Siebel seen eyeing IBM tie-up for hosted CRM

Two years after Siebel Systems Inc. shut down, the company appears to be once again considering a foray into the hosted customer relationship management (CRM) market, this time through a joint offering with longtime partner IBM Corp.

While nothing official has been announced, analysts and competitors are already responding to rumours and press reports that Siebel is considering offering its applications online on a subscription basis, with IBM’s Global Services unit handling hosting duties. IBM has similar arrangements with several applications vendors, most notably Onyx Software Corp.

The momentum of business software application service providers (ASPs) like Inc. has been too strong for traditional vendors to ignore, according to Aberdeen Group Inc. analyst Denis Pombriant. In a May report, he named PeopleSoft Inc. and Siebel as vendors likely to create new hosted offerings by the end of the year.

“ showed the way. They’ve gotten a lot of publicity over the last year, and there’s no longer any hiding that the cat is out of the bag. The technology works, and the market demand for this style of solution is growing,” Pombriant said.

Officials at IBM and Siebel declined to comment on whether a specific deal is in the works. As part of their ongoing partnership, the two companies talk frequently about potential new services and alliances, representatives said.

Analysts say a hosted CRM offering would make strategic sense for both companies. Siebel has posted a string of disappointing quarters as it struggles to find buyers for its business applications in a tight spending environment for enterprise software. Most buyers for hosted CRM products are small and midsize companies, which have been spending more freely during the downturn than have their larger counterparts. A software-as-service offering could help Siebel penetrate that market and expand its customer base.

IBM, meanwhile, has made increasing its sales to SMBs a company-wide priority. It began constructing last year a network of independent software vendors (ISVs) to offer their wares as IBM-hosted applications, available to customers for a per-user monthly fee.

Tier 1 Research Inc. analyst Andrew Schroepfer thinks that the IBM network could eventually threaten the business of conventional vendors such as PeopleSoft, SAP AG and Siebel, unless they can find a way to take advantage of the growing interest in hosted application services.

“Siebel is largely considered the best-of-breed, but they have no market opportunities because their systems are so expensive and have so many features. Going on IBM’s platform would be a way for Siebel to penetrate the midmarket,” he said.

Siebel’s online CRM venture lasted two years but never generated the demand Siebel hoped for. Launched in a time of dot-com enthusiasm, the initiative wilted once the economic mania subsided. Aberdeen’s Pombriant said Siebel is now better positioned to offer on-demand CRM than it was in the days.

“Siebel, like a lot of vendors, has over the past few years been through a process where they’ve re-architected their applications. Their applications today are much more lean, much more Web-oriented – they are at home in a browser. All those things were missing in,” he said. “It’s a new ballgame.”

Dedicated CRM ASPs are, unsurprisingly, skeptical about the prospect of Siebel entering their market. A Siebel adaptation of its client/server technology to a hosted model would be “like putting lipstick on a pig,” charged Salesnet Inc. Chief Executive Officer Mike Doyle.

“With the architecture that Siebel has, I think it’s going to be particularly clumsy and cumbersome,” he said.

Several enterprise applications vendors, including PeopleSoft and Oracle, offer hosted versions of their software. Salesnet doesn’t usually run into those companies in pitching new business, nor has it bumped into Onyx’s IBM-hosted service, Doyle said. Though his company competes with both traditional and hosted applications vendors, its main competition remains other dedicated ASPs, including Salesforce and UpShot Corp., he said.

Whether or not Siebel joins with IBM, the company is at some point soon going to have to address the growing customer interest in hosted applications, Pombriant said. He sees the ASP model as a development that is fundamentally altering the business software market.

“I think hosting might be one of those technologies that you see periodically that drives the industry out of recession,” he said. “It appears that the interest in hosting just keeps accelerating.”

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