oracle's own efforts. And he should be -- Herman wouldn't be doing his job if he didn't follow Oracle.

But his job doesn't include a specific focus on the CRM industry. First Call lists 15 software companies covered by Herman, including vendors of software for mission-critical systems, back office management, business-to-business commerce infrastructure, and application integration.

CRM is a tricky field to define. First Call says 17 analysts follow Siebel, 26 cover Oracle, and only five cover both. Despite Oracle's rhetoric, few Wall Street observers put the companies in the same universe.

That quintet that does see overlap include Charles Phillips, for Morgan Stanley Dean Witter; Rick Sherlund, for Goldman Sachs; Jim Pickrel, for Chase H&Q; Melissa Eisenstat, for CIBC World Markets; and Bob Austrian, for Banc of America Securities.

If you look at their coverage realms, you can see each of those five only covers Siebel because Oracle claims it as a competitor. Like Herman, they're not CRM-focused.

There's a good reason for that -- only in the last decade has front office software appeared as a viable product. The field didn't take off until companies like Clarify, Vantive and Siebel emerged in the early 1990s, so a long-time enterprise software analyst wouldn't be coming from that background.

Oracle only entered that market in the last few years, so most Oracle observers never paid attention to CRM until recently. Using a veteran Oracle analyst's report to gauge Siebel is like relying on a long-time AT&T analyst to measure Cablevision Systems (NYSE: CVC).

You could argue Siebel was an overvalued stock anyway. That's a legitimate concern, but it's one that should be considered not through the report of an unfamiliar analyst, but in the context of Siebel's own operating results. As long as the company continues to perform as well as it has so far, a SEBL investor's view shouldn't change.

To its credit, Wall Street regained its Siebel backbone as the morning wore on. Perhaps people found their laughter. 22GO>