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Who Is King in CRM Software?

By Sarah Lacy For two years now, SAP (SAP) has been trumpeting that it has overtaken Siebel Systems (SEBL) as the No. 1 seller of customer relationships management (CRM) software. Investors seem to be persuaded -- SAP's share price has climbed 41% over that span, to $42.38 a share as of Aug. 23. And at long last, some industry analysts are starting to agree.

On Aug. 23, independent analysis outfit AMR Research released its annual state-of-CRM-software business report, declaring SAP the new top vendor of such programs, which helps companies manage their customer leads, orders, and call centers.

REFUSING TO GRANT VICTORY. SAP's revenues from this product group grew 30% year-over-year, triple the growth of the industry at large, the report says. The figure contrasts with a 1% decline in revenue for Siebel, which specializes in CRM software and has been the market leader since the category became established about 10 years ago, according to AMR.

More than just bragging rights are at issue. The struggle between SAP and Siebel is emblematic of what many midsize software makers are going through now. The second-quarter numbers for both companies said it all: SAP and Oracle (ORCL) both had good results, while Siebel, Borland (BORL), Altiris (ATRS), and a host of other midsize software concerns all reported having trouble closing multimillion-dollar deals.

Frustrated with shelling out millions of dollars for programs that don't work well together, big companies are increasingly turning their backs on so-called best-of-breed businesses like Siebel, in favor of vendors that can deliver it all, like SAP or Oracle.

Or at least that has been the contention from the SAP camp. Siebel is refusing to grant the victory, and some analysts are on its side. In July, IDC issued a research report showing that Siebel was still No. 1 in revenue -- its advantage over SAP and Oracle is more than $300 million.

"GAINING TRACTION." Why the discrepancy? SAP and Oracle sell software in huge suites, so breaking out what companies paid specifically for CRM is a challenge. IDC, AMR, and other research groups pore over deal after deal to figure it out but disagree on what the category includes. Some count just software license sales, while some include support and maintenance.

Plus, as a German company, SAP has had a currency advantage, thanks to the falling euro. Rob Bois, AMR's senior research analyst, guesses that half of the 30% revenue increase SAP enjoyed last year resulted from currency fluctuations. "But no matter how you slice it, they're definitely gaining traction," he says.

Most analysts expect that trend to continue in 2005. Manufacturers, an industry in which SAP is particularly strong, are allocating $3.6 million on CRM, vs. just $2.5 million for the average company -- advantage SAP.

SECTOR RECOVERS. No matter who crunches the numbers, Siebel maintains an edge in actual users of the software. It has 4,000 corporate customers, while AMR counts 300 companies broadly using SAP's CRM offering. What's more, Siebel has 3.4 million end users of its product, while most estimates peg SAP's end users at well under 1 million.

SAP's Darc Rasmussen, senior vice-president of the CRM Solutions Group, asserts that "we have been selling more software than any other vendor since the third quarter of 2003." But, says Laurent Pacalin, Siebel's vice-president and general manager of products, his company is still adding users, almost 500,000 new ones in the first half of 2004 alone.

Still, the study has one observation that all players love: CRM is finally healthy again, after a long post-bubble slump. From 2003 to 2004, sales of customer relationship software grew 10%, to $11 billion -- the first double-digit increase in five years, according to AMR. IDC's July report tallied growth at 8% but was equally ebullient, saying the industry had "finally found the solid ground for which it has been searching."

NEW THREATS. But with growth comes more change -- so-called on-demand software makers like (CRM) and Right Now Technologies are turning into a force to be reckoned with. They sell software over the Web as a monthly pay-as-you-go service

Revenues from these outfits grew 105% in 2004, with scrappy upstarts and Right Now leading the way at 83% and 97% gains, respectively, according to the AMR study. No matter who has the edge, both SAP and Siebel will have to embrace this trend to keep it.

Lacy is a reporter for BusinessWeek Online in Silicon Valley

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