Siebel User Week: Hosting To Grow, But On Premises Not Going Away

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Applications hosting is looking like a solid market, but there will always be those who want an on premises solution. That's the assessment of David Schmaier, executive vice president at Siebel.

"There are some companies that will never shift to a hosted service. They will always want the deep functionality of our on-premises software," said Schmaier. "There are whole areas of firms where it is not appropriate to do a full install. But they can now have a system without any implementation work, and which links to the main database."

To address this hybrid approach, Siebel will next month ship integration software that will allow its customers to link hosted versions of its applications with enterprise class versions installed on-site.

As an example of the possible type of customer choice in the future, company executives cited BT which runs 220,000 seats of on premises Siebel software, but which estimates there is a potential for a further 20,000 seats of OnDemand.

Siebel has just made available a European version of its hosted application, with multi-language and currency support. On 7 May it will ship the Universal Application Network (UAN) product which can integrate hosted versions of its software with those installed on customers' premises. This will allow businesses to widen the number of users with access to CRM applications, while maintaining a fuller version of the software for power users.

Siebel had previously entered the hosting market with its Sales.com business, but closed that down when it found little demand for the service. But the assessment is that the market is now ready for such offerings, although the company is quick to point out that it remains a tiny part of its overall business.

Compared to arch rival Salesforce.com, Siebel's market share is tiny but in mitigation the Siebel offering has only been available in the US for a quarter and only now in Europe. Siebel claims a total hosted customer base of 1,500, but this figure includes customers it gained when it bought Upshot last year to flesh out its hosted ambitions.

More indicative perhaps were some of the other figures rolled out to support Siebel's claims. For example. in the past quarter the company says it signed up 229 new customers, covering 2,500 seats. The average number of seats per company was 15 but there was a wide range in the subscriptions from 500 or more seats down to literally two.

CEO Tom Siebel says that the market for hosting in 2003 was estimated at around $05 billion. "Hosted will continue to be a major focus over the next five years," said Siebel. "We have not entered a market unless we feel we can take a leadership position in five years. I think that the company is well positioned to establish same position as we have in call centres.

"Small and medium organisations - and divisions of larger organisations - are choosing the hosted model to avoid upfront capital expenditure and to reduce in-house IT requirements. This is Siebel meets Google."

But the company is not putting all its eggs in a hosted basket and expects hosted to remain a smaller business than its on premises business. "If the market goes all hosted, we're ready, if it goes all on premises we're ready," said Schmaier.

The company has just released version 7.7 of its CRM suite. The focus of this release is total cost of ownership following complaints from customers after Siebel 7 was first launch in 2001 that it was too expensive to deploy, manage and upgrade.

Siebel said that as a result he had told his developers were told to stop increasing the functionality of products and concentrate on reducing operational costs. "Cost of ownership was the defining criteria," he said. "We spent years adding features and functionality. In October 2002, we made the decision to stop building functionality. No one could understand the product because it was too complex so in October 2002 we made the decision to shift emphasis from functionality to cost of ownership.

"We took a year and a half break from feature development. We wanted to understand the cost of ownership of this application and cut it in half, so we stopped designing features and functions -- except those that will reduce these costs."

His original target was to cut costs by 50 per cent, but he admits that this was not met. Instead the company reckons that users of 7.7 can achieve cost savings of up to 39 or 40 per cent - although that figure is based on a TCO model which excludes initial license costs.

"We did not achieve a 50 per cent cost saving, there we failed," said Siebel. "But we did achieve 39 per cent saving, which is pretty darn good. We reduced the cost of installation by 30 per cent, configuration by 32 per cent, operations by 30 per cent and upgrades by 35 per cent. Version 7.7 is the highest-quality, most functionally rich and lowest-cost product we have ever shipped."

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