Siebel Systems desperately needs to grow again -- and with its traditional enterprise software market sluggish and saturated, expanding into new areas is the company's best chance. Within the next few months, the company will unveil Project Nexus, a custom-CRM (customer relationship management) offering executives hope will unlock a lucrative new market. Several years in development, the initiative represents Siebel's latest attempt to regain the vanguard of the software market it pioneered.
The quickest way to understand the trouble-plagued Siebel is to look at the numbers. For years, the company was the sales leader in prebuilt "packaged" CRM software, ringing up software license revenue of more than US$1 billion in 2000 and 2001. By the end of its 2004 fiscal year, Siebel's license sales had fallen to half that.
To help revive its flagging business, Siebel is preparing to move into what it sees as the biggest untapped market for CRM software: custom development. In a June presentation to Siebel shareholders, Chief Executive Officer (CEO) George Shaheen flashed a slide illustrating Siebel's view of the overall CRM market. Siebel estimated the total annual market for packaged CRM, its traditional core product line, at US$5.5 billion. It estimated the custom CRM market at US$24 billion. (Siebel sourced the spending estimates to research from IDC, AMR Research and its own market analysis.)
A spokesman said the company expects to formally launch its custom product, code-named Project Nexus, by September. Its roots go back nearly three years, to Siebel's October 2002 decision to work closely with Microsoft and IBM to natively support both .Net and J2EE (Java 2 Enterprise Edition), according to Stacey Schneider, a Siebel technology product marketing director.
That's when Siebel began focusing on building an SOA (service-oriented architecture) framework for its applications, Schneider said. The goal is to let customers more easily tailor Siebel's applications to match their business processes. Siebel 7.5.3, released in mid-2003, incorporated Siebel's initial SOA work, which continued in Siebel 7.7 with user-interface changes and other enhancements aimed at simplifying transaction processes. The architectural overhaul will culminate in Siebel 8.0, due next year. The fully Web-services-oriented software will include changes like a new rules engine intended to improve workflow management.
The work Siebel did to expose as Web services the components of its CRM system allowed the company to then take that work a step further and develop a product offering around its components and CRM design expertise, Schneider said. Confusingly, the company uses 'Nexus' to refer both to its SOA framework and to the forthcoming custom product line derived from the SOA development; that line is likely to acquire a new name when it formally debuts. The Nexus product line will be the one Siebel pitches to customers with needs too specialized for commercial CRM software.
"We've seen the need for a number of years," Schneider said. "The custom market [buyers] were always in the mentality of, 'We have to build it ourselves, because there's nobody out there who can possible give us a head start.'"
Siebel first began talking about its Nexus framework in 2003, but development work progressed fairly quietly. The initiative gained a higher profile after Shaheen took the CEO job from Mike Lawrie in April. With investors eager for a rapid turnaround that would justify Siebel's ouster of Lawrie less than a year into his tenure, Nexus is frequently cited by executives as an example of Siebel's investment in growth initiatives.
Siebel isn't yet publicly discussing most of the details around its Nexus product line, but analysts say the basic idea is sound.
"What Siebel has recognized is that they have a tremendous amount of internal knowledge and expertise in managing complex deployments," said Nucleus Research Inc. analyst Rebecca Wettemann. "There's a lot they can do in terms of best practices and knowledge. People are definitely looking for that."
"If you want to do a very specialized component application that needs some of the basic processes in CRM [software], this is an easy way to move forward," said Josh Greenbaum, an analyst who runs Enterprise Applications Consulting.
But Siebel isn't alone in pursuing a component-based, SOA software strategy. Every major applications vendor is doing likewise: Oracle has its Fusion plans; Microsoft calls its spin Project Green; and SAP speaks simply of the "business process platform," the next evolution of NetWeaver, which will underlie all of its application architecture by 2007. Meanwhile, IBM partners broadly with application vendors (including Siebel) while urging customers to adopt its own Websphere middleware layer.
In Greenbaum's view, a company like Siebel that focuses on one niche applications area -- even if it's a expansive one, like CRM -- is at a disadvantage competing with broader vendors.
"Customers are being pushed to make a platform decision, and every vendor is trying to look like they're the best platform," he said. "In an Oracle or SAP shop, both of them are duking it out, along with IBM and maybe Microsoft. If the bulk of [a user's] processes are not CRM-based, if they're running supply-chain, finance, human resources, etc., then it might make more sense to look at the suite vendor's platform than to look at the CRM vendor."
Siebel's Schneider counters that Siebel's expertise extends beyond its own applications. "CRM is a big space, but the bottom line is, really, to be able to complete any transaction about a customer, you're probably going to have to go to another system," she said. "It's increasingly important for TCO [total cost of ownership] to reduce integration costs. And we've been working hard with IBM, Microsoft, BEA and other partners on that."
Siebel has struggled before with attempts to crack the application-integration market. Its Universal Application Network (UAN) hub architecture never caught fire, and Siebel's UAN head, Nimish Mehta, recently defected to SAP.
Still, whether Nexus succeeds as a product offering, Nucleus's Wettemann thinks Siebel's customers benefit from the development work. As Siebel focuses on increasing its software's usability and usefulness, its customer satisfaction reports are getting better. "People have seen vast improvements in functionality in Siebel's platform," she said.