A few months back, Reservoir Partners published a report on CRM consolidation in which we
forecast that the enterprise CRM market is fundamentally -- and permanently -- shrinking. Since
then, we've of course all been alternatively entertained and horrified by the
Oracle/PeopleSoft/J.D. Edwards circus. But through all of this, the acknowledged leader in the
enterprise CRM space has been noticeably quiet -- not a peep from Siebel.
With all of the mud being slung, it certainly is not a bad time to keep one's head low. But we'd
also have to imagine that Siebel isn't going to stay quiet forever -- especially in this
consolidating market. That begs the question -- what will Siebel's role be in industry
consolidation? Acquirer or acquiree?
As the enterprise CRM alpha dog, it would seem to make a lot of sense for Siebel to get aggressive
sooner rather than later. The stock market is recovering, and even the venture capital industry is
showing signs of life -- in other words, potential acquisition targets (there are many) are
possibly never going to be cheaper. And let us not forget, as my good friend Bruce Daley at the
Siebel Observer reminded me just today, that Siebel is sitting on $2.2 billion in cold, hard
cash.
However, the role of acquiree strikes me as the more likely one, despite all of Tom Siebel's (and
others') denials. Why?
1. The pie is shrinking. No matter how well-managed a company Siebel is and has
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been, the overall
market is simply not growing.2. As its competitors consolidate, the lead Siebel has long enjoyed cannot help but erode. It's a lot tougher slugging it out with three strong competitors than 30 weak ones.
3. Siebel can continue to grow around the edges with small acquisitions (such as its BoldFish buy a few weeks ago). But despite Siebel's cash hoard, its stock/market value is too depressed to support any major deals.
4. Siebel (the person and the company) is smart enough to know when it's passed its peak. This is really the critical point: It doesn't matter whether you or I believe that Siebel can surpass SAP, Oracle, Microsoft, etc. What matters is whether Siebel believes it. I think the realist in Siebel will recognize that it's time to get out. It would have been even better 24 months ago, but it's still not too late.
So, if I'm right and Siebel decides to sell, who are the potential buyers?
I happen to believe there are only two logical acquirers, with a third possibility that remains (for now) a wild card. Today's two front-runners are SAP and Microsoft. Both have the financial muscle to make the deal, and both have committed to expanding share in the CRM market -- what better way to do so than by acquiring the market leader?
If it were my money, I'd say SAP is the better bet. Despite SAP's progress in CRM, a recently departed SAP executive confirmed to me what I already strongly suspected -- that much of SAP's "CRM" success has come from simply re-labeling existing SAP revenue; the reality is that the company still has major gaps in the product line (and customer base). Progress is being made, but the PR is well ahead of the reality.
Microsoft has similar issues, but it also has a lot more on its plate right now with the combination of CRM assets it's already gained from Great Plains and Navision. Besides, I expect Microsoft to do what they always do -- nibble away at the high-end market from below, without the desire or need to do a big bang acquisition.
The wild card is Oracle. If Oracle is unable to complete the PeopleSoft acquisition (I happen to believe it should and will happen -- but there are a number of reasons why it may not, including that much is up to the courts at this point) then Siebel would be a very nice consolation prize. And arguably an even better fit.
Finally, there's IBM. Analysts and other industry observers have been predicting this acquisition for the last five years (that's not an exaggeration -- see http://www.findarticles.com/cf_0/m0CGN/1999_May_10/54594797/print.jhtml). But remember that IBM was already in the CRM industry (a division called Corepoint) and shut that effort down. Plus, IBM's been too busy making money selling databases and application servers to disaffected partners of Oracle and now Microsoft -- partners that didn't like their infrastructure providers competing with them.
By the same argument, Hewlett-Packard buying Siebel would also be dumb (at least for HP) -- although with HP these days, one never knows what to expect.
So there you have it -- one observer's opinion on the future of CRM and the future of Siebel. In the end, none of this really matters so much as Siebel's decision to either go back on the offensive and continue battling the competition as ferociously as it has in the past, or to bury the hatchet with prior enemies and make peace with the idea of creating a bigger whole. Regardless of what happens, Siebel won't be keeping today's low profile much longer -- and it should be fun to watch.
Chris Selland is founder of Cambridge, Mass.-based Reservoir Partners, an end-user focused research and consulting firm that creates relationship management strategies.
This was first published in August 2003
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