Tom Siebel sets aggressive targets for hosted CRM

Two years after pulling the plug on its first attempt at a hosted CRM service, Siebel Systems is back in the game and expects to surpass market leader Salesforce.com Inc. as early as next year, the company's chairman and chief executive officer told reporters Tuesday.

"It's highly likely that in 2004 we will be the world's leading provider of hosted CRM," Tom Siebel told reporters after giving a speech at Comdex Tuesday morning. He was responding to a question about how long it would be before his company's CRM OnDemand hosting service, announced last month in partnership with IBM, overtakes that of Salesforce.com.

The goal is an ambitious one. Salesforce.com established an early lead in hosted CRM (customer relationship management) and says it has about 8,000 customers, for a total of almost 120,000 seats deployed. By contrast, Siebel's CRM OnDemand offering doesn't launch until next month. Several customers are live on the system as part of Siebel's beta program, according to Siebel, although he wouldn't say how many seats are involved.

Siebel has about 4,500 customers for its software altogether, mostly large enterprises, and its applications are deployed on about 2 million seats, Siebel said during his keynote.

The goal of surpassing Salesforce.com is not implausible but will be tough, said Joshua Greenbaum, principal analyst with Enterprise Applications Consulting, in Daly City, California. The issue is whether Siebel can build up its hosted business without cannibalizing the software sales that provide its core revenue, he said. "To me, that's the multimillion dollar question," he said.

Customers may look at Siebel's hosted offerings and ask, "Why am I paying this maintenance fee on these big applications when I can just go on demand?," Greenbaum said.

Siebel ran into just that problem a few years ago with its first effort to offer hosted applications. It pulled the plug on its Sales.com business in 2001, primarily because it was taking too many customers away from its core software business, Greenbaum said. This time it faces the additional challenge of being up against an established competitor, he said.

Tom Siebel argued that things will be different this time. Sales.com was ahead of its time, but customers are now ready to outsource management of their applications, he said. The company also has the backing of IBM, which will be a close marketing and development partner. In all but legal terms, Siebel said, CRM OnDemand is a joint venture between the two companies.

Marc Benioff, Salesforce.com's chairman and chief executive officer, had little time for Siebel's predictions. Asked to respond to Siebel's remarks, he pointed to Salesforce.com's well-known brand, market momentum and broad customer base.

"Siebel has had nine quarters of declining sales. Their business has deteriorated. . . . Tom Siebel is in an unusual position to be making such aggressive comments about what is the most successful company in Silicon Valley today," Benioff said in a telephone interview.

He questioned Siebel's claim that the company has 2 million live customers for its applications, and said deployments of its hosted applications amount to "almost nothing."

It's also a big adjustment for Siebel to switch from selling large software contracts to smaller, more numerous deals, Greenbaum noted. CRM OnDemand is priced at $70 per seat.

Still, Siebel said he is confident that CRM OnDemand will be a success. The company will distinguish itself by offering customers a hybrid approach, he said, running some of their applications in house and farming others out. And it will soon launch one of the biggest marketing campaigns "in the history of the IT industry" to promote CRM On Demand, he told reporters.

"We've reinvented the company many times over the years," he said. "It's clear from listening to our customers that this is an area they want us to be in."

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