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Commentary: Divining Oracle's intent with Siebel

Acquisition is a positive move overall, although it crowds Oracle's already full plate of company- and product-integration activities.

Commentary: Divining Oracle's intent with Siebel
By Forrester Research
Special to CNET
September 13, 2005, 8:15AM PT

By Paul Hamerman with Christopher Mines, William Band, John Ragsdale and Jessica Harrington

The much-rumored Oracle play for Siebel Systems has materialized with Monday's announcement of a $5.85 billion acquisition.

Siebel was an attractive target for Oracle with its blue-chip enterprise customer base, leading CRM (customer relationship management) functionality, and a growing hosted subscription offering, Siebel OnDemand.

Following Oracle's acquisitions of PeopleSoft, Retek and I-flex, the Siebel deal increases the complexity of company and product integration efforts and its next-generation product line strategy known as Project Fusion.

Oracle needs to make Siebel's CRM functionality an integral part of the next-generation product line that has been primarily based on the existing Oracle E-Business Suite. Existing Siebel customers should pay close attention to product release support schedules, maintenance costs, and enhancement road maps as Oracle assimilates another major applications acquisition.

Overall, the agreement to acquire Siebel is a positive move for Oracle, although it crowds the company's already full plate of company and product integration activities from recent acquisitions. Siebel's recent lackluster business performance made the move all the more likely.

Special coverage

Siebel's 12 years
of independence
will come to an end.

Although Siebel will probably be the last large applications acquisition for a while, we expect Oracle to continue to make acquisitions that enhance its market position in relation to SAP. Future acquisitions will likely be in vertical markets where Oracle can claim a leadership position--most likely in services industries where the German company is less dominant. SAP's strategy to build instead of buy enhances its ability to execute on its service-oriented architecture (SOA) strategy, whereas Oracle faces complex challenges to merge similar products with dissimilar technical architectures. The upshot: SAP will likely increase its overall lead in applications.

Still, three major factors make this move appropriate for Oracle:

•  Better CRM capabilities. CRM has historically been a relative weak point in Oracle's application portfolio. The PeopleSoft acquisition added some credibility in that area from the former Vantive product and customer base, but not enough for Oracle to compete strongly against Siebel and SAP for enterprise deals. With Siebel, Oracle gains the leading enterprise CRM solution as well as a strong offering in hosted sales force automation.

•  The grab for customers and maintenance revenue. The Oracle move continues a consolidation trend in the mature enterprise applications industry. With fewer and fewer large new business deals, growing its recurring maintenance revenue has become a core part of Oracle's business strategy. This motivation also drove Oracle's recent acquisition of PeopleSoft. With approximately 4,000 customers and 3.4 million licensed users, the Siebel acquisition enables Oracle to gain the leading CRM market position in North America and compete more effectively with SAP worldwide.

•  A stronger play in the growing software-as-a-service market. For Oracle, an attractive aspect of Siebel's business is the growing Siebel OnDemand hosted offering. Even though Oracle has promoted its on-demand business for hosting and supporting applications, it has not yet provided a true software subscription offering to compete with focused software-as-a-service companies such as and NetSuite. Oracle's complex enterprise solutions have less appeal to small and midsize businesses, and the Siebel OnDemand business gives Oracle a path to move downmarket, at least in CRM.

Challenges for Oracle and its customers
The acquisition of Siebel at this time allows Oracle to factor it into its Project Fusion next-generation strategy for applications, but it also adds a layer of complexity to this and other ongoing activities. Oracle and its customers face a number of daunting challenges:

•  Four acquisitions in just over a year is a lot to absorb. Although the Siebel acquisition is not expected to close until early 2006, the move layers business and product integration work on top of ongoing efforts to assimilate PeopleSoft, Retek and I-flex. Oracle must squeeze expected cost savings out of the acquired companies as well as align its salesforce to the overlapping product lines. Fortunately, the proximity of Siebel headquarters to Oracle will make it easier to address employee and facility redundancies. Oracle has plenty of acquisition experience to draw on.

•  The acquisition complicates Project Fusion. Oracle has been planning to create the next-generation Project Fusion applications primarily from the footprint of the E-Business Suite. The Siebel product, however, must become an integral part of the strategy. It will not be sufficient to push relatively inferior CRM functionality from the E-Business Suite into Project Fusion as an upgrade path for Siebel and PeopleSoft CRM customers. Oracle will need to clearly articulate its plan to migrate customers from the existing CRM products into the next-generation product suite, but getting them to migrate to the new product by the end of the decade will prove very challenging.

•  Customers need reassurance and road maps for support and enhancement plans. There will be significant concerns and apprehension on the part of Siebel customers about future support and enhancements to current products, as well as concerns about rising maintenance costs. Oracle needs to do a good job in clearly articulating release support and enhancement plans for Siebel customers and provide reassurance that they can stay on existing versions for as long as they want to.

Protecting against post-acquisition stress
Siebel customers will face similar stress and challenges to what PeopleSoft and J.D. Edwards customers did, before and after the acquisition. Customers should take the following actions to further reduce risk:

•  Adopt product upgrades where practical. Do not put off product upgrades that make sense for your business based on acquisition uncertainties. In addition to leveraging new functionality, maintaining a current version will ensure ongoing support and leave options open for future upgrades and migrations.

•  Pursue written assurances for support. Customers should demand written assurances on support of existing releases if not planning upgrades. In addition, take the opportunity to protect against future maintenance price increases, since Oracle is likely to eventually standardize at 22 percent of net license fees for all products.

•  Consolidate instances of applications. Companies with multiple CRM, financial or HR applications should consolidate applications to lower IT support and infrastructure costs as well as to provide enterprise visibility over customers, employees, suppliers, etc. If using multiple products owned by Oracle, request trade-ins and migration support to achieve efficiency and standardization.

© 2005, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.