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Charting a New Course at Siebel

The last three years haven't been kind to Siebel Systems (SEBL). Revenues fell from $2 billion in 2001 to $1.3 billion last year. The Silicon Valley software outfit's share price has declined even more precipitously -- from $119 in November, 2000, to $8.56 on Mar. 29, 2005. Even a new leader hasn't helped. Siebel shares have traded down 19% since IBM (IBM) veteran Mike Lawrie became CEO in May, 2004.

Siebel, which virtually invented the market for customer-management software, has suffered a host of problems, among them a sluggish information-technology market and increased competition from the big guys like Oracle (ORCL) and SAP (SAP). Siebel also faces pressure from upstarts (CRM), RightNow Technologies (RNOW), and privately held NetSuite -- the evangelists for delivering software as a service over the Internet rather than as a physical package installed at the customer's office.

CALL-CENTER STRATEGY. Siebel gave up on its own software-as-a-service business nearly five years ago, only to revive its offering three years later when it was clear the smaller competitors were gaining traction. Since then, Siebel has been working overtime to catch up. It has made several acquisitions and released seven new versions of its service.

On Mar. 29, Siebel announced its latest: a software service that can get call centers up and running within days, not months, and for a fraction of the $1 million-plus price tag companies usually pay, says Bruce Cleveland, Siebel's senior vice-president and general manager of OnDemand Computing.

BusinessWeek Online reporter Sarah Lacy talked with Cleveland about how Siebel has changed over the years and how so-called on-demand software is guiding future changes at the company. The following are edited excerpts of that conversation:

Q: What's your background?

A: I was one of the original founding executives [at Siebel] and was here up until a couple of years ago as the head of marketing. I took a two-year hiatus to go sail around many parts of the world and just rejoined in July of last year to take on solving two new growth markets: on-demand products and small- and medium-sized businesses. Originally, when the company thought about this product line, they thought small- and medium-sized businesses would be the primary consumers. When I joined, I took a look at customers and market data, and threw that plan out the window. Now large enterprises want it as well.

Q: How is Siebel different on your second tour of duty?

A: For the first eight years, the company largely had no strong competitors. Over the years, we saw tremendous growth rate. That growth rate was tied to the health of a growing economy. Once companies retrench and cut costs, they don't invest in sales and marketing. So, two big things jumped in front of our growth. The global economy took a nosedive, and this became an interesting market segment to Oracle and SAP. That really impacted our growth after 2001.

Internally, [Lawrie] has come in and realized that, to get us farther, we need to organize [differently]. That different structure enables division heads to make their own decisions. [Former CEO and current Chairman Thomas Siebel] ran without any outside [venture capital] investors, and [with] his name on the company. He wanted to know everything that was going on. Now we can make decisions more quickly. I make 9 of the 10 decisions affecting my division. Under Tom, it was the reverse.

Q: Why was Siebel so late to the on-demand market?

A: It depends on what you mean by late. For the enterprise space, it's quite early. We tried to do it early in 1998 through partnerships, but there just wasn't any appetite in the market for that kind of offering, and it's easy to see why. At the time, IT had infinite resources and wasn't really worried about containing costs. It was the go-go expansion days.

We launched a competitive offering now because we decided, in order to grow, we had to move outside of enterprise to the small- and medium-business market. It was clear they wanted it delivered in that form factor. And we felt that Salesforce was using their success in small and medium businesses to attack our customers.

Q: How do you think you're competing on technology?

A: Today is our seventh release in a little over a year. That's taken us from a product lukewarmly a product offering that closes the gap in a lot of ways. I think we're making the right steps. There's a lot of history in the software world of companies that were first -- Netscape was the first browser. I don't think being first portends what the future will hold.

Q: How is your product different?

A: I think there are some philosophical differences in the way we are delivering, and the differences have nothing to do with Salesforce and everything to do with our history and customer base.

Eight or nine years ago, customers came back to us and said, "We're having to invest a significant amount of money in customizing our products, and we don't think we should." So we created 23 industry-specific versions of the product. In the hosted space, we've created four industry-specific versions that will build on that.

That's a dramatically different approach from Salesforce's. Their approach is to create a platform and a software development kit. For big companies, giving them a tool kit will be poorly received. We come from the enterprise and are moving down. They come from small business and are moving up.

Another major difference is what we are announcing [Mar. 29]: The first fully hosted contact center integrated with customer relationship software. What does that mean? It means when companies want to provide call centers, they have to invest millions up front and six months to put it together. We've effectively bought all that equipment, integrated it with our applications, and are offering it on a subscriptions basis.

Large companies can use it to add capacity. Retailers, during the holiday season, don't want to take on the permanent cost for additional volume. Polling offices during government elections can turn it on and turn it off.

Q: How does it play into the strategy to take on Salesforce?

A: Companies may know how they want to use voice- and e-mail, but haven't figured out if they want consistent forecasting processes that are more on the [customer-resource-management software] side. These are relatively newer concepts that not all companies have figured out. They have figured out they have to answer phones and e-mail, and need a more effective way of doing it. We start there, then link them in with customer-resource management.

Q: How important is the OnDemand line for the company?

A: We're investing a significant amount in this. Our competitors would claim this is an afterthought. But it's our intent to take our entire Siebel product line so it can be delivered in a hosted form. The OnDemand interface will become the interface for all of our products. That's a tremendous switch from where we started. We will go through a transformation over the next couple of years.

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