Updated from 3:16 p.m. EDT

Wall Street -- the part of it that doesn't own a piece of Siebel Systems ( SEBL), that is -- is less than ecstatic over Oracle's ( ORCL) $5.85 billion takeout of the troubled software vendor.

The deal, expected to close in early 2006, vaults Oracle into the top spot in the $3.45 billion market for customer relationship management software, and puts heavy pressure on rivals SAP ( SAP) and IBM ( IBM).

Despite Siebel's inability to drive new license revenue in the last two years, the soon-to-be-devoured company has an installed base of some 4,000 customers, which in the second quarter pumped $122.8 million in recurring maintenance revenue onto the top line. Services and other revenue added another $112.5 million.

But those numbers don't add up to everyone on the buy side. "Did they pay too much? Any price would have been too much," says Pat Adams, chief investment officer of Choice Funds.

Although Adams reacted soon after the deal was announced Monday morning, he and other investors have had lots of time to consider it. Rumors about the deal have circulated for more than a year, getting stronger as Siebel continued to weaken.

Adams and other buy-side sources believe that when Oracle CEO Larry Ellison called the company "damaged goods" earlier this year, he had a point, even if he was using it to talk down the price. They say:

  • Siebel's core product, customer relationship management (CRM) software, has become a commodity with limited growth potential. Slow-growing Siebel, they say, will put the brakes on Oracle.

  • Oracle already has a mammoth job combining the code bases of PeopleSoft and J.D Edwards with its own into Fusion, its next-generation application platform. Adding Siebel makes it that much tougher.

  • Siebel has a huge options hangover . In 2006, the cost of expensing stock options will cost the company 22 cents a share, effectively wiping out its profit. "That kept me from buying their stock," says one portfolio manager, who spoke privately.

    Even so, industry analysts who specialize in CRM says many of the concerns are overblown and based, in part, on old information.

    "It's very telling that the same people who tout Salesforce.com ( CRM) on Wall Street are so negative about Siebel," says analyst Michael Maoz of Gartner, a technology research and consulting company. "If CRM is such a good story on the low end, how could it not be a good story on the high end? In fact, only 20% of the market has been penetrated so far."

    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.