OPINION
Mendocino: The Reason Microsoft Should Buy Siebel

Now contrast this with the announcement this week of Project Mendocino, where Microsoft (Nasdaq: MSFT) Office users will be able to access SAP's extensive enterprise applications and both companies have pledged to use these applications internally, and Siebel has an entirely new global competitive dynamic to deal with. You can find the Microsoft - SAP Web site here. The press release defining Project Mendocino is here. Being inward-centric never cost so much competitively than it does today.

Wakeup Call

The US$2 billion question is: "Will Mr. Shaheen become a passionate pariah of change or a politically correct CEO that melds Siebel's new reality to the boards' expectations alone?" Apparently even passionate pariahs of change at the CEO level are not safe. Layer in the long-term impact of Project Mendocino in the core areas of Siebel's business including analytics, BPM and CRM and it's clear Siebel has to start making major shifts in strategy now.

What Siebel needs is a wakeup call from Redmond.

Siebel's strengths can compliment the shortcomings of Microsoft and assist in further building out the enterprise software vision they have. Microsoft needs to give Siebel a wake-up call, and unlike Larry Ellison of Oracle (Nasdaq: ORCL) saying in 2004 he would buy Siebel then split it up into three companies -- an applications company, a database company and a professional-services organization, putting Tom Siebel in charge of the applications company as CEO -- Microsoft has much more to offer Tom Siebel -- fulfillment of his original vision of CRM. From published accounts, Tom Siebel told Ellison, "Larry, you and I worked together for nine years, and that was enough."

Why This Makes Sense

There are various reasons why this makes sense:

• Project Mendocino has organic growth written all over it. What's most been missing from Siebel's financials is organic -- or new -- growth. Filling the gaps between Microsoft's Office applications and SAP's customer-facing applications would give Microsoft organic growth using the Siebel technology as the basis for that product strategy.
• Microsoft gets integration. While the platform players -- IBM, SAP, Oracle and Microsoft -- routinely get criticized for lack of integration expertise outside their platform, Microsoft's commitment to heterogeneous IT environments isn't just PowerPoint-ware. Quietly Microsoft has been working on integration scenarios involving Siebel Business Applications and UAN, SAP R/3, and Microsoft BizTalk Server. You can find additional evidence of this work here.
• Usability is still Siebel's Achilles' heel. Siebel's acquisitions over the last two years in the hosted CRM arena have helped this effort, but Siebel has yet to conclusively turn this from a weakness into a strength. Go to the other end of the usability spectrum and there is Microsoft -- complete with published standards of usability and research dollars spent just on this issue.
• Move in with a major customer: Microsoft Sales. Inside Microsoft applications get used rigorously before they are launched. Microsoft and others in the industry call this "eating your own dog food" and it's very effective at putting peer pressure on development teams. Microsoft has made a point this week of stressing that Project Mendocino applications will go through this process and will be used on an ongoing basis internally. The win-win here is that Microsoft CRM now has a strong upgrade path and Siebel development gets more transparent, more focused on the immediate needs of its customers -- their sales force in this scenario.
• Shared customers where it matters most -- in Services. For Siebel, services have been their lifeblood. Microsoft, in fact, shares several accounts with them, and even has defined those successes. As a result, both companies are learning how to integrate with each other's applications at the enterprise level -- critical for winning large deals that the Siebel cost structure is predicated on. You can see these shared successes here.
• UAN gets even stronger in Microsoft's platform strategy. The UAN strategy inside Siebel is leaning towards order management, which would make a great addition to the .NET strategy. In fact Siebel, during the 2002 User Week in Los Angeles, committed to the .NET platform and hinted at a complete product roadmap being in process. Now close to three years later, it's time to take those roadmaps to the next level.
• Microsoft takes Siebel Analytics to a market standard. Given the significant success Siebel Analytics continues to have, Microsoft's development, marketing and sales efforts could turn Siebel Analytics into the next standard for both business and financial analytics. Again, there's ample evidence that Siebel and Microsoft are working together -- and in this case study from Siebel showing Microsoft as a customer of their analytics application for pipeline analysis. You can get the case study here.

Bottom line: Project Mendocino changes everything, and will change the customer-facing application strategies of Microsoft and SAP. While UAN is a strong integration framework, it can't serve as a substitute for a platform -- for that Siebel needs Microsoft. With $2 billion in the bank Siebel says they want to be a consolidator -- but in this emerging scenario the consolidator needs to consider being the consolidated to fulfill its original vision.

Louis Columbus, a CRM Buyer columnist, is a former senior analyst with AMR Research . He recently completed the book Getting Results from Your Analyst Relations Strategies, which is available on Amazon.com.