In the hot hosted-applications, on-demand, ASP, software-as-a-service CRM area, Siebel Systems has been a laggard. On multiple occasions, the prince of on demand CRM, Salesforce.com CEO Marc Benioff, has called his competitor Tom Siebel’s company "dead" and stated his goal as "putting Siebel out of business."

Bruce Cleveland, who worked with Benioff and many other software-as-a-service pioneers at Oracle and is Siebel’s senior vice president and general manager of OnDemand and SMB business, is out to prove that his company will play Microsoft to Salesforce.com’s Netscape. In this drama, as envisioned by Cleveland, Microsoft (Siebel) eats Netscape’s (Salesforce.com) lunch.

Benioff, NetSuite‘s Zach Nelson, RightNow‘s Greg Gianforte and even little open source startup SugarCRM are working from a different script. But the reality is that software-as-a-service is a huge market and a single company can’t serve the needs of every market segment.

Based on current numbers, Siebel has a lot of catching to do on the hosted side versus on premises. Salesforce.com claims 227,000 subscribers across companies of varying sizes. Cleveland said that Siebel has 28,000 subscribers in larger organizations for its hosted CRM products, which have been available for about year. The company has a base of 3 million users for its on-premises CRM, and Cleveland says the company intends to take every product in the portfolio and deliver it as a service. "We would be dead if we had not responded, but we decided to put millions into [on demand applications] and dedicated a division to build and deliver our products in this way. The drama around it is did Siebel respond early enough, and the coming quarter will tell," Cleveland says. The company has stated that its goal is 30 percent quarter over quarter growth in subscriptions.

Basically, Siebel and Salesforce.com have two different approaches to the same problem. Siebel is focused on delivering prepackaged applications targeting different industry verticals. "We’re committed to delivering companies at least 80 percent of the functionality customers need, and then provide them with the ability to configure those applications to make up the last 20 percent," Cleveland said.

In January of this year, Siebel introduced pre-built, hosted industry vertical CRM editions: Financial Services Edition: Wealth Management/ Insurance Edition; High Tech Edition; Life Sciences Edition: Medical Edition; and Automotive Edition. Siebel CRM OnDemand is offered at $70 per user per month. Siebel Systems’ industry-specific solutions are priced at $100 per user per month. Yesterday, Siebel launched CRM OnDemand Release 7, which Cleveland describes as the first and only hosted contact center solution available as a prebuilt option within hosted CRM. The Siebel CRM and Contact OnDemand (view screen shot) bundle starts at $150 a month per user, not including additional usage-based phone charges. The vertical industry CRM editions bundled with Contact OnDemand is $175 per user per month. Without Contact OnDemand, the industry-specific editions cost $100 per user per month.

In contrast to its hosted CRM competitors, Siebel believes in building its own industry verticals, providing customers with the relevant modules on top of the core CRM foundation and data model. Salesforce.com and NetSuite, on the other hand, are committed to creating a development platform and ecosystem that allows customers and partners to build vertical applications on their platforms.

As an example of the difference, Siebel has a pre-built vertical edition for wealth management (Financial Services Edition: Wealth Management/ Insurance Edition), while Salesforce.com partnered with Thompson Financial to create a co-branded edition of its CRM service as part of its Thomson ONE desktop solution for Wealth Management. Similarly, CRM OnDemand Release 7 includes pre-built computer telephone integration (CTI), while Salesforce.com’s Supportforce gives customers the option of integrating call-center capabilities via sforce from telecom providers such as Cisco, Avaya, Alcatel, Aspect and Genesys.

"We have a difference of opinion on who should pay for [customization]. We do 80 percent for industry-specific editions. Salesforce has a toolkit and lets customers customize on their own. We reach the same endpoint," Cleveland told me. "Marc’s [Benioff] approach might work for smaller companies or accounts with fewer requirements, but we didn’t create 22 vertical editions for altruistic reasons. We got our teeth kicked in walking into enterprises that wanted 80 percent [solutions] and not having to pay us to do the work to sell into their industry. When you walk into an Ingersoll-Rand, they want you to have figured out the [industry specific] customization and do it for them. They want to tweak and change things, but not wholesale reengineering. Marc will find this out when he is selling upstream."

Cleveland attributes Salesforce.com’s focus on developing an ecosystem in which customers create their own vertical editions to a lack of engineering resources and its economic model. "Marc outsources engineering work to customers to create industry verticals. He only has 50 engineers–we have 1,000 engineers," Cleveland says.

Phill Robinson, senior vice president of global marketing at Salesforce.com, counters: "We have a very different strategy than Siebel. We give customers the ability to use Customforce to make our product unique to the way their businesses work. Customforce takes hours, not days and months or years [to implement]. Siebel has cookie cutter vertical editions that won’t be specific enough to meet customer needs. They are stuck with the old client-server way of customization, which is expensive and difficult."

CEO Benioff expanded on Robinson’s comments in an e-mail: "Let me give you an example about customization: Dow Jones, AOL, CNET, Tribune, Newsweek, Washington Post, Wall Street Journal, and many other media companies have chosen Salesforce.com for their CRM. But, they didn’t choose our "media vertical." Instead, they were each able to rapidly tailor the system exactly for them, so that Dow Jones has DowJonesForce, AOL has AOLForce, Tribune has Tribuneforce, etc. Each of these media companies has unique needs and requirements. To say they need the same industry vertical is just simply wrong. Siebel is trying to shove everyone into nicely shaped Siebel boxes that the customer is trapped in. That fact is you can’t even create a unique custom tab with Siebel — so their only answer is a vertical solution that just won’t work.

Robinson’s and Benioff’s assessment of Siebel’s hosted CRM products makes it sound like Siebel lacks customization for basic configuration and simple modifications like adding fields, and that connecting to legacy systems is highly complex and costly.

According to Ken Rudin, Siebel OnDemand CRM vice president, Siebel offers similar customization capabilities to Salesforce.com, including basic configuration and Web services APIs, as well as pre-built connectors to enterprise systems and programmatic access to applications, business logic and data services. "We provide equivalent set of tools for no-code customization and for building objects. There are some areas where they are different from us, because they have focused so much on customization. But if a financial service has a concept of a portfolio, why force someone to go out and build it. We also let customers modify those objects customize workflow around sales processes."

In reference to Benioff’s point that Siebel’s software cannot create a unique custom tab, Rudin responded in an e-mail that the approaches for creating custom tabs are different.

"With Salesforce.com, you start with a blank tab and do what you want with it; while with Siebel CRM OnDemand, you start with an existing tab and can modify it as necessary to fit your needs, even to the point of completely changing the purpose of the tab if you like (e.g. you could even take a ‘vehicles’ tab and turn it into a ‘travel expenses’ tab). There is certainly some value in being able to customize tabs, but the real value comes with the functionality and business processes involving that tab. This is when Siebel’s industry editions become so powerful. For example, a financial services company could create a tab called ‘Total Household Assets’ in Salesforce, but that field would not ‘know’ to aggregate the total assets under management of each family member without additional programming. In contrast, with Siebel CRM OnDemand Industry Editions, these common workflow functionalities are built in, yet modifiable, and require no coding from the customer."

The two companies clearly have different philosophies and legacies. Cleveland is catering to Siebel’s traditional large enterprise market, hoping to convert millions of its on-premises users to the canonical hosted verticals if they choose to make the move and to slow down the momentum of Salesforce.com, which is targeting his customers. His view is that Salesforce.com puts the burden and some of the risk of customization and integration on the customer, while Siebel does most of the heavy lifting.

Cleveland also knows that Siebel is a latecomer but notes that being first to market (think Netscape) is not a harbinger of ultimate success. "I’ve got hundreds of people focused on taking our entire product line and delivering it as hosted platform. We had about a five-year catch up to do versus Salesforce.com, but now we are delivering products. This is our seventh product release this year."

Benioff is on his 17th product release and wants tens of thousands of editions of his software to bloom, and believes that Salesforce.com no-code customization, Web service APIs and evolving ecosystem will prevail–and out innovate–the more prepackaged Siebel hosted CRM. Whereas Benioff views his product as an extensible applications platform, Cleveland views his offspring as applications to serve a few dozen industry and market niches.

Over time Salesforce.com and members of its ecosystem will develop more vertical editions, composite applications built on the company’s platform that capture the best practices and components for a particular industry or market niche. It’s a natural facet of ecosystem evolution for the more robust combinations of elements, like cellular automata, to prevail for a time and satisfy a mature market need. Then, a new disruptive element–such as the software-as-a-service model at the end of the last decade–shakes up the ecosystem and the participants must adapt to the changes.

Siebel finally caught the wave and has begun the process of adapting its CRM applications to a software service model. Cleveland touts the 1,000 developers crafting Siebel applications, but the 50 or so developers on the Salesforce.com payroll is just a fraction of total possible developer community that can sustain a platform. Unleashing thousands developers to innovate, as the open source community has proven, is a powerful force, and Salesforce.com is trying to tap into that vein with its proprietary system, a la Microsoft. SAP is also trying to build more of an ecosystem around NetWeaver by publishing a software development kit to help outside application providers tap into its products.

Siebel can certainly mine its current customer base, but it’s a substitution, not a growth strategy. Cleveland’s script with Siebel playing the Microsoft role and Salesforce.com the Netscape in the quest for hosted CRM dominance role is somewhat myopic. Substitute Netscape with Firefox and you have a different picture of how the software industry is evolving. Siebel’s 80-percent vertical applications deliver a good value proposition to customers, but without a focus on becoming a platform and empowering a developer community to augment and supplement what it delivers to the customers, Siebel could end up as the next Netscape.

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