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 thesepartnerships 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) - Get Report

at the high end of the market and

Salesforce.com

(CRM) - Get Report

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.

Rudin's boss, Bruce Cleveland, said the company initially tried to sell OnDemand via telemarketing. But it didn't work; and Cleveland convinced his boss, Mike Lawrie, that the company needed to change gears. Cleveland instituted a realistic incentive plan to encourage sales reps throughout the company to sell products to smaller customers as well as to the large customers they are used to working with. "It's hard to compete when you're not even there," Cleveland quipped when asked about OnDemand's admittedly slow start.

Like many large software companies, Siebel does most of its business via a large direct sales force, but it also sells through the distribution channel, and those relationships have not always been smooth. Put simply, Siebel didn't play well with others. Among other sins, the company often stepped on its sales partners, letting them do the hard work of making an initial sale and then grabbing all future revenue opportunities from the miffed partner.

Whether the company has really learned how to avoid "channel conflict" remains to be seen, but at Tuesday's press conference, Siebel trotted out a series of partners whom it says will be key to the SMB efforts. It calls its new channel strategy "sell with" as opposed to "sell through," implying a much closer collaboration between Siebel and its partners, and laid out a very detailed program to manage the partnerships. Moreover, Siebel's channel efforts are getting a significant boost from IBM, which has added OnDemand to its portfolio of offerings specifically priced and designed for SMBs.

Making hay in the SMB market isn't going to be easy. Salesforce.com, for one, has set its sights squarely on the customers Siebel intends to grab, and has had significant early success. Indeed, a bevy of enthusiastic Salesforce marketers stood outside Siebel's press conference, handing out scarves and Christmas cards making fun of Siebel. And just two blocks away at San Francisco's Moscone Center, where

Oracle

(ORCL) - Get Report

is hosting 25,000 people at its annual user convention, Co-President Charles Phillips said his company now has the products -- and the will -- to dominate the SMB market.

On Tuesday, Lawrie refused to give earnings targets for the SMB effort, and, unlike his predecessor Tom Siebel, he was careful not to sound too boastful. "Actions speak louder than words," he said. Lawrie's got a couple of quarters to prove it.