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CRM rivalry heats up

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Alorie Gilbert CNET News

Published: 20 Oct 2003 15:25 BST

The gloves are coming off in the battle to reign supreme in the nascent market for pay-by-the-month customer relationship management software.

Salesforce.com and Salesnet each launched campaigns on Friday to lure customers of software rival UpShot into their respective folds following news of Siebel Systems' intended acquisition of UpShot. All four companies compete in the market for CRM software delivered as a service over the Web, with Siebel recently returning to the fray after a two-year hiatus. CRM software is designed to help businesses streamline the way they sell, market and service their products.

Salesforce and Salesnet are separately offering discounts, free data migration services, and training to companies that switch from UpShot's software to their own comparable programs. The competitive raid campaigns highlight the battle brewing in this relatively small, but high-growth niche of the business software market. This market "just got wickedly competitive," said The Yankee Group analyst Sheryl Kingstone.

Not only are sales at stake, Kingstone said, but so are the egos of two hard-charging software executives -- Siebel chief executive Tom Siebel and Salesforce head Marc Benioff. Both men started their companies after climbing the ranks at Oracle, a company known for its hypercompetitive corporate culture.

"It's more emotional than revenue-driven," Kingstone said of the Benioff-Siebel rivalry.

Emotions certainly appear to be riding high. The customer-switching campaigns launched by Saleforce and Salesnet "smack of desperation," said UpShot chief executive Keith Raffle, who expects to become a Siebel vice president after the acquisition is complete in November. His rivals are running scared, he said, because Siebel is the largest CRM software company in the world. With $1.64bn (£0.98bn) in revenue last year, Siebel has the resources to take the market by storm, he added.

In the meantime, Salesforce executives are heckling Siebel's approach to the hosted software market, saying the company is moving in too many confusing directions. The UpShot deal follows Siebel's recently announced plan to introduce a product by the end of the year that would have directly competed with Upshot. Siebel said it will eventually merge the two systems but will support and maintain them as separate products indefinitely. But if you ask Brett Queener, vice president of marketing at Salesforce, "It's all a bit odd."

Salesnet executives likewise criticised Siebel's $70m purchase of UpShot. "They're paying for two years of complacency" after exiting the hosted CRM market in 2001, said Dan Starr, chief marketing officer of Salesnet. "Siebel's been bipolar about online CRM."

The bigger challenge for Siebel, however, is the risk that its army of salespeople will resist the new direction the company is taking, said Joshua Greenbaum, an analyst at Enterprise Applications Consulting. Selling software the traditional way means big, immediate commission checks for software salespeople. That's not so with hosted software, where revenue trickles in over a number of years. "Siebel's got to reconfigure how they do business," Greenbaum said.

Of all of Siebel's challenges, watching UpShot customers flee to competitors isn't one of them just yet, said The Yankee Group's Kingstone. Although the switching costs for hosted software are lower than traditional business applications, she said, it's too soon to swap. "UpShot customers might as well wait to see what Siebel has to offer first," Kingstone said.