Oracle to acquire Siebel

Enterprise software developer Oracle announced today that it plans to acquire Siebel Systems, which develops software used by industry and numerous government agencies to automate contact centers and improve customer service. The total value of the deal is approximately $5.85 billion, or a net value of $3.61 billion taking into account Siebel’s present cash on hand, according to the companies.

The Siebel acquisition will let Oracle significantly beef up the customer relationship management (CRM) part of its growing portfolio of enterprise applications, which has been built through a combination of internal development and acquisitions. For example, to its own CRM products Oracle added those it acquired through the purchase last year of PeopleSoft, which itself purchased JD Edwards and its business applications, including a CRM line, in 2003.

"In a single step, Oracle becomes the No. 1 CRM applications company in the world," said Larry Ellison, Oracle’s chief executive officer, in a written statement about the Siebel deal.

Oracle officials said the Siebel products will become the base set of CRM features and functionality for Fusion, Oracle’s next-generation suite of software applications. Fusion will support diverse business operations such as financials, human resources, supply chain management and manufacturing.

Oracle plans to support the current set of Siebel products for some time to come, Ellison said in a conference call this morning.

Siebel is one of the pioneers of CRM software and has been a market leader since the early 1990s. However, the lucrative and still growing CRM market, which was worth an estimated $8 to $10 billion in 2004, has attracted other competitors.

In particular, enterprise resource planning software developer SAP has gotten into the game and wrested the No. 1 spot away from Siebel in 2004 by surpassing that company in CRM revenue for the first time, according to an August report from AMR Research.

Meanwhile, consolidation in the enterprise software market has been accelerating, and the Oracle/Siebel deal means there will be one less CRM product option available, said Paul Hamerman, a vice president in the enterprise applications research group of Forrester Research.

“It does limit customer choice. Of the big CRM vendors, you’re left with just Oracle and SAP,” Hamerman said.

However, one of the fastest growing market segments in the past year has been CRM software sold as an on-demand, vendor-hosted service rather than as a software package that customers install on their machines. Newer companies such as RightNow Technologies and Salesforce.com successfully push this approach, though Siebel has developed its own hosted service called OnDemand.

Market watchers said government demand for CRM solutions is growing, and Siebel has maintained a steady presence. For example, this past summer the General Services Administration announced its selection of Siebel CRM products for its Enterprise CRM project. Other recent wins for Siebel include deals with the Centers for Disease Control and Prevention, the U.S. Copyright Office, and the governments of Montana and New York City.