Analysts Divided over Oracle, Siebel Merger

Larry Ellison finally bagged troubled Siebel Systems for $5.85 billion, but analysts question how Oracle’s latest acquisition fits into its future product strategy.

“Oracle's venture to roll up aging enterprise software assets begs the question of whether it has bought the foundational pieces for the next killer 'suite,' or instead assembled the remnants of an outmoded business model that has not delivered adequate value to enterprise customers,” says Hadley Reynolds, an analyst at the Delphi Group.

Oracle will pay $10.66 per share in cash or stock for Siebel, a one-time player that creates software to help businesses track sales, customer relations and marketing. Siebel stumbled during the last few years amid stiff competition from the likes of and was considered a prime takeover target. Both companies expect the deal to close next year.

Executives said earlier this week that Siebel’s CRM products will now be part of Project Fusion, Oracle’s future standards-based application platform that combines features and components of the Oracle E-Business Suite, PeopleSoft Enterprise and JD Edwards Enterprise One.

Reynolds says Oracle now makes Project Fusion more complicated by trying to rationalize three overlapping sets of application functionality.

“For enterprise customers, this inevitably means that fusion will feel more like fracture as past application implementations and customizations will not be able to operate compatibly with Oracle's new ‘fused’ offering, whenever that arrives—perhaps late 2007 or 2008,” he says.

Trying to fuse software from its current shopping spree may hinder Oracle’s future product innovation, according to analysts. “Near-term deliverables from the merged software suites will inevitably be focused on tactical detail and trying to play catch-up to SAP and IBM in the transition to services-oriented architecture,” Reynolds says.

Concerns also surround what Oracle plans on doing with Siebel software, including Siebel OnDemand hosting CRM software. Analysts expect Oracle to continue to invest in Siebel OnDemand to compete directly with and other hosted CRM vendors, but its long-term future is questionable.

“Siebel OnDemand runs on an IBM stack, so it is hard to imagine how Oracle will reconcile this in the future,” says Janet White, an analyst at Info-Tech Research Group.

“That being said, I do think it would be a mistake for Oracle to significantly alter or re-brand the OnDemand service, as it has been the only the division within Siebel to see significant year-over-year growth.”

White says Oracle may be surprised by how mid-market firms react to the Siebel acquisition. Some users may shift from Siebel OnDemand to less complex CRM systems by the likes of and RightNow Technologies, rather than do business with Oracle, she says.

About the Author

Kathleen Ohlson is senior editor at Application Development Trends magazine.