Siebel Makes Another Middle-Market Run

A widely anticipated announcement that Siebel Systems(SEBL Quote) and IBM(IBM Quote) will launch a low-cost, hosted customer-relationship management service for the middle market drew a decidedly muted response Thursday from the market and financial analysts.

Industry analysts that work more directly with software customers, however, greeted the news more warmly, saying Siebel's second attempt in the hosted arena shows more promise than a previous flop.

Siebel shares barely budged on the news, inching up only 7 cents, or 0.7%, to $10.47 in recent trading. That followed a steeper 4.6% increase Wednesday, driven in part by rumors of the company winning some large deals at the end of the quarter.

(Siebel announced Thursday that revenue in the just-completed quarter would fall short of analysts' expectations and at the low end of guidance.)

But in a conference call Thursday morning, Siebel Executive Vice President David Schmaier called the hosting announcement "market-making and market-changing." Siebel and IBM will jointly market, sell and service a hosted, Web-based CRM product that will cost only $70 per user per month, with a 30-day free trial. That compares with $1,500 to $2,500 per seat for a typical software license, plus about $225 to $375 per seat per year for a maintenance contract, according to Siebel.

The hosting service, then, eliminates high upfront licensing fees and complicated implementations often associated with CRM projects. For that reason, it's particularly attractive to the small and medium-sized business market, which Siebel says can start with 10 to 15 employees and go up to companies bringing in $500 million in revenue.

"What an announcement like this does is it lowers the entry point and therefore makes a lot more potential customers eligible because it's now more affordable and the risk is greatly mitigated," says Denis Pombriant, a vice president at Aberdeen Group who covers CRM. "Everyone, not just Siebel, is going to benefit from this."

A survey by Aberdeen and RealMarket, a CRM information portal, in June found that a very high percentage -- 85% -- of prospective CRM buyers would evaluate a hosted service. That was up from 52% in January. And Pombriant estimated only about 20% of the CRM market has been penetrated.