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Oracle fuses with Siebel.

When the often-rumoured acquisition of customer relationship management (CRM) vendor Siebel by software giant Oracle, announced in September 2005, is finally complete, the CRM market will have been turned upside down.

Oracle, once a distant fourth behind Siebel, SAP and PeopleSoft, will have gained a 3.5% lead over SAP, according to analyst group Gartner, having bought itself 18% worth of CRM market share in under two years. The biggest prize alone, Siebel, cost it $5.85 billion.

Though a powerhouse in business applications, Oracle has struggled to gain traction in CRM over the years. Now with the acquisition of Siebel, it grafts on a ready-made list of blue-chip customers and a steady (if declining) revenue stream. Importantly, it also gives Oracle another set of captive customers into which it can sell its database and applications software.

So far, Oracle executives have been wary of spooking any of its newly acquired customers (PeopleSoft and JD Edwards users included). That has resulted in talk of providing support for rival databases as part of its overall scheme to produce a common architecture that underpins its complete applications portfolio - the plan known as 'Project Fusion'.

In fact, according to analysts, the Siebel products will be a vital part of Project Fusion: not only do they add to Oracle's current line-up but they will be the basis for Oracle's next generation CRM applications, presumably heralding the demise of its own CRM offerings.

"It will not be sufficient to push relatively inferior CRM functionality from [Oracle's] E-Business Suite into Project Fusion as an upgrade path for Siebel and PeopleSoft CRM customers. Oracle will need to clearly articulate its plan to migrate customers from the existing CRM products into the next-generation product suite," says Paul Hammerman, VP at market watcher Forrester Research.

In acquiring Siebel, Oracle also takes its first steps into the fast-growing hosted CRM applications market. "We want to increase our presence in the on-demand business," Oracle CEO Larry Ellison told users at their annual conference shortly after the acquisition was announced.

And while Ellison is already a convert to on-demand applications delivery - having been involved as an investor in both and NetSuite since their inception - it is not an area that Oracle has targeted to date.

"Oracle's complex enterprise solutions have less appeal to small and midsize businesses, and Siebel OnDemand gives Oracle a path to move downmarket, at least in CRM," says Hammerman.

Despite that opportunity, the Siebel acquisition brings with it some headaches: the company's licence revenues have been falling fast; it was late in realising the threat from upstarts such as Salesforce; and rival SAP is catching it up in terms of both customers and functionality.

Oracle has yet to disclose all the details of future product upgrades and enhancements, but has promised to continue support for Siebel's current products up until 2012. That should help ensure there is no immediate mass exodus of Siebel customers. Convincing them to remain in the long term will depend on the substance of Project Fusion.
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Publication:Information Age (London, UK)
Date:Nov 10, 2005
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