Is Salesforce / Siebel a Classic Disruption Case?

Like many others, I have often used Salesforce / Siebel as a classic example of Innovator’s Dilemma style disruption.  Several months ago, in response to this article about Host Analytics, I received a friendly note from former Siebel exec and now venture capitalist Bruce Cleveland saying roughly:  “nice PR piece, but the Salesforce / Siebel disruption story is a misconception.”

So I was happy the other day to see that Bruce wrote up his thoughts in a Fortune article, Lessons from the Death of a Tech Giant.  In addition, he posted some supplemental thoughts in a blog post Siebel vs. Salesforce:  Lessons from the Death of  a Tech Giant.

Since the premise for the article was Bruce gathering his thoughts for a guest-lecture at INSEAD, I thought — rather than weighing in with my own commentary — I’d ask a series of study guide style questions that MBA students pondering this example should consider:

  • What is disruption?  Given Bruce’s statement of the case, do you view Siebel as a victim or disruptive innovation or a weakening macro environment?
  • Are the effects of disruptive innovation on the disruptee always felt directly or are they indirect?  (e.g., directly might mean losing specific deals as opposed to indirect where a general stall occurs)
  • What does it feel like to be an executive at a disruptee?  Do you necessarily know you are being disrupted?  How could you separate out what whether you are stalling due to the macro environment or a disruptive innovator?
  • What should you do when you are being disrupted?  (Remember the definition of “dilemma” — two options and both are bad.)
  • While not in the article, according to friends I have who worked at Siebel, management could be quoted in this timeframe as saying “Now is the time to be more Siebel than we’ve ever been” (as opposed to emulating Salesforce).  Comment.
  • What should Siebel have done differently?  Was the over-reliance on call center revenue making them highly exposed to a downturn in a few verticals?  How could they have diversified using either SFA or analytics as the backbone?
  • What should Siebel have done about the low-end disruption from Salesforce?  Recall that in 2003 Siebel launched Siebel CRM On Demand as an attempted blocking strategy in the mid-market and acquired UpShot as a blocker for SMB.  How could Siebel have leveraged these assets to achieve a better outcome?
  • To what extent should external environment variables be factored in or out when analyzing disruption?  Are they truly external or an integral part of the situation?
  • To what extent do you believe that Oracle’s acquisition of Siebel left Salesforce unopposed for 8 years?  To what extent was that true in the other categories in which Oracle made large acquisitions (e.g., HCM, middleware)?
  • After hearing both sides of the argument, to what extent do you believe the reality of the case is “Salesforce David slaying Siebel Goliath” versus “Siebel getting caught over-exposed to a macro downturn, selling to Oracle and giving the CRM market to Salesforce?”   In effect, “they didn’t kill us; we killed ourselves.”

I deliberately will offer no answers here.  As an old friend of mine says, “there are three sides to every story:  yours, mine, and what really happened.”  Real learning happens when you try understand all three.

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13 responses to “Is Salesforce / Siebel a Classic Disruption Case?

  1. Since I was on the inside and was privy to the facts as they presented themselves, allow me to give everyone — before they respond to Dave’s great post — a few more things to consider that weren’t necessarily covered in the Fortune post or my follow up blog post.

    1. Beginning in 2001, Siebel came under attack from several different directions. The large incumbents were positioning their CRM solutions as a “suite play” v our “best of breed” play, and essentially dropped their CRM prices to zero. This put significant pressure on our pricing and top line. At the same time, a global recession decimated IT so it could only work on just mission critical projects — e.g. ERP. New projects such as CRM was at the time, were postponed indefinitely.

    2. We recognized Salesforce could evolve to have a competitive SFA product in the enterprise so we made several moves into SMB with Sales.com (1999), and then Upshot/Siebel CRMOnDemand. We also launched something called SiebelNet with USi — an ASP provider – in the enterprise. The problem with each of these initiatives is that we couldn’t constrain them to a particular market and they represented a threat to our core business. As a result, Tom shut down both Sales.com and SiebelNet. In 2002/2003, Tom realized we really needed to have a better answer to Salesforce’s SMB offerings to keep them at bay from our enterprise customers so he launched Siebel CRMOnDemand. He then acquired Upshot in order to bring in people from outside Siebel to help us sell into that market with a SaaS product — neither of which were Siebel compentencies at the time.

    3. Siebel’s presence and revenues from SMB were diminimus. We were created as an enterprise company. When we sold Siebel to Oracle, our bookings from SiebelCRMOnDemand/Upshot were around $80M. Today, from insiders, I have been told that product line generates approximately $400M-$500M annually. That would make it one of the largest SaaS companies in the world if it were an independent company.

    4. Siebel Analytics was one of the best products we brought to market. We acquired a small company called Enquire for $5M in 2004. By 2006, that product line was producing more than $50M/quarter. Today, everyone knows that product as Oracle BIEE — a $2B/year product.

    5. According to Gartner in 2012,Siebel’s Call Center technology captured approximately 85% of the project dollars for Call Centers.

    6. We sold Siebel to Oracle for $6B. Oracle has tripled in value since then. As a result, we believe we made a good decision for Siebel shareholders.

    Here are my conclusions:

    1. Siebel was initially disrupted by a recession and then came under increasingly greater pricing pressure by the enterprise suite providers with their “CRM” offerings, even if they were weaker offerings. They were considered “good enough” when companies didn’t have $$ to spend. That pressure led to Siebel’s top line regressing from 2001-2005.

    2. In 2004, Salesforce picked off a few enterprise accounts (Merrill Lynch and Cisco were the most notable at the time.) with their SFA product — they had no Call Center product until 2010. Although these wins were publicized widely by Salesforce for obvious reasons, the fact is that Salesforce just wasn’t much of a factor in Siebel’s business at the time we elected to sell the business to Oracle — a decision made in August 2005. They were mostly an SFA vendor for SMBs. Siebel was mostly a Call Center company selling into enterprises. Some people seem to confuse my article with things that happened after Siebel sold to Oracle (e.g. Salesforce taking over a the global CRM leader). This has no relevance to the points I tried to make in my article. And, all of us can speculate whether or not Salesforce would have upended Siebel had we remained an independent entity. Salesforce believes it would have done so. Maybe — but we had a project underway called Project Nexus — that was a wholesale rewrite of our architecture on “cloud” stack. Could we have prevented Salesforce from entering the enterprise with that product? Maybe. Maybe not.This is unknowable.

    3. Siebel had sold a lot of technology through enterprise license agreements by 2001 that had yet to be installed. With the recession in full swing and IT groups being cut back off of everything but mission critical ERP projects, we did a calculation that showed growth could not really occur until these projects were implemented which would take 3-4 years.

    4. When I joined Siebel in 1996, Tom made a very interesting prognostication at one of our exec staff meetings. He said that unless we could make it rapidly to $10B in revenue, we would not last as an independent company so we needed to put everything into growing as fast as possible. I believe that in 2005 almost 10 years later Tom looked at the landscape and decided that we indeed had failed to make it to that important milestone and as a result it would be in the shareholder’s best interest to combine with Oracle which had more than 200,000 enterprise customers it could sell into.

    5. Did Salesforce eventually disrupt the SFA market — and the business application software market — with its SaaS business model? Yes. There is no doubt. There is nothing I have said to dispute this. In fact, for the past 8 years I have been investing in SaaS businesses because I believe it is a highly disruptive force. The point and intention of my article was several fold: I wanted people to hear the real facts about Siebel, not the made up ones others have theorized or propagated. I also wanted to share some lessons I learned from the experience. These are lessons we should all embrace whether we work for market leaders or wannabe market leaders. Finally, I wanted to set the record straight for all the Siebel employees who have had to hear that they created a “crap” product, etc. They did not. In fact, if you look at Salesforce’s SFA product today, it looks pretty close to how Siebel looked more than 10 years ago. In fact, I am beginning to hear the words “tired UI” from a lot of current Salesforce users as UI has evolved considerably since we first built Siebel applications. Salesforce is easier to install and modify than Siebel was, true, because it was built on a different architecture/business model. But, this idea that Siebel was a terrible company with terrible products is just garbage. Were we perfect — no. Did we make mistakes — yes. Did we have unhappy customers — yes. But, so does Salesforce and every other software company on the planet.

    I have been accused of “sour grapes” and “whitewashing” the issues regarding Siebel. Am I defensive about Siebel — yes. I put a lot of my heart and soul into the company. But, I am very realistic that we did not survive to reach that magic $10B and we made some mistakes along the way that led to that conclusion.

    But, at the time we sold the company in 2005, it was not as a direct result of Salesforce which Marc has implied and stated many times. Sorry, Marc — but it just isn’t true. As I said in my article, we succumbed well before that epic battle ever really ensued. No matter, you are now the undisputed leader of CRM. Wear that crown well but remember, there is always the next start up that is gunning to take down an “unassailable” leader.

  2. Great summary Bruce. I was a Siebel observer (and partner) from 1999-2006 at Business Objects and a few things always struck me about Siebel:

    1) The suits at tradeshows.
    2) The stories from former employees about the tough culture.

    Couple of questions for you:
    I’m interested in your take on the now-famous “Nuclear” Research report that took the company to task for false customer ROI claims. Yes, Siebel’s Service business was the most successful product line, but CRM as a category became 4 letter word in the industry at that time. How much is Siebel to blame for giving Salesforce a pretty easy target to go after with such a laser-focus on customer success?
    http://www.businessweek.com/stories/2003-06-01/can-siebel-stop-its-slide

    I’m also interested in your take on the perception (or reality) of Siebel’s arrogance. While certainly not unique in our industry, “arrogant” did become a common way to describe the CEO and the company in those days. This Q&A with Tom dismisses SaaS completely. http://news.cnet.com/2008-1082-917977.html

    Thanks for starting a great discussion, which I’m sure it will be studied in business schools for years to come.

    On a side note, I was at Salesforce in 2006-07 trying to develop an analytics product line strategy and Siebel Analytics and CRM OnDemand were (and arguably still are – sorry Bigs) miles ahead on that front. Business Objects should have acquired nQuire when they had the chance…but wait, they did get OLAP@Work!

  3. Pingback: Three sides to every story

  4. Great discussion. will be interesting to see how this plays out in the BI space

  5. Pingback: A Story for the Ages : Siebel vs Salesforce | ODE - On Demand Education Ltd

  6. Great article and viewpoint Bruce. As a Siebel Alum (circa 1998) of both Expert Services and Product Marketing I too put my heart and soul into the company and believe that we delivered great products for the time and business model of the time. Siebel was a great company and a great place to work.
    I learned a lot from those days and still work with it today. Oracle has made some great improvements to it like Open UI (thanks Holger) which will extend its life as a viable CRM solution for a little while longer.

  7. Great dialogue. I have an ad agency perspective (I’ve worked with Salesforce, Siebel and Upshot).

    Salesforce: Marc’s brilliance had nothing to do with product. His launch was all marketing and PR. Salesforce gave away the product, its growth was all about free seats and very very small clients. “The End of Software,” hanging with the Dalai Lama were all brilliant marketing tools. Hype and marketing bravado lead product design. In the years since, the product has caught up, but in the early days, no one in IT/IS would have chosen Salesforce based on product criteria.

    Siebel: We joked that there was no “C” in CRM. Customers spent more on maintenance than innovation. (BTW, in those days, most small businesses didn’t have any formal SFA solution beyond a spreadsheet. Sales people hated to use any software that required them to give up ownership of the one thing that made them money – client contact names/numbers and the info around those relationships.) The consumerization of B2B software, the recession (esp. in industries that required complex solutions like telecom and finance) and resulting corporate mergers did more to hurt Siebel than Salesforce.

    Upshot: Great product design. Great team who all ended up at Siebel. We just couldn’t keep up with the PR machine that was Marc Benioff. (And we refused to pad our sales numbers with “free.”)

  8. Great article and comments. As a partner, competitor and husband of a 10-year Siebel consultant through the rise and fall of Siebel, a few things stick out:
    1) Many customers could not stand Siebel as a vendor
    2) I’ve never met a user who liked using the products (not just protective salespeople–it was more focused around latency and difficulty of use)
    3) Salesforce was easy to use, period.
    4) $x/month/user for Salesforce was at the time easier to stomach than millions for Siebel.
    5) Swarms of inside salespeople selling 10-100 seats of Salesforce over the phone to line of business (sales executives) without the need to involve IT allowed them to seed massive amounts of customers. Many of those customers grew into enterprise deployments over the years as Salesforce grew with them..

    The net is Siebel created the market and dominated it for some time. The expansion into the full CRM suite with Service (Scopus) and Marketing was the right thing to do to grow the company and the CRM market–but it also made the sale and implementation more complicated. Recession hit, technology advanced (though not as quickly as the era we are in now) and competition swarmed. They could not reinvent themselves fast enough so they did what they had to do and sold the company.

    One wonders if the story played out just a few years later, could they have survived by radically changing and leveraging things like mobile and SaaS (both much more evolved today than 10 years ago)? On one hand they would have had the investment dollars to do what they needed (much like SAP is doing); on the other hand, could they have done it without a complete rewrite like Project Nexus? And if they did the rewrite, would they have been able to continue in a leadership position while they crossed that chasm?

    Epiphany, the pioneer of Marketing automation in that era, acquired companies to build a suite to compete (Octane for Service and Moss Software for SFA), then made a big bet to re-architect to a unified J2EE platform. Timing was poor and it killed them. Phil Fernandez learned the lesson and went on to found Marketo–going to SaaS and sticking to one core discipline (Marketing) with the intent of doing it great. The timing was right and they have killed it.

    Oracle made the same move with Fusion; I would argue many years in it has not been successful (much like Epiphany) but Oracle’s 100-ish acquisitions and cash cow database business have allowed them to stay propped up throughout.

    Great debate…and Bruce, great article and postscript. You very eloquently and concisely summarized a complex situation that is close to many of our hearts who were in and around that market for so many years.

  9. I agree with Bruce’s comments. In late 90’s and early 2000, CRM was very much a niche play. At Convergys, we passed on Siebel as potential M&A opportunity due to CRM market infancy and addressable market opportunity which at that time was a tiny fraction of overall BSS/OSS/Contact Center technology market. Fast forward to today where Gartner predicts that the CRM tool market will reach $36.5 billion by 2017 at 15.1% CAGR. According to Gartner, CRM market is leading all enterprise software categories in projected growth and will even surpass ERP spend. This is classic disruptive innovation of creating a category that did not even exist about 20 years ago.

  10. Ok. I wanted to leave a couple more comments as Darren asked some good questions re: the infamous “Nucleus Research” article and the perceived arrogance of Siebel.

    The subject of the Nucleus Research article was a book we published with 100 customer “success” stories. The “why” is simple: the company wanted to showcase the fact that many of its 5,000 customers were successful with its products.

    The problem with the book is that it was required to be published “immediately” and to fulfill this mandate, it relied upon old data — many of the stories were a year or more old, people had moved on, the company wasn’t happy with Siebel, etc. If we had gone back to every company for an update/permission it would have taken a month or two, maybe more.

    The pressure to execute overshadowed what should have been common sense. We paid for that. Easy pickings and entirely predictable. Intense pressure to perform/succeed can make people – even smart people – do strange things.

    In response to the comment re: “Siebel arrogance”. Tom Siebel is a fierce competitor. He demands excellence from himself and his team. I started working for Tom at Oracle in 1985 when I was 27. Tom is the same today as he was then — he wants and expects to succeed. If you don’t perform to his expectations, there is not a lot of quarter given. And, if Tom has made a decision on something, he expects execution, not debate. This can rub people the wrong way. However, it is also what makes his teams operate with high levels of execution.

    I am not sure Tom displays characteristics that are that much different from many other successful technology CEOs. Ellison, Jobs, McNealy, and even Benioff all have a demeanor that can be offputting when challenged. I think it is just part of the extreme competitiveness of the technology market that seems to amplify this trait into positions of leadership.

    I think where most companies felt Siebel was arrogant was in price negotiation. We were extremely tough negotiators and this rubbed a lot of our customers the wrong way. And, our employees did believe we were “the best” and that probably manifested itself in the form of arrogance. But, as long as we are pointing fingers, I think the term “arrogant” could be said of many of the big, successful tech companies today. Think about the hiring practices of some companies..I can think of one that unless you went to a top tier school with a GPA above 3.5, you won’t get hired, even if you are in sales. Is that arrogance? Probably depends upon whether or not you fit the criteria.

    Why did Siebel employees wear suits? Tom’s belief was that we were asking companies for $1M’s of $$ and needed to demonstrate we were serious about their success and their investment. Tom is from the mid-west and that means when you do business, you do it in a suit.

    Now, today, in Tom’s new company C3 Energy, those “rules” have been significantly relaxed. Times have changed and Tom has adapted. That said, he hasn’t backed off on the requirement to execute with excellence and professionalism.

    Let me make a comment about people “hating” Siebel’s products since that seems to be a common theme. The majority of the companies where people did not like Siebel were those companies were where IT – in spite of our recommendation – over-configured the product with dozens of tabs/screens, etc. And, when people wanted changes, IT was required to make the modifications, with significant delays.

    The fact is that Siebel, like other products created in the same era (pre-SaaS), was a heavy enterprise application. And, Salesforce was/is right — SaaS is just fundamentally a better consumption model for application software.

    Today, though, I think if you look at the current version of Salesforce, you will see that Siebel and Salesforce are remarkably similar from a UX perspective. Salesforce is far easier to configure but over the years the company has added more and more complexity out of the need to serve enterprise customers — just as Siebel had to do.

    That is just what happens. Even Marketo — we were the first firm to invest in Marketo which was just an idea and 3 people at the time — started out very simple and easy to use. Today, 7 years later, it has evolved to be a much more sophisticated product that requires training and expertise to operate.

    I will conclude here with the following.

    The article I originally wrote was not about bashing Salesforce, Salesforce employees or Marc Benioff. What Marc and his company have done is to revolutionize the software industry. It is really remarkable.

    The article was meant to go on record and share the real facts of what happened with Siebel so that others could learn from it.

    I realize the article I wrote introduces some facts that go against popular beliefs that have been held by many people for many years as truth. It is up to you/them whether or not to accept them.

  11. What a rich discussion. There are some great parallels of macro market conditions of 2001-2004 and 2007-2010 and the fates of SEBL/SAP and their embrace of analytics, which is the narrow lens of my reply.

    The bubble burst in 2001, and the ensuing cooling of big enterprise application investments by IT began. But customers still invested in Analytics during these dark days. Bruce mentioned the rise of nQuire / Enquire from it’s acquisition by SEBL in 2001 for $5M to delivering $125M in revenue the last year of public record [2004]. I’ve spoken with AEs from SEBL who were present at that time, and when Oracle acquired SEBL, the rumor is that 50% of new license revenue was coming from SEBL Analytics / nQuire at the time of the acquisition. If my research is right, this $125M in 2004 was delivered by 30 overlay AEs and 60 SEs. I’ve read quotes from Larry Barbetta lamenting that if only SEBL had remained independent in 2005, the analytics revenue stream and its amazing growth would have resuscitated the company. Some may think he was arrogant. I think he was right. Analytics is the afterburner to great applications.

    Fast forward only 3 years to the macro financial crisis of 2007. Spending on 8 figure software deals cools again, and customers went searching for an exit to the financial crisis via Analytics. Enter SAP, another enterprise apps vendor seeking escape from stagnant sales and customer fatigue. In a search of a new revenue stream, and in response to the ORCL/HYSL acquisition, SAP bought BOBJ. I had the good fortune to have been hired by Kellogg back in 2002 at BOBJ, and stayed on with BOBJ after it was acquired by SAP in 2008. Parallel to Bruce, I got to watch from the inside the impact to SAP of the BOBJ acquisition. The impact cannot be overstated, not unlike nQuire at SEBL, but at an order of magnitude greater scale. In a time period nearly identical to nQuire, BOBJ became >50% of new license revenue in multiple geographies at SAP. Unlike Larry and Bruce who could only speculate on “what if” regarding SEBL/nQuire, it is pretty self evident that BOBJ resuscitated SAP. Who’d have thought that you could mix the French and the Germans and end up in something other than a world war?? :-)

    All great applications companies require great analytics to survive. Of course, survival is optional… :-)

  12. Siebel Product Manager

    Bruce,

    Great articles and discussions. Really appreciate your insights.

    Two questions.

    1. How much did the initial product quality problems of Siebel 7.0 release affect the overall business? Many of the technical problems were addressed in 7.5, and by the time we got to 7.7, they were largely fixed. It took a while though, and from a PM perspective, it felt like the house was on fire. What was the bigger picture?

    2. About the competition from enterprise suite vendors, would it make a difference if we acquired PeopleSoft. At one point Siebel’s market cap was almost $40B while PeopleSoft was around $4B. I was on the competitive SWAT teams against two of those vendors, and while we won many tactical battles, it felt like a losing proposition over the long run as the CRM modules from those suites got “good enough”. I remember Tom telling all of us that he didn’t want to get into ERP because of the slower growth of the market. Cultural fit between Siebel and PeopleSoft, not to mention all the complex integration problems surrounding M&A, would also be issues. But still, would transforming Siebel into a full suite vendor have changed the competitive dynamics?

  13. I transitioned from Expert Services (as the ES Upgrade Lead) to Siebel Product Mgr for Upgrades and Deployments right after the 7.0 release and then on through till 7.8. The immaturity of 7.0 directly hurt our sales momentum and velocity. We went from converting ~80% of customers within 18 months to a new release to less than 45% in ~4 years (rough numbers). New deployments continued to sell, but the complexity and cost of the upgrade made large numbers of customers defer upgrading to the new architecture. This had a direct correlation to our salesimbers as it severly limited our ability to upsell/cross sell additional products into th existing customer base. This was one of our largest mistakes I believe.

    We didn’t turn Siebel around until 7.5.3 release where we focused completely on customer ROI from usability, performance, cleaner upgrade processes, etc. This included ripping out the majority of the code from the Jana acquisition converting it from JavaScript to ActiveX. This was a double edge sword as this change locked us to a browser platform, but JavaScript engines of the day were completely inefficient. Open UI has finally removed that from the equation to make Siebel browser agnostic.

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