Analysis & Commentary:

SAP, PeopleSoft, ORACLE MOVE IN ON SIEBEL'S NICHE

Siebel Systems Inc didn't even make the short list when Welch Allyn Inc, a medical-equipment maker, went shopping for software to track sales, manage accounting and calculate employee benefits.

That's because Siebel, the largest maker of programs used to oversee sales and customer accounts, didn't offer the other applications Welch Allyn wanted. The closely held company instead looked at SAP AG and Oracle Corp, both of which offer broad suites of business software, and chose SAP.

Just a year ago, Siebel faced little competition from the likes of SAP or Oracle. The company grew from a startup founded in 1993 by former Oracle salesman Tom Siebel into one of the largest software makers, with US$1.8 billion in sales last year. Now rivals such as SAP, Oracle and PeopleSoft Inc are muscling in, giving Siebel its biggest challenge yet, analysts said.

"Three sumo wrestler titans are now coming in against Siebel," said Eric Upin, an analyst at Robertson Stephens who has a "buy" rating on Siebel and doesn't own the shares. "We're concerned about what we think is a risk."

San Mateo, California-based Siebel had a 28 percent share of the US$3.98 billion market for customer-relationship management software in 2000, according to a Gartner Inc report. Oracle, the closest competitor, had 6 percent of the market. PeopleSoft and SAP trailed even more, with 3 percent and 1 percent respectively.

Siebel's rivals have been busy improving their customer-account software, with their eyes trained on Siebel's lead.

Oracle, SAP and PeopleSoft now have "real products to sell," turning the market into a "four-horse race," according to a report released this month by AMR Research Inc.

Oracle's strength lies in database software, used for storing libraries of information. PeopleSoft started out making human-resources management programs, and SAP began with programs to automate production and manage factories. Now each wants to be a one-stop shop for all business software.

SAP's customer-account software offers almost everything Siebel's does, said Welch Allyn executive John Watkins, who oversees information technology at the Skaneateles Falls, New York-based company.

"I don't think they're equivalent yet, but they've closed the gap," Watkins said. For Welch Allyn, which has 2,700 employees, the big advantage was that SAP customer-account software would integrate easily with other SAP programs.

"We didn't feel we'd get the same level of integration" with Siebel, he said.

Tom Siebel disputes that argument, saying that Siebel software integrates more easily with accounting software and other programs made by Oracle, SAP and PeopleSoft than their own customer-account applications do.

Oracle, SAP and PeopleSoft have been a "complete and total failure in the market," he said in an interview, ticking off a roster of Siebel customers, including Deutsche Telekom AG, General Motors Corp and Caterpillar Inc.

"It might be true that a couple of their products are getting better, but they're not good enough that people are willing to buy them," Siebel said. "All they can cite are a couple of C-level companies where they've given away their CRM software for free as part of a suite." Even if competitors are giving the software away, that still means lost sales for Siebel, analysts said. Siebel will be forced to lower prices to compete, they said.

"Siebel's not a database company -- they don't have database revenue to fall back on," said John Ragsdale, an analyst at Giga Information Group. Oracle, the largest database maker, gets more than three-fourths of its software revenue from databases.

Price competition is just one more thing for Siebel to worry about. The company's growth has skidded this year as corporations reined in spending. The Sept. 11 terrorist attacks disrupted business, Tom Siebel said this week, and led to the company's first-ever year-over-year revenue drop.