If I Can Make It There...

George Shaheen sees his job at Siebel as a chance to restore a battered reputation

George T. Shaheen. Mention the name in tech circles, and people think Webvan. The Webvan fiasco. People may have forgotten that Shaheen had a sterling career as CEO of Andersen Consulting, renamed Accenture Ltd. (ACN ) in 2001. But they remember he jumped from a top-notch job to head up the online grocer, only to see it collapse amid nearly $1 billion in losses. He was pilloried by investors and employees. Set aside those accused of fraud or malfeasance, and George Shaheen may have taken the biggest hit to his name in the dot-com bust.

After lying low for four years, Shaheen wants his reputation back. On Apr. 13 he accepted the post of CEO at corporate software maker Siebel Systems Inc. (SEBL ) Reviving the deeply troubled company may be one of the hardest jobs in tech. But that seems to be part of its appeal. Shaheen, 60, is determined to prove his mettle and wipe out the lingering image of Webvan. "No one wants to have the final point in their career a failure," says Shaheen. "This is an opportunity to win again."

Can Shaheen really turn Siebel into a winner? The onetime Silicon Valley highflier, which makes software companies use to manage salespeople and call centers, has been in a tailspin for three years. Revenues have tumbled as a result of fierce competition from bigger companies such as SAP (SAP ) and Oracle (ORCL ) and scrappy upstart salesforce.com. As if that weren't enough, shareholders are in open revolt, pushing for the company to be sold. Several hedge-fund managers say if Siebel isn't turned around by next year, they'll wage a proxy battle. "They're basically on a clock," says Marc Lehmann, a partner at Jana Partners, a San Francisco hedge fund that has bought 15 million Siebel shares, making it the sixth-largest shareholder. "If they think next year [will come] along without shareholders seeking alternative board members, they're out of their minds."

Shaheen's plan to reverse Siebel's fortunes is steeped in risk. The centerpiece is software code-named Nexus to be unveiled next month. The offering, which Siebel spent three years and $500 million developing, breaks the core customer relationship management (CRM) product into LEGO-like components that can run on standard Microsoft (MSFT ) and IBM (IBM ) platforms. Customers can buy the pieces they want à la carte and snap them together with other software. It gives Siebel its first product for companies that want to build their own CRM applications -- a $24 billion market that's now mostly served by internal techies and pricey consultants.

Shaheen knows it will take near-perfect execution to build a business around Nexus: Salespeople must supply tech savvy along with software. "Every day has to be our best day," he says. "If we fall into a mood where we have a best day every once in a while, it ain't good enough."

The strategy makes sense, as far as it goes. Nexus will let Siebel deliver its top-notch software in more flexible ways. But chances are, there won't be enough best days to make this work. Siebel has been losing ground to SAP and Oracle because those rivals provide broader suites of software that run everything from accounting systems to call centers. Customers like the convenience of those offerings, and Nexus doesn't change Siebel's tight focus on one software category.

Siebel has taken small steps toward diversification. In 2000, it introduced business-intelligence software, called Analytics, that helps companies analyze data. But Siebel doesn't have the money or time to become as broad as its rivals. Meanwhile, salesforce.com is eating away at the low end of its market, selling inexpensive, easy-to-use software over the Web. "They're fighting a two-front battle, and SAP has considerably more resources. At the other end, there's a more flexible, nimble company in salesforce," says analyst Peter Coleman of ThinkEquity Partners LLC, a San Francisco investment bank.

Shaheen's best bet may be to stabilize the company, then sell it off. He's aggressively cutting costs and trimming his head count, research projects, and product line. The plan is to slice $50 million in expenses this quarter. And he says he's not opposed to a sale, if the price is right. "I'm here to run the company as best as I can, and if that attracts an investor or an acquirer, so be it," says Shaheen. Oracle is the likely buyer, analysts say, but SAP, IBM, and Microsoft are also possibilities.

While buying Siebel software used to be a no-brainer when it came to CRM, the company is now fighting for every deal it closes. The company has a reputation for providing solid technology, but customers complain its software is too complex to install and use. "Five years ago, I favored best of breed, like Siebel," says Jan D. Dressel, chief information officer of telecom company Siemens (SI ) USA. Now, Siemens is standardizing on SAP, and phasing out Siebel. "The complexity is so high that we're better off going with a more integrated approach."

Shaheen is counting on new products to change that attitude. Siebel's Analytics and CRM OnDemand, which provides CRM software over the Web, are growing -- from a small base. Analytics is bigger, with $140 million in revenues last year, up 40% from 2003.

But OnDemand is playing catch-up to salesforce.com. Siebel has just 33,000 users, vs. salesforce's 267,000. OnDemand added only $10 million to the company's first-quarter revenues, vs. $64 million for salesforce. It's a key product if Siebel is to penetrate small and midsize businesses, where it hasn't had much presence. Salesforce CEO Marc Benioff scoffs at that prospect. "Customers don't trust them," he says. "They have sold more software that's not being used than any other vendor in the history of enterprise software. That's the bull in Siebel."

"HUGE OPPORTUNITY"

Nexus is the product Siebel is banking on most. Siebel Executive Vice-President David Schmaier expects customers in financial services and telecom to be among the first users. Virgin Mobile USA LLC is a good example. The company built its own Web-services architecture that the Nexus components could just plug in to. "I'm impressed they haven't stood still," says Virgin Mobile CIO Michael Parks.

But moving more traditional customers will take longer and require more hand-holding. While customers want industry-standard Web systems, most want to get there gradually. That means Nexus won't bring the revenue boost that Siebel badly needs. Meanwhile, SAP and Oracle are also breaking their applications into components. "This is not going to be an overnight thing for them," says analyst Rebecca Wettemann of market-research firm Nucleus Research Inc.

Shaheen's solution is to position Siebel as the only company that can sell CRM any way a customer wants it. He says his company, with more than 4,000 clients, knows more about how to run phone centers and other customer-relationship systems than anyone else. He admits that Siebel has done a poor job of leveraging that expertise. But if Shaheen, the former consultant, can change that, Siebel could once again become the go-to company for managing customer relations. "Go after the custom business. Go after the ugly, very complicated problems that aren't solvable with current technology," advises analyst Coleman. "That's a huge opportunity and a way to get away from SAP."

That is, if investors give Shaheen a chance. Some Siebel executives dismiss the most vocal shareholders calling for Siebel's sale as "share traders." But like it or not, Siebel now has impatient investors. If Shaheen doesn't quickly persuade them that Siebel can thrive on its own, it could foil the company's comeback -- and his shot at redemption.

By Sarah Lacy in San Mateo, Calif., with Steve Hamm in New York

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