Siebel's Channel Chief Reaffirms Partner Strategy

The resignation of a CEO is always a cause for pause in the channel. So when Siebel Systems last week abruptly announced that board member George Shaheen will replace J. Michael Lawrie as CEO, solution providers immediately began questioning the software vendor's newfound commitment to the channel. Yet Bruce Cleveland, vice president and general manager for Siebel OnDemand and SMB, says in an interview with Editor In Chief Michael Vizard that the San Mateo, Calif.-based company remains committed to the channel and the change at the top should mean faster results.

CRN: With a new CEO in place, does Siebel Systems plan to make any changes to its channel strategy?

CLEVELAND: The strategy, as far as I know, is not changing. ... We're still marching down the same path. The issue was execution. The caveat is that all's fair in these things. I've known George [Shaheen] for nine years, and the communication back to me was that OnDemand and SMB are two critical initiatives for the company.

CRN: How is Siebel doing in the SMB space?

CLEVELAND: In the SMB space, we're meeting and exceeding our expectations. With the OnDemand product, we have 245 percent growth.

CRN: How big of a role is the channel playing in that space with you?

CLEVELAND: Smaller companies, in general, don't want to buy through a large manufacturer. They want to buy through somebody they know locally. But small companies need to compete with large companies, so they need to be armed with the same technology. They just can't afford to consume it at the same price. You can't go broke selling into this space, so you have to create a channel. I didn't want to take on something that was destined for failure. I wanted to create a new go-to-market model. So we launched the channel piece, and I have 100 people that are dedicated exclusively to the SMB market, which we define as [any company with annual sales of] less than $500 million.

We created a new function called a territory manager, who is an account executive who would be partnered with the VARs. From an economic standpoint, we had to figure out how to get 25 percent pretax profit out of that. We can dilute the corporate P&L, so we need a steady state business that would be additive. The secret sauce is, what do we do well and what does the VAR do well and to try to match that up.

CRN: How does that manifest itself?

CLEVELAND: We're trying to match our weaknesses and come up with something better. One such area is demand generation. If we let the VAR borrow our brand, I can contract for hundreds of events at a relatively low cost because I can get economies of scale. They can create a demand-generation event with us. They finance it, but the cost is a quarter to half of what they would pay if they did it alone. And the results are two to four times better. Through our alliance program, we have hundreds of partners, so I thought that would be the best place to start. We've created pilot territories in the [San Francisco] Bay area, Dallas and Boston. We thought sending everything through the channel at once was a mistake, so we started with these pilot territories. We decided to learn what works and what doesn't first. We have 30-plus VARs in EMEA and the U.S. If by the end of 2005 we have 50 VARs, I'll be happy.

CRN: What are your ultimate goals for the channel?

CLEVELAND: There are 24 territories. Eventually, we'll increase the number of VARs. I would like to do 310 events per quarter, or roughly 1,200 events per year. I would like to get to 100 percent fulfillment through the channel by the end of they year. We'll certainly try but probably won't [get there]. Everybody knows they have to acquire the VARs and train them by the end of the year. It's my intention over the next two years to push everything through the channel. It's [time] to get out of the direct-sales business in the SMB space.

CRN: You were away from Siebel for two years. What brought you back to the company last year?

CLEVELAND: In the SMB space, a lot of large companies think they can play, and we all know they cannot. The DNA of that space is different. An enterprise company needs to change all the back-end systems, the products and the messaging. There is a whole litany of things that need to happen if you are going to be successful. I thought it would be pretty interesting to help Siebel move into the SMB space, create a go-to-market [model] that would work and transform Siebel into something more than being a provider of big-company technology. CRN: How do VARs get compensated?

CLEVELAND: They get paid on the total contract value. So if the contract is for three years, that's what they get paid for all up front.

CRN: Siebel in its heyday wasn't known for responding to customers quickly. What's different now?

CLEVELAND: We were growing so fast. The ability to respond to all your customers and make them satisfied was very tough to do. Without those growth rates, we can spend more time ensuring the business outcome.

CRN: As part of its strategy in the SMB space, Siebel is allowing customers to buy its software and run it on their premises or access it remotely as a service. When should people run software as a service vs. run it on-site themselves?

CLEVELAND: A simple answer is that software as a service is priced to be basically a three-year break-even proposition. If you are going to have it for more than three years, you might want to consider bringing it in-house. But the option to bring it in-house may never exist for a lot of small businesses. It doesn't really matter how you deliver your product, whether it's hosted or not. There's no religious jihad that we're on about this. All that matters is the economics. My argument is that you shouldn't buy any of this stuff until you know how you want to use it. If customers can get access to technology faster and gain economic value easily, then they will consume it that way. We figured out a way to make money at it.

CRN: How big of a competitor is Salesforce.com in the SMB space?

CLEVELAND: Salesforce is in virtually every one of my deals. We started out with a 5 percent to 10 percent win rate last year, and at the end of the year we were at a 50 percent win rate. We've improved the product significantly, and we have a lot more people. The problem now is that they are in 70 percent more deals than we are. The way I am going to combat the word of mouth around Salesforce is through my VAR partners. I don't think following your competitors is the way to beat them. The empirical data is showing that by delivering all the releases that we have, we have closed the functionality gap quite significantly.

CRN: Why hasn't Microsoft made a bigger play in the software-as-a-service space?

CLEVELAND: My feeling is that they have not reached any great assessment about software as a service. They have the luxury--much like they did with Netscape--to wait. My conjecture is that there will come a point in time where they can make money at it and it's viable. Those are the conditions for entering a market.

CRN: How are you thinking of expanding Siebel's OnDemand efforts?

CLEVELAND: What we're considering offering is not just multitenant hosting but also single-tenant hosting, kind of like a business-process outsourcing arrangement. Many of our enterprise customers are asking us to do this for them.

CRN: How do VARs need to think about selling applications today?

CLEVELAND: The days of pitching a product are over. People want to know how you can change their business. In the absence of a strategy for sales forecasting, the product is kind of irrelevant until you drive your pipeline and manage it. There are new sources of revenue for VARs, especially on the business consulting side. Composite applications offer a wealth of integration fees. Our consulting team for OnDemand is booked solid, and we can't hire fast enough. But if I have a bunch of VARs, I am happy to give them that business. The value-add of integrators is going to be less on integration and more on the whole concept of services and education.