Oracle's acquisition of Siebel could breathe new life into on-demand CRM, which removes the need for users to buy and manage their own systems
Oracle's agreement to acquire customer relationship management leader Siebel will not only shake up the enterprise application market, it could give a major boost to hosted CRM, also known as on-demand or application service provision (ASP).
Hosted CRM is growing in popularity, with organisations signing up to use a CRM application on a pay-as-you-go basis or paying a set monthly price to a service provider who hosts the application and delivers it over a network to the user's web browser.
Hosted CRM suppliers include Salesforce.com, Siebel, SAP, NetSuite, RightNow Technologies, Concerto, Digital River and Unica, with Microsoft promising to get in on the act.
Siebel made its formal "software-as-a-service" debut in 2003 with Siebel CRM OnDemand, for which it claims to have gained more than 28,000 subscribers in just over a year.
"The software-as-a-service model has changed the whole perception of customer management with faster implementations, quicker time to value, and easy customisation," said Robert Bois, senior research analyst at AMR Research.
Erin Kinikin, Forrester Research vice-president, said Siebel's successful CRM as a service offering was one of the company's main attractions for Oracle. "Oracle has just woken up to the lucrative hosted market, and needed an alternative to companies like Salesforce and NetSuite," she said. "The nirvana of the hosted market is a single offering that can scale from small companies to large, and seamlessly move from hosted to on-premise and back.
"Siebel is two to three years down the ASP road, and could help Oracle get an offering out more quickly. Siebel was using its new architecture for its hosted product, which could let Oracle "battle test" Fusion [Oracle's next-generation product that will combine its range of applications] a bit sooner and help make sure the hosted and on-premise products stay in sync."
Oracle's chief executive officer, Larry Ellison (pictured), said incorporating Siebel CRM OnDemand "is a key part of the strategy - we think it will be increasingly important as Siebel OnDemand is improving rapidly". He added: "Many products will migrate to OnDemand."
Salesforce.com chief executive Marc Benioff was, unsurprisingly, more cynical about Oracle's plans. "Client/server software is being consolidated by Oracle just as mainframe software was consolidated by Computer Associates," he said. "Oracle's strategy is simple - instead of innovating, buy as much installed software as possible, call it all Oracle Fusion, and make sure it all uses Oracle's database."
Benioff argued that Siebel CRM OnDemand was written for IBM's DB2 database, and not Oracle, which could pose a problem for both Oracle and Siebel users.
Gartner vice-president and fellow Michael Maoz added that both Oracle and Siebel had been relatively unsuccessful at on-demand CRM in the past.
Oracle went into on-demand four years ago but it did not make any significant gains, said Maoz. "Siebel first went into it in 1999 without much initial success. To win in on-demand, you have to have focus."
Oracle would not answer specific questions about its Siebel acquisition - a policy it also adopted after its takeover of PeopleSoft earlier this year.
Consolidation grows among CRM software companies
Enterprise software giant Oracle's planned takeover of Siebel for £3.24bn will make the company that started off as a database supplier the biggest customer relationship management (CRM) software vendor in the world.
Oracle will have four lines of CRM software: its own, and suites from previous acquisitions of JD Edwards, PeopleSoft and Siebel.
David Bradshaw, principal analyst at Ovum, said, "The acquisition will give Oracle a strong leadership position in the CRM applications market, since Siebel was the number one vendor.
"It will also give Oracle solid support and maintenance revenues and a foothold in SAP customers."
Salesforce.com banks on customised approach
Salesforce.com has pioneered CRM for users who want to avoid the large upfront cost of implementing an enterprise system.
The main attraction of the service from Salesforce.com is that it requires little IT infrastructure to get going. Users connect over a browser and sign up for annual access to the service, paying a monthly fee of £60-£70 per seat.
The company does not offer vertical market-specific products, which means that it trails rivals, such as Siebel, for functionality, said analysts. However, Salesforce.com has been bolting on add-on products to make its service a better fit for enterprise users, providing back-end integration and customisation.
Chris Boorman, vice-president of marketing for EMEA at Salesforce.com, said the company had decided not to make vertical sector-specific versions of its product.
"Customers want a product to fit their specific needs, not the general need of an industry, and we made it easy to customise the product to fit any business need with our Customforce tool."
At this month's Salesforce.com Dreamforce conference, the hosted CRM supplier announced further tools to customise its service.
In June, Salesforce.com released its Customforce 2.0 customisation toolkit for extending its core hosted services, Salesforce and Supportforce. It uses "Formulas" to eliminate the need for external codes such as Java, or applications such as Excel, thereby reducing application maintenance costs.
"This is much more a point-and-click solution, designed for end-users to manage. It's very customisable," said Tom Pringle, analyst for call centres and CRM at research group Datamonitor.