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Is Siebel the next SAP?

The company is now the envy of struggling ERP giants which have been slow to develop their own CRM products, while their stock prices dip and their ERP license sales sag.

Ask Tom Siebel about the future of the enterprise resource planning market and he attacks the question as a pit bull would a raw steak.

"It's kind of a wasteland," said Siebel, chief executive of Siebel Systems, the No. 1 maker of software that manages a company's sales, customer service, and marketing needs. "I think the back office market is a horrible market. It's saturated. It's sold out. Everyone has [back office software] and the store is closed."

Indeed, Tom Siebel, a gruff, original evangelist of sales force automation software, has strong reason for blasting the once high-flying enterprise resource planning (ERP) market.

Siebel has shepherded his San Mateo, California-based firm to the top of the heap in the rapidly expanding customer relationship management (CRM) software market. The company is now the envy of struggling ERP giants, including SAP, Baan, and PeopleSoft, which have been slow to develop their own CRM products, while their stock prices dip and their ERP license sales sag.

Even Oracle, whose sales have remained strong, is vowing to topple Siebel from its market leading perch by the middle of next year.

Why all the fuss? For one, the front office software market is expected to grow to $2 billion in 1999, with Siebel likely snagging a 25 percent share, according to Ben Z. Rose, analyst at Adams Harkness. AMR Research predicts the front office market will balloon to $11.6 billion by 2002.

And while the high-end of the ERP market, which is focused on building systems that manage a company's financials, human resources, and manufacturing needs, is about 35 percent penetrated, just 5 percent of the high-end of the CRM market--Siebel's sweet spot--has been captured, according to a Goldman Sachs research report.

For now, Siebel's closest rivals--Clarify and Vantive--are less than a third of the size of Siebel and both focus on different parts of the huge market. Analysts say there is room for many vendors in this nascent area, where Siebel reported 80 percent growth in the last quarter on $134 million in revenue and license growth of 67 percent.

"There still is so much green field that these vendors don't really run into each other that much," said Robert Austrian, analyst at NationsBanc Montgomery Securities. "In terms of competition the greatest competition is for mind share and market cache."

Analysts say Siebel, with 1,800 employees and 1998 revenue of $391.5 million, is about 18 months ahead of its competitors with its front office software development. The company last December released its long-awaited Web-based suite of front-office products called Siebel 99 and is now setting its sites on capturing new business from mid-size companies to add to its base of 950 customers.

To date, Tom Siebel has had little to worry about from SAP, the 800-pound gorilla lurking around the corner. With an installed base of 20,000 ERP customers, analysts say SAP is a front office giant waiting to happen.

"In the near term there won't be clashing," between SAP and Siebel, said Yankee Group analyst Harry Tse. And considering just 10 percent of SAP's customers now have a front-office suite, SAP will have a ready-made market to target once its full suite of front office products comes out next year, Tse said.

"I think the extra time that Siebel has had to deal with competition...has allowed them to get a stronger hold on the market," said James Pickrel, analyst at Hambrecht & Quist.

Tom Siebel has taken that time to build a stronger management team--plus put a thorn in SAP's side--by recruiting Paul Wahl, former chief executive of SAP America, as its new chief operating officer, and Jeremy Coote, former president of SAP America, as vice president of North American Operations.

With Wahl and Coote, Siebel has captured two of SAP's former top marketing strategists, said Bruce Richardson, a vice president at AMR Research. While several analysts agreed the pair could do some short-term damage to SAP's front-office strategy, Richardson noted that SAP's hard-core back office customers won't want to partner with any other provider.

Siebel also lured several other top executives from both IBM and Oracle to strengthen his management team and prepare for growth, and to meet Siebel's goal of knocking off Oracle to become the second largest applications software vendor in the world.

"It seems to me that Siebel is really serious about putting together a professional management team instead of just Tom Siebel," Tse said.

In the meantime, Oracle, which has been trying to break into the front office market for several years, has finally released its first Web-based products. Oracle executives promise that the company will clobber Siebel in front office license sales by the middle of next year.

That won't be an easy task, analysts say, noting Siebel's rapid rise.

"Siebel can grow at 25 percent over the next five years to a $2 billion company," NationsBanc's Austrian said. "They've got to execute but [reaching that size is] not so unbelievable."