Effects on market for

By Renee Boucher Ferguson  |  Posted 09-12-2005

Oracle Will Buy Siebel for $5.85 Billion

Database and business applications software developer Oracle Corp. announced Monday that it will acquire Siebel Systems Inc. for $10.66 per share, or about $5.85 billion.

Siebel develops CRM (customer relationship management) software. The company has about 4,000 application customers and 3.4 million CRM users, according to a statement released Monday by Oracle, of Redwood Shores, Calif.

The acquisition of Seibel is the second largest Oracle has undertaken. After an 18-month hostile battle throughout 2004 to acquire ERP (enterprise resource planning) rival PeopleSoft Inc., Oracle succeeded in taking over PeopleSoft last December. Oracle paid $10.3 billion for PeopleSoft.

As part of the PeopleSoft acquisition, which included midmarket ERP vendor J.D. Edwards & Co., which PeopleSoft previously had acquired, Oracle embarked on a major overhaul of its product lines. Dubbed Project Fusion, the effort will combine the "best of" functionality from the Oracle E-Business Suite, PeopleSoft Enterprise and JDE Enterprise One suites.

Oracle will take a similar tack with Siebel's CRM applications, according to the company. "We will embrace Siebel's best-in-class CRM product and make the features of those products the centerpiece of our Project Fusion CRM," said Oracle Co-President Charles Phillips, in a statement.

Phillips said that Oracle and Siebel's joint customers have "consistently recommended" the transaction. A majority of Siebel implementations run on Oracle's database.

Oracle makes good on its promise of continued PeopleSoft development. Click here to read more.

Unlike the PeopleSoft acquisition, however, it's unlikely the Siebel deal will engender much rancor. The addition of Siebel's software would be more complementary to Oracle's offerings, of which CRM plays a relatively small role to date. Siebel's board of directors has voted in favor of the transaction, and the company's founder and CEO, Tom Siebel—a former Oracle executive—has agreed to vote his shares in favor of the acquisition, according to Oracle's statement.

The acquisition meets Oracle's two key criteria for large deals, according to Larry Ellison, Oracle co-founder and chief executive: It's immediately accretive—for the full fiscal year of 2007 Oracle expects to make more money on a pro forma basis from the acquisition—and it's strategically sound.

"This makes us number one in markets in which we already participate," said Ellison, during a conference call Monday with analysts and press. "Oracle's acquisition makes Oracle number one in sales and services in North America, and also strengthens our goal of becoming number one globally."

Currently, SAP AG is the number one business applications provider in the world, trailed by Oracle.

The deal also strengthens Oracle's relationships with two Siebel implementation partners: IBM and Accenture. Companies rely on strong system integration partner relationships to sell more software. But at the same time, Siebel's relationship with IBM brings a familiar technology question to the fore: Which databases beyond Oracle's, if any, will Oracle support with Project Fusion? Siebel is software platform agnostic—the next generation of its software currently in the works would be platform portable—so that users are not tied into any single infrastructure.

That will likely change with Oracle's development of Fusion CRM, based on Siebel's products.

"If you are a person who is trying to make an enterprise strategic decision—and Siebel was your decision—and you're not an Oracle shop, this could be a problem," said Michael Moaz, Gartner vice president and CRM research fellow. "Siebel is not saying, 'we are going to migrate over to the Fusion platform.' If I'm not an Oracle shop planning on building my future on the Oracle platform, this is only a tactical decision, one that will have to be revisited," when Fusion comes out in a couple of years.

Moaz also pointed out that Oracle's acquisition of Siebel brings an end to the suite market.

"In terms of independent CRM suites, this is the last gasp of the suite market," said Moaz, in Stamford, Conn. "There are no more independents for large enterprises. It's going to be Oracle or SAP."

Next Page: Effects on market for on-demand CRM will not be great at first.

Effects on market for

on-demand CRM will not be great at first">

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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