Salesforce.com vs. Siebel (Abridged) Custom Case Solution & Analysis

1. Evidence Brief: Business Case Data Research

Financial Metrics

• Salesforce.com Revenue: 51 million USD in fiscal year 2003, representing nearly 100 percent year-over-year growth.
• Salesforce.com Customer Base: 6,400 customers and approximately 80,000 individual subscribers by late 2003.
• Siebel Systems Revenue: 1.35 billion USD in 2003, down from 2.05 billion USD in 2001.
• Pricing Structure: Salesforce charges 65 USD to 125 USD per user per month. Siebel traditional licenses cost 1,500 USD to 2,500 USD per user upfront, plus 18 percent annual maintenance fees.
• Implementation Costs: Traditional on-premise CRM often costs 3 to 5 times the software license fee in consulting and hardware expenses.

Operational Facts

• Deployment Model: Salesforce utilizes a multi-tenant cloud architecture. Siebel relies on local server installations and client-side software.
• Sales Cycle: Salesforce cycles average weeks or months. Siebel enterprise cycles typically last 6 to 12 months.
• Market Segmentation: Salesforce initially targeted Small and Medium Businesses (SMBs). Siebel dominates the Global 2000 enterprise segment.
• Product Development: Salesforce releases updates approximately every 90 to 120 days across the entire user base simultaneously.

Stakeholder Positions

• Marc Benioff (CEO, Salesforce): Advocates for the end of software. Positions SaaS as a democratic alternative to expensive, failing on-premise systems.
• Tom Siebel (CEO, Siebel Systems): Initially dismissed Salesforce as a toy. Later launched Siebel OnDemand through a partnership with IBM to counter the SaaS threat.
• Enterprise CIOs: Concerned with data security, integration with legacy systems, and the long-term viability of the cloud model.

Information Gaps

• Specific churn rates for Salesforce enterprise-level customers versus SMB customers.
• Detailed margin analysis for Siebel OnDemand compared to their traditional licensing business.
• Quantified integration costs for connecting Salesforce to legacy ERP systems like SAP or Oracle in 2003.

2. Strategic Analysis: Market Strategy Consultant

Core Strategic Question

• Can Salesforce successfully penetrate the high-margin enterprise market before Siebel stabilizes its declining revenue through its own hosted offering?
• Will the economic advantage of subscription pricing outweigh the perceived security and customization risks of multi-tenant architecture for Global 2000 firms?

Structural Analysis

The CRM industry is undergoing a structural shift in the Power of Buyers. High failure rates of on-premise installations (estimated at 50 to 70 percent) have eroded buyer trust in the traditional licensing model. Salesforce has lowered the Barriers to Entry by removing capital expenditure requirements. However, the Threat of Substitutes is rising as incumbents like Siebel and SAP move toward hybrid models. The current battle is not over features but over the delivery mechanism and total cost of ownership.

Strategic Options

• Option 1: Aggressive Enterprise Upmarket Push. Invest heavily in a direct sales force to target Siebel accounts. Trade-offs: High customer acquisition costs and longer sales cycles. Requirements: Significant capital for sales hiring and enterprise-grade SLA development.
• Option 2: Platform Integration Play. Focus on developing robust APIs and a developer network to allow third-party applications to run on Salesforce. Trade-offs: Requires ceding some control over the user experience to partners. Requirements: Engineering resources shifted from CRM features to platform infrastructure.
• Option 3: Vertical Specialization. Create tailored versions of the CRM for highly regulated industries like healthcare or financial services. Trade-offs: Limits the addressable market for the core product. Requirements: Deep domain expertise and specialized compliance certifications.

Preliminary Recommendation

Salesforce must pursue Option 2. Winning the enterprise requires becoming the system of record, not just a tool for sales reps. By building a platform, Salesforce creates high switching costs through a network of integrated applications, making the SaaS model indispensable to the enterprise IT stack and neutralizing Siebel traditional dominance in customization.

3. Implementation Roadmap: Operations and Planner

Critical Path

• Month 1-3: Infrastructure Hardening. Upgrade data center redundancies and security protocols to meet enterprise ISO standards. This is the prerequisite for any Global 2000 contract.
• Month 3-6: API Public Release. Launch documented interfaces for third-party developers. This allows enterprise IT departments to connect Salesforce with existing ERP systems.
• Month 6-9: Enterprise Sales Force Alignment. Hire and train a specialized sales team focused on value-based selling rather than feature-based selling.

Key Constraints

• Trust Deficit: Enterprise IT leaders view the cloud as a security risk. Success depends on flawless uptime and transparent security audits.
• Integration Complexity: Salesforce must prove it can talk to legacy systems. Failure to integrate with SAP or Oracle will stall enterprise adoption.

Risk-Adjusted Implementation Strategy

The strategy assumes a 20 percent delay in enterprise sales cycles compared to SMB cycles. To mitigate this, Salesforce should implement a Land and Expand approach: target individual departments within large firms to prove the model before seeking a corporate-wide mandate. This bypasses the centralized IT bottleneck in the short term.

4. Executive Review and BLUF

BLUF

Salesforce should prioritize platform extensibility over feature parity with Siebel. The primary goal is to become the underlying architecture for enterprise customer data. Siebel is encumbered by a legacy business model that requires protecting high-margin licenses; Salesforce must exploit this by making integration easy and deployment instant. The battle will be won on the speed of innovation and the strength of the developer network, not just the CRM application itself. Move immediately to standardize enterprise service level agreements to remove the last remaining barrier for corporate CIOs.

Dangerous Assumption

The analysis assumes that enterprise customers value lower total cost of ownership more than they value data sovereignty. If a major security breach occurs in a multi-tenant environment, the entire SaaS movement faces a multi-year setback that would allow incumbents like Siebel to reclaim the market.

Unaddressed Risks

• Price War: Siebel could use its 2 billion USD cash reserve to aggressively subsidize its OnDemand offering, forcing Salesforce into a race to the bottom on margins. (Probability: Medium; Consequence: High)
• Talent Drain: As Salesforce grows, it risks losing its agile culture to the very bureaucracy it mocks in its marketing. (Probability: High; Consequence: Medium)

Unconsidered Alternative

Salesforce could pursue a white-label strategy, allowing regional telecommunications companies or IBM to sell the service under their own brands. This would provide instant global reach and local support without the massive cost of building a global direct sales organization.

Verdict

APPROVED FOR LEADERSHIP REVIEW