News Analysis

Consolidation’s the word in enterprise software

Buying Siebel is the latest of Oracle’s deals in its attempt to checkmate SAP in the enterprise software market, says Venkatesh Ganesh.

The acquisition bug seems to have bitten Oracle. It acquired Retek, PeopleSoft and i-flex in the past. The company’s latest acquisition is of CRM leader Siebel for $5.85 billion. The deal strengthens Oracle’s efforts to topple its rival SAP as the leading seller of business application software. The acquisition would make Oracle the largest seller of CRM software, moving it closer to its goal of being No. 1 in applications globally.

IDC states that the appeal for CRM applications was strong in 2004, generating about $300 million in revenue. According to AMR Research, the Indian CRM applications market grew by 10 percent in 2004. With such a lucrative and emerging market up for grabs, Oracle saw an opportunity to go toe-to-toe with SAP in the enterprise applications market. With this acquisition, the company is trying to take a lead in this space which includes other competitors such as IBM and Microsoft.

Kristian Steenstrup, Research VP, Gartner, agrees, “The acquisition would allow Oracle to become a dominant vendor in the CRM segment.”

There are other positives also that come into play. Comments Steenstrup, “Firstly, Oracle can leverage the IP of Siebel and march with renewed vigour into the market. Combined with Oracle, the functionality aspect for Siebel customers will certainly get better, which can translate into more sales and customers.”

Act cautiously

The acquisition would allow Oracle to become a dominant vendor in the CRM segment Kristian Steenstrup Research VP Gartner

So, where will the impact of this deal be felt? Are smaller players going to be threatened by it? Is size the weapon that Oracle can successfully wield in its battle against SAP?

The answer lies somewhere in between all of the above. While smaller players such as salesforce.com are nimbler and tend to provide innovative solutions (which don’t require big investments upfront), analysts feel that at times they lack the functionality that a player like Oracle can offer. Having said that, companies are not averse to the idea of having a solution that comes sans frills. Size can, however, work in the favour of a company that has its eyes intent on the enterprise application space and has methodically gone to achieve that goal with a spate of acquisitions.

Where does that leave Indian customers? Says Steenstrup, “As of now, many Siebel customers run their applications on Oracle platforms.” Take the case of a customer wanting to upgrade to the latest version of Siebel. Would it come with Oracle features bundled and if that is the case, the price issue must be looked at by the customer. So, what does the customer do? Steenstrup suggests—act cautiously and wait!

This only adds to the confusion within the Siebel installed base. Then there are integration issues. How much time will Oracle really have to integrate its existing portfolio, or to create innovative products, when it has to spend most of its time maintaining different systems that were recently acquired.

Then there is the SMB segment that need to be considered. Neither Oracle nor Siebel is strong in the CRM SMB space. In such a situation, are companies in this space going to shift to smaller vendors such as salesforce.com or RightNow?

Meanwhile, SAP will likely see its position bolstered among customers who might see it as a steady alternative as Oracle works towards integrating its latest acquisition. A spokesperson for SAP says that the deal would not cause SAP to change its strategy. “We always anticipated that in order for Oracle to try to catch up with SAP, they would take this step.” One thing’s sure, Oracle has its work cut out in the next year while it assimilates Siebel.