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With The Acquisition Of Siebel Systems, Oracle Corp. Just Got Even Bigger And Brawnier

First PeopleSoft, now Siebel Systems: Oracle Corp.’s appetite for large-scale acquisitions seems insatiable. Larry Ellison’s company can now trumpet the availability of best-in-breed database, human resources (HR), customer relationship management (CRM), and analytic software. What does it all mean?

• By Stephen Swoyer
• September 14, 2005

It’s been a long, long, long time coming (as the late George Harrison might have put it), but Oracle Corp. finally made good on its oft-floated plans to buy customer relationship management (CRM) kingpin Siebel Systems Inc.

During a teleconference with analysts, Oracle CEO Larry Ellison said that Siebel founder and Chairman Tom Siebel “and I have been talking on and off about this deal for some time.” In the end, Ellison said, Oracle’s PeopleSoft acquisition—which dragged on for nearly 18 months – convinced him to put Siebel on the backburner. “But we had to complete the PeopleSoft integration, and I said we would not do any major mergers until we had successfully completed a couple of quarters after the integration.”

Oracle’s Siebel gambit has been on-again, off-again grist for the industry’s rumor mill for at least two years. In a deposition videotaped last year for Oracle’s battle with the U.S. Justice Department, Ellison famously claimed that Mr. Siebel had offered to sell him the CRM giant. And Siebel Systems also popped up on a list of takeover targets Oracle prepared prior to the start of its contentious pursuit of the former PeopleSoft in June of 2003.

Now that it’s finally a reality, however, the $5.85 billion dollar deal has enormous ramifications for Siebel’s users, competitors, and partners.

“It was perhaps inevitable that the company founded by Tom Siebel, a renegade expatriate from Oracle, would eventually return to its roost in Redwood Shores, CA,” notes Wayne Eckerson, TDWI’s director of research and services. “From a BI perspective, this is good news for Oracle since the acquisition of Siebel gives it a rich inline and stand-alone business intelligence offering that is gaining traction in the industry. Siebel Analytics, formed around an acquisition of a small start-up company run by BI veteran Larry Barbetta, provides closed-loop analytics for each of Siebel's packaged applications. But it also can be used independently, as a Web-based OLAP tool for dimensional analysis and dashboarding applications.”

Given the contention that attended Oracle’s grueling PeopleSoft quest, there’s bound to be concern among Siebel’s sizeable customer base about just what’s in store. Ellison—who rarely hesitates to speak bluntly—initially said that Oracle didn’t even plan to resell PeopleSoft’s products, which predictably caused an uproar among that company’s customers. By most accounts, however, Oracle has behaved as a model citizen since it concluded its PeopleSoft takeover earlier this year: the company has pledged to continue to develop the PeopleSoft and J.D. Edwards product lines through several additional iterations; has announced support roadmaps that outstrip those which PeopleSoft itself announced; and also disclosed an ambitious middleware effort (Project Fusion) to effectively integrate some of its own Oracle technologies with those of PeopleSoft and J.D. Edwards.

The CRM and analytics spaces in which Siebel is a huge player aren’t exactly bereft of competition, of course. Companies such as SAP AG, Salesforce.com, and even Microsoft Corp. might help to keep Oracle busy, lest a sizeable share of Siebel’s customers – and a beaucoup chunk of maintenance revenue – should depart for greener fields. To that end, Oracle has pledged to support Siebel’s CRM technology for the next several years. It also says that the Siebel CRM technologies will be the “centerpiece” of its own CRM strategy going forward. “We will continue to sell PeopleSoft CRM, Oracle CRM, but Siebel will be the centerpiece,” Ellison said.

There are some significant complications in the realm of partnerships, however. Siebel, for example, is very cozy with Oracle arch-competitor IBM Corp., particularly in the On Demand CRM space. Siebel is also fairly close with high-end data warehousing specialist Teradata, a division of NCR Corp., which is another Oracle arch-competitor. Siebel is a Cognos Inc. strategic technology partner, and has relationships with many other prominent BI vendors.

Why Siebel?

Why has Siebel long been the object of Oracle’s desire? For one thing, it’s impossible to discount the relationship between the two CEOs as a contributing factor – Oracle’s pursuit of the Conway-helmed PeopleSoft demonstrated as much – but Ellison cited customer demand as still another reason. “Many of our largest customers like [General Electric] have encouraged the two companies to get together,” he said.

Many Siebel customers do already have Oracle in-house, on the database tier, and Ellison’s company is fiercely competitive once it has its foot in a customer’s door. At the same time, however, a staggering number of SAP customers (one Deloitte consultant who spoke on background put the number as high as seven out of ten) also run Oracle in the database tier. In this respect, especially, Oracle’s move ratchets up the pressure on arch-competitor SAP, which must contend with a far brawnier Oracle. Ellison’s company can now trumpet the availability of best-in-breed database, human resources (HR), CRM, and analytic software in its fight with SAP.

“The combination of Siebel Analytics and Oracle's business intelligence tools—which consist primarily of Oracle Discoverer and Oracle Reports—provide an end-to-end BI offering, even if they are not well integrated at this point,” notes Eckerson. “However, Siebel Analytics can provide the engine for Discoverer or Reports to run queries against, if desired, using SQL as a standard interface. Siebel Analytics uses Informatica under the covers to collect and transform data, so presumably the acquisition will enable the combined companies to leverage Oracle Warehouse Builder instead of Informatica and save money on OEM fees.”

Eckerson continues: “Ultimately, Siebel Analytics was a primary growth engine for Siebel packaged applications. Thus, we must look at the acquisition as being heavily driven or at least influenced by the business intelligence aims of the two companies. Thankfully, there are enough independent BI vendors still left so we don't have to worry about innovation drying up as the industry consolidates.”