Best of Breed

By John Pallatto  |  Posted 09-12-2005

Observers Skeptical About Success of Oracle CRM Buyout Binge

SAN FRANCISCO—With its $5.85 billion buyout of Siebel Systems on Monday, Oracle will face persistent questions about how it can effectively market or integrate what amounts to seven different CRM product lines, software industry executives and analysts said Monday.

Oracle Corp. officials said Monday that the Siebel Customer Relationship Management products will be folded into Project Fusion, which is Oracle's effort to combine the best features and components of the Oracle E-Business Suite, PeopleSoft Enterprise and JDE Enterprise One into a coherent product line.

However, industry executives and analysts said they were skeptical that Oracle would successfully carry out the massive task of integrating applications from three different large software companies with its own products.

Customers will have questions and concerns about which of those CRM products are going to survive in any recognizable form for the long term, said Bruce Richardson, chief research officer with AMR Research Inc. in Boston.

This will give competitors such as SAP AG or an opportunity to offer there products as perhaps a less expensive or less complicated alternative to Project Fusion, Richardson said.

With Monday's acquisition, Oracle has acquired the existing on-premise and on-demand versions of Siebel CRM.

In addition, Siebel was preparing to deliver by the end of this year Nexus, the next generation of its CRM products that is based on Software Oriented Architecture.

Oracle also had its own CRM product line and had developed an on-demand version of those products.

This array of product offerings will likely cause a lot of confusion for customers until Oracle can show what CRM components will become prominent in the new Project Fusion, he said.

Click here to read Charles Garry's commentary about whether it is wise for Oracle customers to tie a large portion of their IT capabilities to a single vendor.

The integration process is going to take time, and this gives a nimble company like time to show how they can provide the same solutions quicker and for less money, he noted.

However, Oracle is unlikely to face serious legal opposition from the Securities and Exchange Commission this time as it did when it launched its hostile buyout of PeopleSoft, he said.

The SEC will review the acquisition as it always does, but "I just don't see any major issues with the SEC" this time around, he said.

PeopleSoft's staunch legal resistance to the Oracle buyout raised issues to which the SEC had to pay attention, Richardson said.

Since Siebel and Oracle reached an amicable buyout agreement, those issues don't exist this time.

Next Page: Best of breed.

Best of Breed

He also said he didn't believe SAP would raise strong objections because its product line includes integrated CRM components.

Speculation that Oracle and Siebel were talking about an amicable buyout have swirled since last March.

A number of analysts, including Richardson, expressed strong doubts that Oracle would spend billions of dollars to acquire Siebel after spending more than $10 billion to acquire PeopleSoft/J.D. Edwards.

Richardson said he reiterated this view to a financial analyst just 48 hours before the deal was announced Monday.

A Siebel acquisition made more sense for Oracle than a PeopleSoft acquisition did a year ago, said Sheryl Kingstone, a CRM market analyst with the Yankee Group in Boston.

"I would have preferred that it had happened sooner rather than later," Kingstone said.

When the two companies failed to announce a deal in April, Kingstone said she assumed that it was unlikely that it was ever going to happen.

Click here to read John Pallatto's commentary on recent market moves by SAP to chip away at Oracle's Project Fusion.

"Oracle should have bought Siebel before it bought PeopleSoft," because Siebel would have provided best of breed CRM applications that it acquired from PeopleSoft, she said.

"They really didn't need both companies. Siebel has a lot more strength in CRM. They are a leader in the industry and they have a lot more components, not just in customer service and support, but a marketing application" that is a market leader as well, she said. executives, lead by CEO Marc Benioff, were exultant about the news of the Siebel buyout, saying it provided further evidence of the success of the on-demand business model.

"Oracle put Siebel investors out of there misery today. We have been doing that for Siebel customers for years," Benioff said in a statement to his company's employees Monday.

"Oracle's strategy is simple. Instead of innovating, buy as much installed software as possible, call it all Oracle Fusions, and make sure it uses Oracle's database," Benioff said.

This will also it to try to maximize the revenue it generates from maintenance, license fees and potential upgrades, Benioff said.

To read Scot Petersen's column examining the challenges Oracle faces in wringing real value for customers and investors from its buyout binge, click here.

In this way, Oracle is following the same strategy followed by Computer Associates International Inc., which bought up a number of mainframe database and application companies to milk the maintenance revenue for as long as possible.

However, Benioff suggested that this strategy will backfire because rather than keep paying maintenance fees, "customers will look for new solutions and new providers."

Benioff also predicted that Siebel's On-Demand CRM product would be an early casualty of the buyout because it is the result of a joint venture between IBM and Siebel and runs on IBM's DB2 relational database.

"Oracle will kill it. Oracle does not sell DB2," Benioff said.

Next Page: Solving the integration problem.

Solving the Integration Problem

They also expressed no resentment that the Oracle announcement happened to coincide with the opening Monday of's Dreamforce user conference here.

It's hard to imagine that Oracle and Siebel would time the signing of a definitive merger agreement just to intrude on the user conference, said Jim Steele, president.

The buyout is just more evidence of the persistent consolidation that is going on in the application software market, noted Denis Pombriant, principal of Beagle Research Group, a CRM industry research specialist in Stoughton, Mass.

Oracle is aggressively acquiring software companies so it can acquire a larger customer base that it can sell applications to, Pombriant said.

The problem with this strategy is that it doesn't necessarily produce new and innovative software, just a continuing stream of revenue.

"I would prefer to see a burst of innovation that results in new products to sell to customers rather than the creation of a homogenized product line" that resulted from an acquisition campaign, he said.

It will be difficult to successfully consolidate all the software technology that Oracle has acquired over the past year, Pombriant said.

"I'm skeptical about what the results will be," he said.

Oracle may not be able to integrate all those acquired products fast enough before customers start to give serious consideration to moving to the on-demand products offered by smaller and more nimble companies, such as and RightNow Technologies Inc., noted Janet White, an analyst with Info-Tech Research Group based in London, Ontario.

"By purchasing Siebel, Oracle has acquired an additional 3.4 million CRM users and the maintenance fees that go with that kind of installed base," said White in a prepared statement.

"But how much time will Oracle really have to integrate its existing portfolio to create innovative new products, when it has to spend most of its time maintaining disparate, monolithic systems" acquired through its recent buyouts, she said.

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