Two-and-a-Half Cents Worth

The big CRM news last week was Siebel’s announcement initiating a dividend for its investors. In an open letter to shareholders, CEO George Shaheen announced the 2.5 cent dividend in typical Wall Street-ese, promising that future payments would be based on a decision of the board and, obviously, on how the company is fairing, etc., etc.

Financial jargon not withstanding, this was an important event for the CRM industry. We have not seen much that is noteworthy in the financial markets due to CRM company activities in the last several years — unless you count disappointing earnings reports. And, of course, there were the IPO’s of RightNow and last summer, but otherwise things have been quiet.

Doing the Right Thing

Not that long ago, companies in the sector were going public and using their stock like a new form of currency with which they bought rivals and other companies with complementary products. Traditionally, high-tech companies have reinvested their profits and investors made their money on stock appreciation as a company grew. The clear logic is that there is no better investment for the company’s profits than in purchasing additional plant and equipment or in hiring people to drive the company’s revenues north. Nevertheless, with US$2 billion on hand and some shareholders asking the company to do something to improve the stock’s slumping value, declaring a dividend was the logical move.

Siebel has retained significant funds for several years while continuing an aggressive research and development program and pursuing strategic acquisitions. For example, the acquisitions of Nquire (analytics) and UpShot (on demand SFA) and other acquisitions contribute significantly to the company’s current platform and its revenues. And other product enhancements alluded to in Shaheen’s letter suggest that the company will deliver new technology for application integration and development later this fall. In the face of this data, the simple conclusion is that Siebel is generating enough cash to cover its needs and the shareholders deserved to receive some financial reward.

The dividend is not likely to make much of a dent in the company’s reserves and Shaheen’s letter said Siebel intends to continue buying companies that fit its requirements and the company intends to continue its R&D spending. That said, the announcement does signal a new reality that many people have seen coming for a while. More than a simple declaration of a dividend, last week’s announcement served notice that the CRM industry is maturing.

The Maturation Process

Some people will immediately assume that maturity means that the company or the market has stopped growing and that the business of CRM vendors will largely become one of maintenance and protecting the customer base. Either would be a mistake. There is still a lot of home-made CRM developed each year because the buyers still don’t see enough benefit to buying a packaged solution — according to Shaheen that amounts to a cool $24 billion.

Many of these opportunities are in narrow niches where the economics of traditional software make it unprofitable for vendors to enter. But advances in CRM technology are likely to make many of these niches more attractive in the next few months. Several vendors have already announced initiatives and products that embrace Web services and advanced technologies that end customers can manipulate through configuration rather than programming to deploy highly specialized systems. Shaheen’s letter promises Siebel’s initiative in this area which is currently called component assembly will be out in the fall.

With so many vendors circling the need for better integration and deployment options, it is likely that the next area of competition in CRM will be this idea of fast and flexible development and deployment. And what customer wouldn’t want more flexibility in their applications?

A Lasting Impression

In my mind the situation in CRM is much like it was a few years ago in ERP. Early products may have been far from perfect, but customers have discovered that they can not live without the technology. So while the distribution of CRM technology might be pervasive, it is far from complete, and new wrinkles in the technology virtually assure that demand for the latest products will continue to be strong both for new and existing customers.

That said, even a mature or maturing market can still have a lot of up side and the real maturation under discussion here is really about the transition Siebel has been going through from entrepreneurial company to established market leader. That’s not to say the rest of the market is chopped liver — far from it — other vendors continue to do well and in many cases make significant inroads into Siebel’s domain. But that is to be expected and the process helps all companies focus on their core strengths, and refine everyone’s understanding of core markets.

In the last few years Siebel reached a peak as a fast-growing, entrepreneur-led organization with over $2 billion in annual revenues in one year, which was followed by a less than hospitable economic environment and contraction that caused the company to adjust its size and mission. The company has replaced its CEO and some of the people who founded and grew the company in its early stages have also left. Siebel Systems’ maturation is evidenced by the fact that it is still a major force in the industry, its innovations continue to drive market direction, and, now, with new management re-focusing on the company’s financial footings it is solidifying its position with the investment community. That’s definitely a sign of maturity.

Denis Pombriant is a well known thought leader in CRM and the founder and managing principal of the Beagle Research Group, a CRM market research firm and consultancy. Pombriant’s latest report, CRM WizKids: Taking CRM to the Next Level, identifies emerging CRM leaders and their innovative technologies. In 2003, CRM Magazine named Pombriant one of the most influential executives in the CRM industry. Pombriant is currently working on a book to be published next year. He can be reached at [email protected]

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