Strategy Analysis: Siebel's UAN

By Gib Bassett gib.bassett@analyticstrategy.com
The Strategy behind Siebel’s Universal Application Network (UAN) Initiative

Abstract

A research note examining the implications that Siebel's Universal Application Network may have on its customers, partners and competitors, and whether or not it is strong enough to fend off fast followers to the CRM market such as SAP and Oracle.

Article

In April of 2002, Siebel announced its Universal Application Network Initiative, or UAN, a framework for the design and development of business processes which can be deployed in an enterprise technology infrastructure, even when different software systems are in use. As the leading provider of sales and service enabling software (CRM) with greater than 50 percent market share, Siebel’s agenda with UAN was clear to industry observers: that integration of disparate enterprise systems is now top of mind for most large organizations, and Siebel’s peers in the enterprise resource planning (ERP) market were far ahead in their integration plans. Moreover, these same peers – firms such as SAP and Oracle – have publicly announced their desire to develop solutions competitive with Siebel’s offerings. Faced with mounting pressure from other large software companies and the market’s desire for more integrated software, Siebel had little choice but to announce an initiative such as UAN. As such, some have argued UAN is a reactive and defensive strategy designed to retain market share while the company determines its “real” strategy. This research note examines the implications UAN may have on Siebel’s customers, partners and competitors, and whether or not it is strong enough to fend off fast followers to the CRM market such as SAP and Oracle.

Partners Are Key

As a relatively high-end solution, Siebel’s software is highly customizable, and customers are typically faced with little choice but to pay as much, if not more, for consulting and implementation services as the software itself. Thus Siebel has created an enormous secondary market of services companies dependent on Siebel customers for revenue. And while a good deal of consulting is specific to Siebel’s software, integrating Siebel's offerings with other enterprise systems is another costly component of most implementations.
As Siebel “customers” themselves, consulting partners need to be carefully managed with respect to how UAN could impact their revenue. For example, if UAN is engineered to replace work today performed by these partners, Siebel risks alienating an important channel that in some cases has a better relationship
with the customer than Siebel has -- which could lead to both partner and customer defections.
Alternatively, Siebel may develop a rich training program to enable their partners to more productively serve Siebel customer implementation and integration needs, opening up new revenue streams that didn’t exist before.
If as many critics say UAN is more of a methodology than a “product,” Siebel’s legions of partners will likely benefit from the initiative. If, however, there are well developed software tools behind UAN that have “engineered out” significant consulting, Siebel should be prepared to either help their partners identify new revenue steams or brace for likely defections among its top partners. To head off this potential risk, Siebel has recruited large systems integrators like Cap Gemini Ernst & Young, Accenture, KPMG Consulting and IBM Global Services to be part of the UAN partner program. Doing so provides an avenue for these consultants to provide input into the strategy, and thus own part of its success in the marketplace (thus mitigating as much risk as possible).

Market Drivers

The complexity common to enterprise software has fueled the success of many consulting firms, but it has today greatly cooled the market for expensive and complex software. Because the cost of installing and integrating software can equal up to six times the price of the software alone, budget-conscious customers are steering clear of products without a good deal of built in enterprise connectivity.
Of course, this connectivity cannot happen unless enterprise software players work together, and Siebel has made software partners another key part of the UAN program, including IBM, Webmethods and Tibco. Not coincidently, companies such as SAP, PeopleSoft and Oracle are not part of this program, no doubt because Siebel views them as competition. Siebel has carefully chosen complementary software companies as partners in this effort, and in general, companies that play supporting roles in the enterprise software ecosystem (as opposed to SAP, PeopleSoft and Oracle, who’s ultimate goal is to literally own this ecosystem).
Some customers may view UAN as a conflict of interest, given that Siebel’s efforts may not be compatible with work already underway at SAP, Oracle and PeopleSoft. All of these players share joint customers to some extent. To reduce this anxiety, Siebel is quick to point out that UAN is “web services compliant,” which means that it is a “standards based” technology that should work with even competing integration schemes. In practice, this is not likely to be the case, but Siebel appears to be hedging its bets by aligning UAN with integration buzzwords like “XML web services.”

Trade Offs

At its core, UAN is designed to fend off attacks from competing enterprise software players, but it also will help Siebel make inroads into competitor software markets (such as enterprise resource planning and supply chain management). Siebel is not unlike its competitors SAP, PeopleSoft and Oracle in wanting to own a greater share of enterprise software budgets.
While CRM has been Siebel’s core competency and integration is clearly a customer concern, Siebel must be careful not to lose focus of its strengths while also de-emphasizing its weaknesses. There may very well be a trade off that Siebel should make, but will not, due to its size and maturity. Large companies often reach a state of inflexibility and thus become outmaneuvered by smaller rivals.
Siebel has attempted to retain its market leadership at the high end of the market, while competing in the more fragmented mid-market CRM space, where companies like Onyx and Pivotal reside. However, despite having mid-market offerings, Siebel’s high-end enterprise software continues to be the company’s primary revenue generator. Siebel must be careful not to lose focus of its key enterprise customers, who may recognize this lack of focus over time, and be more apt to abandon Siebel for upstart companies (such as Salesforce.com) or the quickly maturing CRM offerings from ERP vendors SAP and PeopleSoft (the latter of which has a very competitive CRM offering today).

Sales Force and Fit

In the software industry, Siebel’s sales force is arguably second to Oracle’s in terms of aggressiveness and success in closing enterprise software sales. This contrasts with sales organizations at SAP and PeopleSoft, neither of which have this reputation, although they have been successful. In Siebel’s favor – and helping it defend its market share from these fast followers -- are its sales force, which is a perfect fit for both the CRM sector, as well as the larger enterprise ecosystem.
The ERP segment is far more mature than the CRM market, and it also appeals to a more technology-oriented buyer than CRM. With technology budgets increasingly under scrutiny and in the hands of non-technologists, the sales force that can engage at this level effectively (almost regardless of product prowess) will win. This should help Siebel defend its market share while also enabling its sales force to penetrate deeper into accounts with a well-sorted UAN offering that over time can serve as a bridge to a new generation of Siebel offerings that move the company beyond CRM.

Conclusions

When it was announced, UAN generated a great deal of press because it signaled Siebel’s recognition that its market share was under attack and that it lacked an appealing integration story for today’s cost conscious and risk averse software buyers. While seemingly a reactive move, Siebel looks poised to protect its share and potentially move into new markets dominated by the ERP players. A strong sales force and hugely successful core CRM offering, balanced against the desire to be both a large organization and serve high and mid-market customers, should ensure Siebel’s continued success.