Siebel Forms Unlikely Alliance With Microsoft

Microsoft chairman Bill Gates and Siebel chairman and CEO Tom Siebel gave back-to-back keynotes the opening day of the conference, announcing a multiyear alliance to jointly develop, market, sell and support Web-services solutions that combine Microsoft's .Net Web-services platform and Siebel's CRM and

e-business enterprise applications.

"By leveraging the unrivaled functionality of Siebel eBusiness Applications and the advanced capabilities of Microsoft .Net, the joint Siebel-Microsoft solution enables organizations to rapidly and cost-effectively deploy the best business solutions at the lowest total cost of ownership," Siebel says.

But can it really work? The alliance is odd for several reasons, the most puzzling of which is that both software companies are going to compete in the CRM software market. Microsoft CRM, slated for release next year, is said to be a midmarket product, but company officials say it will take them years to build the kind of functionality that Siebel possesses. At the same time, Microsoft has become increasingly focused on building its enterprise business with products like Exchange Server and BizTalk Server. Plus, Microsoft is not known as a company that does anything halfway.

A rocky history between the software companies exists as well. Siebel and Microsoft recently broke up their alli- ance around Front Office, their longstanding joint product that combined Siebel CRM with Great Plains' accounting and back-office software. The alliance,and joint product, was considered expendable after Microsoft acquired Great Plains last year and, shortly after, announced it would develop its own CRM product. Microsoft CRM is now in limited beta release.

A Dangerous Game

Solution providers say Siebel is playing a dangerous game. "It just makes no sense," says Howard Highsmith, president of Sales Methods, a consultant specializing in CRM practices. "They're competing for the same turf."

Another reason the alliance is so mystifying is that Siebel has a major alliance with IBM Software. As one of IBM's two or three biggest ISV partners, its products are tightly integrated with WebSphere Application Server, which offers Web-services capabilities, and other IBM brands. Why, then, would Siebel buddy up with Microsoft, IBM's biggest competitor on the Web-services front?

Officially, IBM says it isn't worried about its alliance with Siebel. Still, the size of the alliance with Microsoft is staggering; Siebel isn't just supporting .Net,it's developing integrated solutions around the platform. Microsoft has struggled previously to find enterprise ISVs to support .Net, and the Siebel alliance now gives Microsoft a big boost. Siebel officials say the company will continue to support Java, the primary competitor to Microsoft's .Net language, and has continued to build its relationship with IBM in recent months.

Given the alliance, some are now also wondering if Microsoft and Siebel plan to merge. Insiders say it's a long shot. After all, why would the CRM market leader, a company with roughly $2 billion in annual revenue, want to be bought out?

For one, CRM has cooled down considerably this year. Forrester Research forecasts that the CRM market will decrease by 5 percent for 2002. In addition, long deployments, high prices and, most of all, integration headaches are fueling end-user surveys that indicate, more often than not, customers aren't satisfied with their CRM investments.

The fallout has certainly affected Siebel. In the third quarter ended Sept. 30, Siebel reported $357.2 million in revenue,a whopping number to be sure, but also an 18 percent decrease from one year ago. Even more telling is the 34 percent drop in license revenue, down from $193.5 million last year to $126.8 million in the current quarter.

Whatever the motive behind the Siebel-Microsoft partnership, CRM will definitely have its work cut out for it in the coming year. The question is, will the market be big enough for both Microsoft and Siebel?