Down But Not Out - InformationWeek

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Down But Not Out

More than the economy has taken its toll on Siebel. But it has a plan to turn things around.

Tom Siebel, CEO of Siebel systems Inc., has already prepared investors to expect disappointing first-quarter earnings next week, blaming "economic and geopolitical uncertainty" that prevented the closing of a few key deals last month. That's par for the course for many IT vendors right now, but hard times have been doubly difficult for the world's leading customer-relationship management software supplier. Customer upgrades to the Web-based version of Siebel's software have gone slower than expected, while competitors touting lower-cost implementations or easier integration are gaining mind and market share. Things are bad enough that Siebel investors approved a "poison pill" stock plan earlier this year to scare off potential takeover bids.

Siebel isn't giving up its dominant position in the $3 billion-a-year CRM market without a fight. Salvation may lie in plans to provide less-costly versions of its software--including, sources say, a hosted offering--and sell more analytics and integration tools. Siebel also has set its sights on what it says is a largely untapped opportunity to replace aging homegrown CRM software with custom adaptations of its industry-specific software.

TOM SIEBEL PHOTO

Tom Siebel warned investors to expect a disappointing first quarter. Analysts say his company must reinvent itself, fast.
Now is the time to act, analysts say. "There isn't a direction Siebel turns that it's not being threatened by a very strong and credible threat," says Joshua Greenbaum, an analyst at Enterprise Applications Consulting. "They have to reinvent themselves and do it very quickly."

As things stand, Wall Street isn't expecting Siebel's fortunes to improve this year. The company posted a net loss of $35.7 million last year, with license revenue amounting to only $700 million, compared with $1.1 billion in 2000 at the height of the dot-com era. Siebel predicts that revenue for its first quarter this year will be $330 million to $335 million versus $477.8 million for the same quarter last year. Morgan Stanley projects Siebel's license revenue growth will decline 11% this year even as J.D. Edwards, PeopleSoft, and SAP see gains.

The steadily sliding economy played a part in these troubles but so did Siebel's introduction of Siebel 7 in November 2001. The system was an ambitious effort to switch from a client server to a Web-based architecture, which analysts say advanced the vendor's functional leadership in the CRM space. But widely reported reliability, scalability, and performance concerns may have slowed Siebel 7 deployments just when many companies were reconsidering the wisdom of expensive upgrades of any enterprise applications.

So far, according to Siebel, only 400 of its more than 3,500 clients use Siebel 7 or 7.5, the update released last fall. Another 31% are in the process of buying or deploying the software, leaving more than half of Siebel's customers on the old platform. "The adoption is lower than other vendors with comparable releases and a far cry from Tom Siebel's initial prediction of 80% to 90% in the first year," says AMR Research VP Rod Johnson, who links the slower adoption rate to high costs and perceived lack of value.

Storage network vendor McData Corp. steered clear. "We heard some terrible things" related to Siebel 7's performance, high costs, and even buggy interfaces, says Deb Morton, director of business applications. A Siebel 6 shop for more than two years, McData recently switched to Oracle for sales-force automation and call-center software.

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