Siebel partners with IBM for hosted CRM plunge

CRM heavyweight Siebel Systems is prepared to once again dive into the hosted applications market, this time in partnership with longtime ally IBM.

The two companies have sealed a deal to begin offering a US$70 per user, per month service, making Siebel the first enterprise CRM (customer relationship management) vendor to bring out a subscription product to compete head-to-head against the growing ranks of CRM ASPs (application service providers).

Dubbed Siebel CRM OnDemand, the service is scheduled for fourth-quarter launch. Customization is designed to be handled in-house by customers, with no consultants needed and added no installation expenses: The $70-per-user monthly subscription will be the software's only cost, according Richard Gorman, Siebel's senior vice president of products. Siebel and IBM will jointly market the service though their sales forces and through a $15 million publicity campaign.

Small and midsize businesses are the main intended audience for the service, but Siebel also hopes to entice larger businesses to use it for expanding CRM deployments. Ten potential buyers are now testing the product, Gorman said. He anticipates the average deal size will be for 20 to 35 users. There are no minimums or maximums on the number of licenses companies can purchase. While Siebel CRM OnDemand has a custom architecture and user interface, it will integrate with and offer upgradability to Siebel's traditional software.

Siebel was an early competitor in the CRM-as-a-service market, launching in 1999 to offer browser-based sales tools. Two unprofitable years later, the venture was scrapped. Since then, however, a pack of independent vendors has carved out a midmarket niche, offering smaller organizations -- and even departments at larger ones -- access to some of the functionality traditionally found in large, complex business applications, without the implementation hassles and high price tags associated with those packages.

Siebel isn't worried about competing with the pure-play CRM ASPs, Gorman said.

"There's a couple of smaller startups in this space, but it's 99.99 percent untapped territory," he said. "There haven't been good, credible solutions from established companies. We think the market will expand with our entry."

One of those "smaller startups" is, a four-year-old company that claims 100,000 end users for its hosted CRM service and close to $100 million in forecast revenue for this year. routinely runs up against and beats Siebel in pitching new business, and expects to continue successfully beating out Siebel's new hosted service, Chief Executive Officer (CEO) Marc Benioff said.

"Siebel's business has gone to hell in a handbasket over the last three years. They've had an uncontrolled, precipitous decline in revenue, mostly because their product is too complex, too hard to use, and too expense," Benioff said. "(Siebel CEO) Tom Siebel has had a lot of aggressive comments over the years about our business. Now we have Siebel basically validating what we've been saying for the last four years: It's the end of software, and on-demand computing is the future."

Software isn't dead, but customer are demanding more flexible and less expensive deployment options, a change Siebel and its competitors need to address, said analyst Denis Pombriant, CRM research director at Aberdeen Group.

"We're not going to see the market completely convert over to hosted applications. There are good reasons why companies will continue to buy licenses and host applications in-house. One of the things Siebel brings to this party is this understanding, and a credible offering for both camps, with an innate integration of the two," he said. "I think the depth of functionality makes Siebel a significant player right out of the blocks."

Partnering with IBM, a company trusted to provide enterprise-class security and service, will also help Siebel attract customers that have steered clear of other hosted CRM vendors, Meta Group analyst Liz Roche said.

"What the other ASPs don't offer is a growth path into a robust enterprise product. This offering from Siebel is going to meet so many needs in the marketplace. It provides an appropriate starting point for small businesses, but also for divisions of large businesses that need to get started with Siebel quickly," she said. "Obviously, it doesn't provide every single bell and whistle of Siebel's enterprise version, but it looks pretty solid."

Beyond pressuring the CRM ASPs, the Siebel/IBM service increases the competitive heat on Siebel's traditional rivals, including PeopleSoft, Oracle and SAP, said Amy Wohl, of Wohl Associates. All of the top CRM and ERP (enterprise resource planning) vendors offer hosted versions of their software, but none has made a splashy attempt to break the price barrier and offer inexpensive subscription services.

"Siebel is the first really well-known, really big-time software company that's finally bit the bullet and put up a fully hosted online service for pay-by-the-month, pay-by-the-user, pointed at the midmarket," she said. "The pricing model is very aggressive, and should delight customers. It's certainly going to make the market more competitive."

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