CRM BUYER SPECIAL REPORT
The UpShot for Siebel

As interest in hosted CRM grows stronger, Siebel is moving to establish a foothold in this market. The company achieved a significant victory last fall when it acquired CRM vendor UpShot. The deal was sweet for both companies, executives and analysts noted, because it gave UpShot stability and visibility while allowing Siebel to become a major player in the hosted arena.

The combination of the heavyweight and the flyweight may prove to be formidable to competitors -- and attractive to customers who want a range of CRM options.

"UpShot brought in the kind of customers that Siebel wanted to talk to," Yankee Group program manager Sheryl Kingstone told CRM Buyer. "You're going to see a very competitive battle in the marketplace coming up because of this."

Deal Maker

Last summer, UpShot founder and chairman Keith Raffel realized that although his company had a compelling product, it would take more than features to sell its services.

Raffel told CRM Buyer that the acquisition by Siebel made perfect sense because it allowed the smaller company to access the technology investment capital that it needed. It also allowed Siebel to pursue its strategy of "CRM for everyone," which necessitates offering both low-cost and hosted options to customers.

"They didn't have experience in the on-demand world," Raffel said. "And we were the first company with an online CRM system, so we had the expertise."

UpShot also had a product that was appealing to small companies as well as large enterprises, and Siebel was interested in attracting a wide range of customers.

Moreover, CRM industry analyst Denis Pombriant told CRM Buyer, "Unlike many of its competitors, [UpShot] offers an extensive set of implementation and training services."

Change in Temperature

Timing was also on Siebel's and UpShot's side. Prior to the acquisition, there was less interest in hosted CRM in the marketplace, Kingstone said. But a few weeks before the deal reached completion, attitudes changed.

"There was a 180-degree turn in the hosted market," she noted. "A lot of companies decided they wanted to go the hosted route, and before the UpShot deal, Siebel was basically saying, 'If you don't want to do an enterprise sale, I don't want to play with you.' Then they saw an erosion of sales."

Part of that erosion resulted from the rise of Salesforce.com (NYSE: CRM), which made an aggressive move by targeting dissatisfied Siebel customers, Kingstone explained. With its acquisition of UpShot, Siebel gained the ability to compete in the hosted battle.

"Right now, Salesforce is definitely the leader in that market, because they have a large customer base," Kingstone said. "But so does UpShot, so it will be interesting to see what happens."

Market Acceptance

For his part, Raffel said he believes it was no coincidence that Siebel became interested in hosted CRM just as the market proved the company right. Rather, Siebel's moves drove acceptance of the tactic.

"I think the acquisition has helped to validate the approach," he said. "With larger companies in the mix, some of the concerns have gone away."

He noted that because Siebel's on-demand CRM is being done by IBM (NYSE: IBM), customers feel more confident in signing with Siebel and UpShot.

"When you have a small company providing a service, there can be concern about whether they're going to go under or not," Raffel said. "No one is going to wonder if IBM will be here next year."

Going Forward

The full ramifications of the acquisition may not be apparent yet, but Raffel said big plans are afoot.

He noted that Siebel does not plan to become primarily a hosted CRM provider, nor will it consider hosted CRM as a lesser add-on to its in-house solutions. Instead, the company will blend the two approaches and tailor strategies for its customers, which actually may be interested in both on-demand and on-premises CRM.

He added that when Siebel and UpShot compared customer lists, they found a great deal of overlap. "That tells me that people are interested in having both kinds of solutions available," he said.

This combination of approaches will help Siebel appeal to a wide audience and will allow the company to be more flexible when responding to what customers want.

Pombriant noted that such an arrangement will benefit customers, especially those on a budget. "The company is delivering big-system functionality while still matching competitors at a commodity price level," he said.

In fact, as hosted CRM becomes more popular, the Siebel-UpShot combination may become the one to beat in the marketplace, according to Kingstone. "Right now it's really up in the air as to which approach will work," she said, "but this is something worth watching."