Oracle Keeps On Spending

What's more, the task of integrating Siebel's code with Project Fusion may not be nearly as difficult as Wall Street thinks, Maoz says. That's because Siebel has recently made a major architectural shift, called Nexus, that makes its code much more portable and easier to integrate.

For his part, though, Marc Benioff, the brash CEO of Salesforce, reacted this way in an email sent to employees Monday morning: "Oracle put Siebel investors out of their misery today. We have been doing that for Siebel customers for years."

Strategically, the major target of the takeover is SAP(SAP), the strong No. 2 -- although it claims to be No. 1 -- provider of CRM software. SAP has long been the dominant player in enterprise application software as a whole; it now has a much more serious competitor in Oracle. Gartner analyst Sharon Mertz says industrywide sales of CRM software licenses in 2004 totaled $3.45 billion and maintenance and revenue added significantly more (although she doesn't have a total). Her research places SAP in the No. 1 spot based on market share, but Mertz and other analysts say that some companies SAP claims as CRM customers acquired the software as part of a larger bundle and don't use it. But that no longer matters. "Oracle will clearly be No. 1 in market share when the acquisition is completed," she said.

The takeover is likely to speed up the pace of consolidation in the software sector. Salesforce, a runaway success in so-called hosted CRM, which is leased to customers and run via the Web from the vendors' servers, could itself become a target, says Trip Chowdhry of FTN Midwest Research. Interestingly, Chowdhry says that buying BEA Systems(BEAS) might be an even higher priority for the German software giant.

"Everyone is trying to offer a complete stack of applications and infrastructure. Now that Oracle is so strong in applications, SAP needs to become much stronger in infrastructure," he says.

Software analyst Cheryl Kingstone of the Yankee Group, says the takeover obviously strengthens Oracle's hand, but in the short run, it may give Salesforce and RightNow Technologies,(RNOW) a smaller on-demand vendor, a bit of breathing room. "Oracle will have to focus on the high-end for some time," she said.

Despite the doubts, shares of Oracle closed up 21 cents to $13.49 on Monday, while Siebel soared $1.16, or 12.7%, to $10.29.

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