Siebel Systems

Mkt 6222 - COHORT

Dr. Murthi

May 7, 2001

Group #8

Chris Conry

Will Henderson

Sinan Yilmaz

David Wei

Siebel Systems

Tom Siebel, the founder of Siebel Systems, has very simple and straightforward principles for guiding his complicated, high-tech business:

Commitment to 100% customer satisfaction.
Run a cash positive business.
Professionalism in actions, attitudes and attire.

According to Siebel these “old-economy values” are still relevant in the “new-economy”, even though many of the start-ups seem to have forgotten these basic values and this is what sets Siebel Systems above the competition. This philosophy has been proven effective a number of times, but most recently when Siebel announced earnings of 15 cents a share for the first quarter, which beat analysts estimates. This is even more remarkable given the recent troubles with Internet and hi-tech companies. The Street cites Siebel’s commitment to customer satisfaction and strict spending controls as the reason for its superior performance.

Siebel Systems, Inc. Background

Siebel Systems, Inc. is the world's leading supplier of eBusiness application software. Headquartered in San Mateo, California, Siebel Systems has become the fastest growing application software company in the world. Siebel eBusiness Applications enable organizations to sell to, market to, and service their customers across multiple channels, including the Web, call centers, resellers, retail, and dealer networks. These applications are available in industry-specific versions designed for the pharmaceutical, healthcare, consumer goods, telecommunications, insurance, energy, apparel and footwear, automotive, technology, public sector, and finance markets. Siebel eBusiness Applications enable organizations to create a single source of customer information that sales, service, and marketing professionals can use to tailor product and service offerings to meet each of their customer's unique needs. By using Siebel eBusiness Applications, organizations can develop new customer relationships, profitably serve existing customers, and integrate their systems with those of their partners, suppliers, and customers, regardless of location. Siebel Systems is a global corporation providing comprehensive eBusiness solutions to many of the world's leading companies, including IBM, Deutsche Telecom, Lucent, Chase Manhattan Bank, Charles Schwab Corporation, Yahoo!, Microsoft, and Kellogg's.

About the Founder of Siebel Systems

Thomas M. Siebel has been the Chairman, Chief Executive Officer, and President of Siebel Systems, Inc., since its inception in July 1993. He is a graduate of the University of Illinois at Urbana-Champaign where he received a B.A. in History and an M.B.A. and an M.S. in Computer Science. Mr. Siebel serves on the board of advisors of the University of Illinois College of Engineering, the Stanford University Graduate School of Business, and the Stanford University Law School.

Prior to founding Siebel Systems, he served as Chief Executive Officer of Gain Technology, a multimedia software company that merged with Sybase in December 1992. From 1984 through September 1990, he held a number of executive management positions including Vice President Product Line Marketing, Group Vice President Industry Marketing, Group Vice President and General Manager Direct Marketing Division, and most recently, Group Vice President at Oracle USA.

Mr. Siebel was recognized by Business Week in January 2001 as one of the top 25 managers in the world. He currently owns 15% of the company.

Board of Directors

James C. Gaither is a partner of Cooley, Godward, Castro, Huddleson & Tatum and served as managing partner of the law firm from 1984 to 1990.

Eric E. Schmidt, Ph.D. is the Chairman and CEO of Novell, Inc. Before joining Novell, Dr. Schmidt was the Chief Technical Officer of Sun Microsystems, Inc.

Charles R. Schwab is Founder, Chairman of the Board, and CEO of The Charles Schwab Corporation.

George Shaheen is President and CEO of Webvan Group Inc., a full-service, online grocer and drugstore.

A. Michael Spence, Ph.D., served as the Dean of the Graduate School of Business at Stanford University for over nine years. He currently serves as Chairman of the National Research Council Board on Science and Technology.

History of Siebel Systems

Siebel Systems officially began operations in July 1993. Together with Co-founder Patricia House, Siebel outlined a business plan and invested $50,000 of his money as start up capital. It would seem that the first step would be to design the specific product. This was not the case. While they had a pretty good idea of the basic parameters of the product, they would take an unorthodox approach to product development. Utilizing their extensive contacts in the industry, they spent weeks getting to fully understand the needs of their potential customers. Only then did they actually create their product. This research would yield the main product around which Siebel Systems would be built. Siebel Sales Enterprise (SSE) software version 1.0 would be Siebel’s bid into the sales force automation software market later evolving into today’s CRM (Customer Relationship/Resource Management)

Since his days at Oracle, Tom Siebel felt that every aspect of business had been mechanized and automated with technology except for sales. This is where Siebel Systems would make its mark. Their research at Sun Microsystems, Bank of America, Cisco Systems and other fortune 500 companies had yielded valuable insight into exactly what their potential customers would be desiring in sales automation software. SSE would have to be able to handle massive volume, interface with multiple languages, and be very adaptable to the varying needs of customers. Additionally it would provide the sales force with up to the minute data concerning product, customer, and industry data. Therefore the salesperson could spend less time handling matters not actually involved in making a sale such as tracking the status of orders or finding out specifications. This was becoming especially important as industries and products become more and more technologically advanced and complex.

Since its founding, Siebel Systems has grown exponentially and become a market leader in the very competitive environment of e-business applications that enable businesses to sell across multiple mediums. Their software is flexible enough to be customized to operate in virtually any industry and is tailored to a specific customer’s needs and integrate their systems with their partners, customers, and suppliers.

As mentioned in the introduction, Tom Siebel had some very strong convictions as to what makes a successful business and this is strongly reflected in the present day operations. First, from the fact that they design products specifically for each customer and even potential customers, to the fact that the headquarters is decorated with customer art, Siebel continually shows its customer focus. They even hang customers’ logos on the walls of their headquarters and name conference rooms for the most valued customers. Secondly, Siebel Systems runs on a positive cash basis, an extreme oddity in today’s dot-com world where companies go for years without concern for actually turning a profit. Siebel brought its first product on-line spending less than $1.8 million in total and since then has made sure to “spend less than it takes in” as novel as that may seem these days. Thirdly, Siebel maintains its commitment to professionalism. You will not find employees walking around in flip-flops and t-shirts. Everyone dresses for success in order to be taken as seriously as they take their own business. The programmers, when not in contact with a customer, are allowed to wear jeans, but otherwise salespeople, sales consultants, VPs and Tom Siebel himself all dress, look and act like consummate professionals. They are dealing with directors of some of the largest most respected companies in the world and feel they must look and act the part 100% of the time.

Competitors and Positioning

The Company's major competitors include Allegis, Annuncio, Ariba, Baan Co., Blue Martini, Brightware, BroadVision, Broadbase Info., Calico Commerce, Callidus Software, Inc., CAS GmbH, Chordiant Software, Clarify, Dendrite International, Epicor, E.piphany, FirePond, Firstwave Technologies, GoldMine Software, I2 Technologies, Kana Communications, MarketFirst, MarketSoft, Niku, Octane Software, ONYX Software, Oracle, Pegasystems, Inc., Peoplesoft, Pivotal Software, Inc., SAP, SPSS Inc. and many others.

It should be obvious that the industry has an extremely large number of players. Most of them are fairly small relative to the whole industry. Entry is fairly easy, but market share and profitability are much more difficult to build. This is the result of a number of factors:

High Switching Costs – Because the software is so extensive, it is difficult to dismiss one provider and start over. This is especially difficult when a company is trying to maintain continuous customer support and sales.
High Cost of Products – The price of a complete package of software is very high, especially for large organizations. This results in customers tending to want the established and larger firms, because of the sellers experience and proven track record.
Short-Run Economic Downturn as of 4/22/2001– Many customers are experiencing slower sales and reduced profits. This is resulting in a slowdown of new sales in the CRM industry as their customers are reluctant to make large expenditures during uncertain times.
Previous Alliances – Most successful players in the market have already created alliances with the best integrators (i.e. large consulting firms) and therefore new players may find it difficult to form alliances. Existing players in the market get a sizable portion of their new business through referrals from their alliance partners.

Siebel is by far the largest competitor, based on industry sales. Some of its competitors, while holding relatively small market share in the CRM industry, are backed by huge corporations and could represent the most significant competition. Below are a few of the large players and their basic strategies.

(The following sales figures are representative of the CRM industry only and are in millions. Also estimates are used where CRM revenue is not specifically broken down in financial reports. Depth of Market $11,000 –est.)

Oracle - 2001 1^st Quarter Sales- $75 –est. Mkt. Cap.- $95,798

CEO Larry Ellison’s strategy in CRM seems to be focused on pointing out the deficiencies of competitors, rather than promoting any real advantages of Oracle’s software. The huge size of Oracle gives him confidence and a lack of urgency in the CRM arena.

Peoplesoft - 2001 1^st Quarter Sales- $100 –est. Mkt. Cap.- $8,412

Peoplesoft, like Oracle, has many other outlets and income sources, but seems more determined to achieve market share and has the expertise to leverage that expertise into significant gains in CRM. Developed a significant partnership with Sun Microsystems and represents a serious threat to Siebel.

SAP - 2001 1^st Quarter Sales- $60 in U.S. Mkt. Cap.- $18,474

SAP is also a gigantic international organization. It is very focused and driven to achieve sales in the CRM arena. They intend to integrate their many other software packages to serve all of a customers needs from CRM to ERP and all other areas. This will create captive customers with very high switching costs. They probably have as good a chance as any competitor to rival Siebel.

Siebel’s Marketing Activities

In the United States, they market and sell their products and services through their direct sales and services organization and through channel partners including Great Plains, J.D. Edwards, Compaq Computer and others. Outside of the United States, they sell primarily through their direct sales and services organization in the countries where they have an office and through channel partners. They also market and sell their products through distributors, primarily in Japan, Latin America, South Africa and Asia. Their sales force is located in thirty-eight countries, with seventy offices in the United States and seventy offices outside of the United States.

One of the key elements, which comprises their marketing and sales strategy is the targeting of large multinational customers in a broad range of industries. Their customer base consists of a significant number of large multinational companies. Their web-based architecture supports the complex needs of even the largest global organizations. They benefit from leveraging their experience and continue to target sales and marketing activities through their direct sales force and channel partners to expand worldwide market acceptance.

Second key element is that they maintain and extend advanced technology position. They provide the industry's most comprehensive family of multichannel eBusiness applications, enabling organizations to sell to, market to and service customers across multiple channels, including the Web, call centers, field, resellers, retail and dealer networks. Siebel e-business applications enable organizations to manage, synchronize and coordinate their customer touch points.

Siebel Products

Siebel.com Applications include Siebel eSales, Siebel eMarketing, Siebel eService, Siebel eChannel, Siebel eBriefings, and Siebel eMail Response.

Siebel eSales is a Web-based application that supports unassisted business-to-business and business-to-consumer selling over the Web. It includes a visual product catalog, Web-based quote generation, self-service solution configuration and on-line ordering.

Siebel eMarketing enables enterprises to create, execute and assess Web-based marketing campaigns. With Siebel eMarketing, enterprises segment their customers and prospects; target them with a personalized, automatically generated Web- or email-based promotions; and create graphical reports to assess the effectiveness and return-on-investment of the campaign. Through Web- and email-based service automation, Siebel eService and Siebel eMail Response products allow organizations to manage the entire service process and to provide world-class customer service and support via the Internet.

Siebel eChannel allows organizations to turn their partners, distributors, resellers, and dealers into a virtual sales and service network. By using Siebel eChannel, organizations can be linked to their business partners over the Internet, allowing business partners to better communicate with the parent organization, sell more, and increase customer satisfaction.

Siebel eBriefings allows organizations to provide customized Web-based personalized briefings to sales professionals, partners and resellers over the Web.

Siebel Sales is designed to allow teams of sales and marketing professionals to manage sales information throughout the entire sales cycle. This core application includes the Opportunity Management, Account Management, Contact Management, Activity Tracking, Message Broadcasting, Siebel Search, Quotas and Incentives modules.

Siebel Service enables teams of customer service, sales and marketing professionals to help ensure complete customer satisfaction by using closed-loop, service request management capabilities. The base application includes the Service Request Management, Account Management, Asset Tracking, Contact Management, Activity Tracking, Message Broadcasting, Solution Management and Siebel Search modules.

Siebel Call Center provides blended sales and service functionality that enables call center agents to provide both sales and customer service assistance

Siebel's product applications come in industry-specific versions, all with similar functionality, but each specifically designed for a particular industry.

Partners and Alliances

Siebel Global Partners include IBM Corporation, Unisys Corporation , Deloitte Consulting, Accenture, Avaya Inc, Compaq, and Pricewaterhouse Coopers.

Partnership Categories

Siebel Alliance partners fall into one of four categories: Consulting Partners, Software Partners, Platform Partners, and Content Partners.

Consulting Partners – Siebel consulting partners are primarily systems integrators who are experts in Siebel implementations, but may also include market-leading providers of services such as business process redesign, training, and vertical market expertise. Siebel Consulting Partners provide a wide range of services. Each Alliance Partner commits significant time and resources to train their organization using best practices and thought leadership to deliver cost-effective, powerful, repeatable solutions built around Siebel eBusiness Applications. Siebel Strategic Consulting partners include IBM Global Services, Cap Gemini Ernst & Young, American Management Systems, Deloitte Consulting, Accenture and Unisys Corporation.

Software Partners – Siebel software partners are primarily software companies that provide Siebel customers with software products and applications that complement, interoperate with, and add value to Siebel eBusiness Applications. These products should interoperate with Siebel applications to the degree that a Siebel consulting partner or customer's internal IT organization can include them as part of a complete solution built around Siebel applications. These include Web-based, Internet and eBusiness applications; back office systems; middleware and eBusiness Application Integration tools; Call Center and CTI software; server, system/network management and core technologies; and industry-specific market solutions. For joint customers of both companies, the "Siebel Approved" validation logo ensures more rapid implementation schedules, extensible/customizable solutions and higher overall satisfaction. Some Siebel Strategic Software partners include IBM Data Management Software, Quest Software, Alcatel, Avaya, Cisco Systems and I2 Technologies.

Platform Partners – Siebel platform partners are market leaders in supplying the products, technologies, and services upon which Siebel eBusiness Applications run. These products include hardware systems, databases, operating systems, telecommunications equipment, connectivity services, and hosting services. Siebel Platform Partners offer a variety of services to joint customers including benchmarking, system tuning, pre-sales sizing and configuration, performance testing, application hosting, and networking services. Some Siebel Strategic Platform partners are IBM Hardware, Unisys Inc, Compaq, Microsoft, Sun Microsystems and Nokia.

Content Partners – Siebel content partners are providers of data and information services or other intellectual content that can be integrated with Siebel products to provide a more complete horizontal or vertical market eBusiness solution. This category includes companies specializing in information, sales methodologies, or other services that support sales, marketing, and service professionals. This category of partner includes information providers, research companies, publishers, content aggregators, industry data services, and transactional and non-transactional data vendors. Siebel’s major content partners are ‘Lexis-Nexis’ and ‘Dun & Bradstreet’.

Partnership Levels
Siebel Systems has achieved great success in partnering to create virtual businesses that provide the complete solutions their customers require. The impetus for a viable partnership includes a market opportunity, a joint product or service which matches that opportunity, and a strategy to market, sell, and service the joint offering. The Siebel Alliance Program is built upon this model and includes programs and activities centered around three key mandatory business components: technology, marketing, and sales.

The Siebel Alliance Program includes three different levels of investment within each partner category: Partner, Premier Partner, and Strategic Partner. The investors must decide what level of investment is appropriate. The higher the level of partnership, the greater the combined commitment to establish a well funded, more comprehensive relationship. At the Strategic level, both Siebel Systems and the Partner invest significant resources in the partnership, assigning dedicated Alliance Managers who are held accountable for ensuring that mutual business goals are attained.

Critical Success / Risk Factors

The sales force automation industry, or as it has come to be called, “customer relationship management (CRM)” software industry, is extremely complex and has many issues facing not only Siebel, but also all of the players in the industry. Success or failure is determined by some, and more than likely, all of the following factors:

· Correct pricing, promotion and positioning of products. Whoever can correctly provide customers the best mix will have a decided advantage.

· New and existing product life cycles. Correctly knowing when to move on to the next generation will be critical.

· Ability to transfer experience between industries will result in economies of scale and scope.

· Activities and acquisitions of competitors will impact

· Level and success of alliances and partnerships.

· Effectiveness of implementation can determine customer retention.

These factors are all interrelated and do not occur in isolation from each other. It takes focus on all of these issues at once to sustain a competitive firm. Companies that lose sight of one or more of these factors will be left behind in the highly competitive marketplace, especially with the unforgiving eye of investors and the stock market.

A limited number of products provide a substantial part of their license revenues. Reliance on a small number of products for an disproportionate amount of income can be dangerous. A decrease in the demand for a relatively small number of products can drastically effect the bottom line.

Siebel has established strategic relationships with systems integrators, distributors, resellers and technology vendors that are important to their sales, marketing and support activities. Their relationships with these organizations provide marketing and sales opportunities for their direct sales force and expand the distribution of their products. These relationships allow them to keep pace with the technological and marketing developments of major software vendors. Failure to maintain existing strategic relationships with these organizations or to establish new relationships in the future, could have a material adverse effect on their business.

Their business strategy includes pursuing opportunities to grow their business, both internally and through selective acquisitions, investments, joint ventures and strategic alliances. Their ability to implement this strategy depends, in part, on their success in making such acquisitions, investments, joint ventures and strategic alliances on satisfactory terms and successfully integrating them into their operations. Failure to manage this growth, or unexpected difficulties encountered during expansion, could have an adverse effect on their business, operating results and financial condition.

Financial Performance

Siebel announced the company’s financial results for the first quarter of 2001 on April 18, 2001. For the three months ended 3/31/01, revenues rose to $588.7 million, compared to $319.7 million for the same period in 2000, which represents an increase of 84 percent. Net income totaled $76.9 million or $0.15 per share, up from $35.3 million or $0.07 per share, for the first quarter of 2000, representing increases of 118% and 114% respectively. Results reflect new customers, the expansion of deployments at existing customers and improved operating margins. Wall Street analysts on average were expecting the Company to earn $0.14 per share in the same period. Its stock price rose sharply as the Company reported first quarter earnings that beat Wall Street's expectations.

Company’s revenues from license fees for the first quarter of 2001 were $335.1 million, which represents an increase of 71% compared to $195.5 million for the same period in 2000. Besides this, their revenues from license fees slightly decreased (8%) when compared to the $365.2 million of Q4 2000. A substantial majority of their license revenues are attributable to sales of Siebel Sales, Siebel Service, Siebel Call Center.

Revenues from maintenance, consulting, and other services were $253.6 million increased 104% when compared to $124.2 million for Q1 2000. The company’s cash, cash equivalents and short-term investments were $1.337 billion at March 31, 2001, which represents an increase of $185 million (16%) from December 31, 2000.

Official Q1 results can be viewed at:

http://www.siebel.com/news-events/releases/siebel_q1_2001_earnings.pdf

Next quarter While Siebel acknowledged the second quarter and rest of fiscal 2001 would be "tough," he said the company has an "exceptionally robust pipeline" of licensing deals. "We can tell you where each of these 3,400 deals are in the cycle," Siebel said. "We expect (operating) margins to fall between 18 percent and 19 percent, but licensing sales for the second quarter could come in anywhere between $280 million and $350 million." Siebel did concede that total sales "will grow at a slower rate than we anticipated earlier this year," but did not provide any specific figures. Following the company's impressive fourth-quarter results, CEO Siebel shocked Wall Street by raising sales and earnings targets for fiscal 2001 despite undeniable signs of a macroeconomic maelstrom swirling around the industry. At the time, Siebel told analysts the company was comfortable with fiscal 2001 estimates calling for sales of $2.6 billion, up from $1.8 billion in fiscal 2000, and earnings of 67 cents a share, up from 24 cents a share in fiscal 2000.

Future of Siebel

Siebel’s eBusiness applications are the Customer Relationship Management (CRM) standard across a wide variety of industries. This is a strength right now, but could be a detriment if Siebel loses sight of its core competencies and businesses. Siebel must guard against providing a little to all industries, but not being full service to any industry. As the business community jumps off of the Internet bandwagon, companies will be forced to broaden their reach and help companies combine Internet-based services with other, more traditional means of communicating with customers. The Internet seems to have mostly complicated the business world by giving so many more options and according to the founder, Tom Siebel, “Siebel’s greatest challenge is integrating channels” – for example, taking a customer generated online and servicing that customer through other channels, such as retail outlets or via telephone- “If a customer can’t pick up a phone, walk into a retail outlet or get on the Internet and be recognized, they will go to somebody else.”

The survivor in this industry will have a blanket product that serves all of a customer’s needs rather than providing a variety of products for each of a customer’s needs. Siebel’s CEO is aware of this and should guide it in this direction in the future.

Recommendations/ Predictions

Siebel will remain the market leader, because of its stickiness of existing customers and established position as the market leader and as a result will attract new customers that perceive Siebel as the industry standard.
Smaller players will consolidate to gain share and scale.
Oracle, SAP, and Peoplesoft will continue to compete, because of the tremendous resources they possess from other segments, but may have entered too late to draw significant share from Siebel.
Siebel will consolidate its many products into a few blanket products that cover every facet of business even beyond CRM.
Partnerships will become stronger and more in depth as customers demand a more integrated solution to all of their needs.