CRM market consolidation: Boon or bust for Siebel?

If Oracle Corp. succeeds in acquiring PeopleSoft Inc., customers like Electronic Theatre Controls (ETC) could once again be up for grabs.

The Middleton, Wis.-based lighting equipment manufacturer currently runs PeopleSoft 8.8 for sales, marketing and help desk. Even with Oracle's promise to extend support for PeopleSoft applications, chief information officer Tracy Wundrock worries that her company would be working with a product at the end of its life cycle.

"If we have a static product, that doesn't do us any good," she said.

Plus, as a Microsoft shop that runs SQL Server, ETC fears that Redwood Shores, Calif.-based Oracle would steer customers toward its own flagship database. Wundrock, who also called Oracle's brashness a turnoff, said she would ultimately explore other CRM vendors, most notably Siebel Systems Inc., San Mateo, Calif., and SAP AG, Walldorf, Germany.

Such a scenario must have Siebel and SAP licking their chops, undoubtedly hoping that Wundrock wouldn't be the only PeopleSoft customer to question her CRM software choice should the takeover occur.

Since database giant Oracle first made a play for its Pleasanton, Calif.-based enterprise resource planning and CRM rival in early June, competitors have been scrambling to position themselves favorably. The hostile takeover bid not only caused confusion for PeopleSoft customers -- who learned that Oracle would support but eventually discontinue PeopleSoft software -- but also for shops running applications from J.D. Edwards & Co., Denver. Just four days before Oracle entered the acquisitions picture, PeopleSoft had announced plans to acquire J.D. Edwards.

In contrast to SAP, which has run advertisements in The Wall Street Journal and the Financial Times touting its stability in the face of this business applications uncertainty, Siebel has remained low key. It hasn't run a campaign courting PeopleSoft or J.D. Edwards customers, nor has it publicly outlined a migration path to its software.

Instead, when asked about the takeover, the company emphasized its position as CRM's top dog.

"I would do what Gartner advised. I would not buy PeopleSoft right now," said Burghardt Tenderich, Siebel's vice president of public relations. "I would probably go for the safest choice and would look at the market leader."

Not so fast, say some industry analysts. While many are indeed advising customers to take a wait-and-see approach to purchasing, some think that vendors who offer both back- and front-office software would benefit the most from market consolidation, namely SAP and Oracle.

"This puts Siebel in a bind," Sheryl Kingstone, CRM program manager at Boston-based Yankee Group. "It's really about power. SAP and Oracle would have power. They have the complete suite."

Kingstone said that, if the takeover succeeds, Siebel's revenue would pale in comparison to SAP and Oracle, and Siebel could be marginalized as a best-of-breed provider. Siebel's best bet, according to Kingstone, might be to move to a more J2EE- and Web services-compliant environment. She said the company's current integration strategy, the Universal Application Network (UAN), is "not a viable alternative."

"I'd be rewriting the architecture to a composite state to take advantage of my best-of-breed status," she said.

Aberdeen Group research director Karen Smith agreed. "Siebel needs to establish technology and business relationships so that its products can be integrated," she said.

Meantime, PeopleSoft has been defying oddsmakers who vowed that the Oracle bid -- which now stands at $6.3 billion, or $19.50 per share -- would decimate PeopleSoft sales. The company has benefited from a successful customer-protection program that offered money-back guarantees in the event of a takeover. Preliminary quarterly earnings show the strategy worked. PeopleSoft exceeded Wall Street estimates for the quarter. Siebel missed its own quarterly earnings mark.

Chris Selland, founder of Cambridge, Mass.-based consultancy Reservoir Partners, thinks that Siebel's financially weakened position makes it ripe for takeover, too. Likely acquirers, according to Selland, are Microsoft Corp. and SAP. "But that doesn't really hurt customers," he said.

Ultimately, customers will decide how CRM market consolidation impacts Siebel and other business applications vendors. And while analysts have cautioned against making decisions based on emotion, PeopleSoft customers like ETC's Wundrock have a bad taste in their mouths.

"Oracle demonstrated they had little regard for the PeopleSoft customer base," she said. "I think we'd be foolish not to explore all of our options at this point."
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