Analysis: Will Salesforce.com's vision outlast Siebel's?

Salesforce.com's Marc Benioff appeared delighted by the Oracle/Siebel deal

When people talk about Silicon Valley's new crop of software executives cut from the mold of Oracle Corp. leader Larry Ellison, Salesforce.com Inc. founder and CEO Marc Benioff is always at the top of the list. Like Ellison, his onetime boss and current rival, Benioff is brash, aggressively competitive and always ready with an inflammatory quote. Also like Ellison, he likes to make grandiose projections about how his company will reshape and dominate its industry. He's taken seriously because many of those projections have come true.

Since its founding six years ago, Salesforce.com has amassed a sizable customer base and forced every applications vendor in the industry to take seriously its hosted, "on-demand" delivery model. So it was fitting that yesterday, as Salesforce.com prepared for its biggest strategy announcement of the year, Benioff once again found himself in Ellison's shadow.

While Salesforce.com executives whispered behind the scenes about the provocative timing of Oracle's bombshell $5.85 billion acquisition of Siebel Systems Inc., which came hours before the opening of Salesforce.com's Dreamforce conference in San Francisco, Benioff appeared delighted by the news. "This is truly the end of software," he proclaimed at the start of his keynote address, echoing a line Salesforce.com has used for years to advertise its "no software" hosted customer relationship management (CRM) service strategy.

"When I was at Oracle, we watched Computer Associates buy all those mainframe software companies and milk them for their license revenue. I never thought that's what Oracle would be doing one day, and yet, here it is," Benioff said before an audience of 3,000 Salesforce.com customers and partners.

In a later discussion session with the press and analysts, he used a question about the Oracle/Siebel union as a launching point for an extended comic riff on "Oracle Cold Fusion," as he termed Oracle's plans to integrate its growing collection of applications on one architecture, code-named Fusion. "An Oracle sales rep shows up to sell you CRM -- which CRM?" Benioff quipped. "J.D. Edwards? PeopleSoft? Oracle Classic? YouCentric? Siebel, OnDemand or on-premise? They'll say, 'Salesforce? They only have one CRM! How can they possibly compete?'"

Benioff's bombast makes for great theater, but he has grounds for his confidence. As Oracle continues rolling up its former rivals in the top tier of the enterprise software market, Salesforce.com stands at the vanguard of the market's future. Its hosted software model has been a hit with midmarket customers and has begun making inroads into larger enterprises. Its customer base of 300,000 remains a fraction of Siebel's 3.4 million, but its business is growing much faster: Salesforce.com is on track to soon pass Siebel in quarterly software sales.

Forrester Research Inc. analyst Ray Wang views Oracle's deal as yet another indication that the high end of the applications market, where Siebel made its fortune, is tapped out. "The reason [Oracle and its rivals] are fighting in the midmarket is there's nothing left in the Global 2,000," he said, referring to a list of the world's biggest companies as ranked by Forbes Inc.

"I think the packaged applications market as we know it continues to be in deep trouble," said AMR Research Inc. Chief Research Officer Bruce Richardson.

That leaves Salesforce.com, the pioneer of a new applications approach that has shaken the market much as Siebel did 10 years ago, in a unique and potentially precarious position.

"They'll still be in the game in five years; the question is, will they still be independent?" Richardson said.

The list of vendors that could become suitors of Salesforce.com is long. SAP AG has struggled to penetrate the small and midsize business market. Microsoft Corp. has struggled to develop an on-demand strategy. Richardson named Intuit Inc. as an ideal complement for Salesforce.com -- its midmarket accounting applications would be a powerful match with Salesforce.com's sales software, he asserted.

Benioff is adamant that Salesforce.com's destiny is to reshape the industry on its own terms. If Oracle or SAP called with an offer, Salesforce.com's board would do its fiduciary duty and consider the deal, Benioff acknowledged, but he maintains that such a scenario is unlikely. "They're not going to come calling," he said. "We're very different companies."

Others aren't so sure Salesforce.com will remain out of the consolidation fray. "It's not entirely in their hands," Ovum Ltd. analyst David Bradshaw noted, pointing to PeopleSoft's fate.

Like Benioff, Tom Siebel started his career at Oracle before setting off to chase a new vision of what business software should be. Siebel Systems' star rose quickly in the 1990s, but the company's fortunes started fading once other, bigger vendors figured out how to compete in the CRM market it had created. Yesterday's announcement that Tom Siebel will once again return to work at Oracle means he'll spend the twilight of his career where he started, working for the boss he acrimoniously challenged during Siebel Systems' ascendancy.

On the conference call with analysts to announce the news, Siebel sounded like an exhausted man searching for a graceful exit, AMR's Richardson said. "He essentially conceded that the best-of-breed software approach wasn't working," Richardson said.

The challenge for Benioff, the enterprise application industry's new bright star, is to avoid the same fate. Even as his company throws down the gauntlet before Oracle, it can't escape Ellison's pervasive influence. Salesforce.com's 300,000 customer deployments all live on Oracle's database software.

Copyright © 2005 IDG Communications, Inc.

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