Page II: Siebel is embracing the rental model as customers increasingly demand more sophisticated ways to pay.
Siebel may have picked a great time to make its move. According to a forecast released on Tuesday by market researcher IDC, the prevailing method of selling software -- offering a perpetual licence to a package of software, as Siebel has traditionally done -- is in decline. At the same time, selling software subscriptions -- the Salesforce model being one example -- will grow.
IDC predicted that sales of software sold through subscription licensing will grow at a 16.6 percent annual clip from 2003 through 2008 to reach $43 billion, while the traditional system of perpetual licences will see a drop each year of 0.3 percent.
The subscription model offers advantages for software companies and their customers, IDC said.
"Subscription models help vendors increase the predictability of their software revenues, making it easier to demonstrate future health," Amy Konary, programme manager for IDC's pricing, licensing and delivery service, said in a statement. "Customers enjoy the low up-front cost of the subscription model and the ability to build an ongoing relationship with the software provider that they pay on an ongoing basis."
An earlier IDC survey of 100 vendors found that 43 of them expect a majority of their sales to be on a subscription basis in six years. Customers have tended to overbuy software under perpetual licensing, but are unwilling to do so in the uncertain economic climate. They are increasingly looking at software as a service.
Smaller customers especially tend to gravitate toward the hosted service, Schmaier said. Among Siebel OnDemand customers are Merced Systems, eTelecare, SupportSoft and the World's Finest Resorts.
These smaller companies generally need basic CRM functions, Schmaier said. Hosted CRM is gradually getting more sophisticated, though, with increasingly elaborate "analytics" -- the ability to extract useful trends from customer information.
Indeed, analytics and its close cousin, business intelligence, will be one of the main reasons for CRM growth, Schmaier said.
Companies will use increasingly sophisticated analytical tools that aren't just able to examine trends, but that also will forecast the future -- such as predicting, well before a quarter closes, whether a company will meet its sales target, Schmaier said. A later phase will take those predictions and adjust company priorities accordingly, thereby triggering a salesperson to push a particular product.
These higher-level features are among the enticements Siebel hopes to use to keep customers buying its software for in-house use.
Another feature is increasing specialisation for specific industries, including automotive, finance, retail, life sciences, and communications and media, Schmaier said. And Siebel is adding other modules to increase value, he said. The first is "loyalty management systems" that try to reward return customers. Another is messaging systems to send advertising messages to customers who bring mobile computing devices into wireless networks such as those at Starbucks.
Siebel is sensitive to pricing pressure, especially with the recessionary economy of recent years and subsequent diminished technology spending. But packaged CRM is still worth it for many customers, Schmaier said, citing another IDC report that found that new CRM systems paid for themselves within a year for half of companies that installed them.
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