Siebel Eyes Growth in Small Business Market

Updated from 8:59 a.m. EDT

Chastened by earlier failed attempts, Siebel Systems (SEBL) has reorganized and repackaged its efforts to win customers in the fast-growing small- and medium-business market.

"We have to reignite our growth engine," CEO Mike Lawrie said Tuesday at a press conference in San Francisco announcing Siebel's new strategy.

The company has added 70 salespeople, signed up about a dozen distribution and integration partners, and created a new division within the company to focus on smaller customers as well as customers of all sizes wishing to license Siebel's on-demand software. The immediate goal: top-line growth.

Lawrie, a longtime IBM exec who took the helm of Siebel earlier this year, said the company's so-called SMB efforts should start to generate significant revenue in the first half of 2005. But it's less clear when the effort will add to the bottom line. "At this point, I see it as an investment. When it gets off the ground, we'll add rigorous financial metrics," he said.

Siebel shares were recently off 4 cents, or 0.4%, to $10.22 as some observers expressed skepticism about the company's announcement. "This is not the first time SEBL has made a claim to the SMB space via partnership development; it failed to make substantial efforts to develop these partnerships last time and will be challenged with a skeptical reseller community," Richard Williams, director of equity research at Garban Institutional Equities, wrote Wednesday morning. "We see this as a 'bet the company' approach based on a strategy that failed to work the last time. While a different distribution channel is required to reach SMBs, the product is still the problem for us."

Williams downgraded Siebel to sell from neutral and lowered his price target to $7 from $10.

Siebel, which makes software that helps businesses automate front-office tasks, such as organizing customer information, has suffered the most from competition from SAP (SAP) at the high end of the market and Salesforce.com (CRM) at the lower end. Salesforce, which went public earlier this year, specializes in inexpensive, Web-based software that customers rent by the month instead of investing in long-term license deals.

Siebel has posted year-over-year dips in revenue for at least five quarters in a row, and posted year-over-year declines in license revenue for four of the last five quarters. And despite a 41% run-up in the stock since early August, shares of Siebel are still down 24% for the year.

The company has tried to enter the SMB market -- which Siebel defines as companies below $500 million in revenue -- before, but has never had a great deal of success. To a large extent, Siebel execs now admit, it was their own fault.

Ken Rudin, the vice president in charge of the Siebel OnDemand effort, said the company erred when it offered smaller customers a stripped-down version of the software it sold to enterprises. "But we've learned that the smaller companies have the same business problems as the larger ones." So now, Siebel is selling SMB customers the same software it sells everyone else, but the smaller companies pay for only the features they actually use.