Oracle Will Buy Siebel for $5.85 Billion - ' Effects on market for '

The acquisition of Siebel, which provides both on-premise and hosted software, will not likely put much of a dent in the world of on-demand CRM software. At least not yet.

The weak reception to Siebel's on-demand strategy has done little to ease the downward revenue slide the company has been in for more than three years. While Siebel partnered with IBM as both a technology and hosting partner—Siebel OnDemand is built on IBM's infrastructure—the relationship seems to have faltered, according to analysts. As it turns out, IBM wound up not hosting Siebel's software, nor does its sales force push the offering.

Oracle plans to change all that.

"Siebel's on-demand [capability] is a key part of our strategy and one of the key motivators in the deal," said Ellison. "We think on-demand is going to be increasingly important. The Siebel OnDemand products are improving at a very, very rapid rate. We intend to invest in them heavily."

Ellison went so far as to say that he expects all of Siebel's software product features and functions will be migrated to its on-demand products.

However, Oracle has had little success with its own on-demand offering. It's not clear what both companies will do differently to combat its woes in the hosted marketplace.

According to a Gartner report issued Monday, SAP maintained the top CRM market position for 2004 in terms of reported license revenue, for the second consecutive year. In the second and third positions are Siebel and PeopleSoft. Oracle was fourth, just ahead of Salesforce.com

However, while Siebel saw only 2.4 percent growth between 2003 and 2004, Salesforce.com's grew 84 percent.

Marc Benioff, CEO of Salesforce.com, said in a letter to employees Monday that, "Oracle put Siebel investors out of their misery today. We have been doing that for Siebel customers for years. … 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 database. Now the same thing that has happened to PeopleSoft will happen to Siebel, it will die."

Salesforce.com aside, Oracle will also face mounting competition from SAP and Microsoft Corp. Both companies have upgrades to their CRM products in the works, and both have hinted recently that they are working on their own hosted CRM offerings.

It's not clear what will happen to Siebel's workforce. Oracle officials said that Siebel founder and Chairman Tom Siebel will continue on with Oracle for perhaps a couple of years, though it's not clear in what capacity. And while Siebel did have some employee retention programs in place, Oracle is confident it can work through those agreements.

For the longer term, at least one former Oracle executive, Jeff Walker, who served as executive vice president and general manager of Oracle's application division, sees another side to the Siebel acquisition.

"Tom [Siebel] is a Larry [Ellison] clone, and that's a wonderful thing," said Walker, now the founder and CEO of TenFold Corp. "Larry is an in-your-face aggressive kind of guy. Tom learned that from Larry. If I were going to pick a guy out there that would be an Ellison successor, it would be Siebel."

The deal, subject to regulatory approvals, is expected to close in early 2006.

Editor's Note: This story was updated to include quotes from Oracle CEO Larry Ellison and from analysts.

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