Siebel's Oracle union may end its IBM OnDemand alliance

Big Blue says it plans to continue supporting its joint customers with Siebel.

Oracle's agreement to buy Siebel Systems immediately raised questions about the future of Siebel's CRM OnDemand service - a venture in which Oracle rival IBM is deeply involved. Executives from both Siebel and Oracle say the hosted CRM (customer relationship management) service will go forward, but IBM is likely to be left out of Siebel's OnDemand future.

Siebel is the highest profile partner in IBM's "Software as Services" program, a network of ISVs (independent software vendors) that offer their applications as hosted services managed by IBM. When Siebel CRM OnDemand launched two years ago, Siebel and IBM characterized it as a joint venture, developed and marketed jointly by the two companies. Now Siebel is casting IBM as a partner of convenience that can be abandoned without any customer disruption.

"Siebel CRM OnDemand was built on Siebel 7.5.2, and the fact is that that product line runs on any database and any application server," said Bruce Cleveland, Siebel's senior vice president of products. "We created a partnership with IBM and we chose for that partnership, for obvious reasons, to run it on WebSphere and DB2. There is no technical linkage. We can make a different decision going forward if we choose."

IBM did not have any executives available for immediate comment. An IBM spokesman said the company plans to continue supporting its joint customers with Siebel.

Oracle executives also were unavailable for comment, although they emphasized their commitment to Siebel's hosted offering in conference calls Monday with analysts. Oracle Chief Executive Officer (CEO) Larry Ellison called Siebel's CRM OnDemand "a key motivator" for the acquisition.

"We think OnDemand is going to be increasingly important. We think the Siebel OnDemand products [are] improving at a very, very rapid rate, and we intend to invest in them heavily," Ellison said. "We expect that all of the Siebel product features and functions that they have in the software products will migrate to the OnDemand products. So we think that is, again, a very important asset that we want to preserve and invest in as this acquisition is concluded."

Siebel's competitors -- most notably Salesforce.com Inc., whose annual user conference was upstaged Monday by news of the Siebel/Oracle union -- are eager to portray the impending Oracle takeover as a disaster for Siebel's OnDemand customers. Six-year-old Salesforce.com has 308,000 subscribers for its CRM service, while Siebel's newer hosted software venture ended last quarter just shy of 40,000 users.

Salesforce.com CEO Marc Benioff projected imminent death for the service. "Siebel on Demand, a joint venture between Siebel and IBM, will be the first to be buried," he wrote Monday in an e-mail message to Salesforce.com employees that was also released to the media. "Siebel on Demand is written exclusively on DB2 and Websphere and runs in IBM data centers. Oracle will kill it. Oracle does not sell DB2."

Some analysts shared that view. SG Cowen & Co. analyst Peter Goldmacher called Oracle's Siebel takeover "a dream come true for Salesforce.com"; he forecast in a research note that the deal will lead to turmoil in Siebel's sales organization and prompt a number of its top sellers to look elsewhere for work.

Siebel's Cleveland angrily brushes off such projections, and Benioff's jabs.

"I think this puts a lot of competitive pressure in the marketplace. The first entrant in a market isn't necessarily the ultimate winner. Marc may have created awareness for an interesting market opportunity, but I don’t believe this is game over," Cleveland said. "It has been our intent and will continue to be our intent to take all of our products and services and deliver them in an on-demand form factor."

When it comes to the future of Siebel's IBM partnership, Cleveland said decisions haven't yet been made, but moving to Oracle's hosting infrastructure is definitely an option. "I think it would be safe to say that if that ends up being a more cost-effective way of deploying our on-demand applications, we'll pursue it," Cleveland said.

Analysts expect Oracle to maintain some ties with IBM if that's what's needed to keep customers' deployments running smoothly.

"Oracle has to bend to what the customer needs. If they don't do that, they're not going to get the value of the investment they made buying Siebel," said Yankee Group analyst Sheryl Kingstone. "They're not a dumb company."

"Oracle can't afford to [anger] IBM too much, and vice versa," said Ovum analyst David Bradshaw. Like most major vendors, the two companies have a number of joint customers and are deeply intertwined; for example, IBM is one of Siebel's largest customers, with an internal deployment of more than 50,000 licensed users.

Still, both analysts expect some degree of fallout from the clash of titans. "Oracle has much more incentive to optimize for their own software. I can certainly see this is going to be an issue going forward for DB2 customers," Kingstone said.

"It's going to be an uncomfortable relationship," Bradshaw said.

Uncomfortable relationships abound in this corporate combination. Oracle head Larry Ellison is a founder and the majority owner of NetSuite, another hosted-software company that competes with Siebel's CRM OnDemand. NetSuite CEO Zach Nelson is traveling this week and could not be reached for comment; Oracle also had nothing to say about how Ellison's personal stake in NetSuite will be affected by the Siebel deal.

Some of the questions about Siebel's absorption by Oracle won't be resolved until the deal's close, expected early next year. Still, Oracle executives and customers will have a forum for extended discussions next week: Oracle's OpenWorld user conference begins Sunday in San Francisco. Asked for more detail on Oracle's Siebel strategy, Oracle representatives say to tune in for what promises to be an eventful conference.

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