Siebel's Shrinking Partner List

People can never have too many friends and CRM vendors can never have too many partners. Unfortunately for Siebel Systems, its partner list is shrinking. Working with third-party software developers, add-on software makers, value-added resellers, systems integrators, consultants and a network of distributors gives a company's products reach far beyond what the company could handle on its own. CRM vendors, including SAP and Microsoft, acknowledge this and have worked to build up their respective partner programs over the past two years. SAP has about 1,500 partners, while Microsoft, which only began shipping its first entry into the CRM space in January, has built a network of more than 6,000 partners. Recently CRM--market leader Siebel has seen its cadre of consultants and technology partners decline from about 700 two years ago to only about 360 today. Some analysts claim that a slip in partnerships might suggest a loss of influence in the industry. However, Denis Pombriant, vice president and managing director of CRM practice at Aberdeen Group, says that relationships need to be about quality, not quantity: "When a company like Siebel has that many partners it's not clear that all of them are getting the attention they need. "A reduction in the ranks of partners could [mean] that the partner channel was overbuilt or that there [are] redundant products or technology. Many times small companies hitch themselves to a big fish hoping to gain clout. But it is still incumbent on the small partners to provide quality services and products." Pombriant also expects the Microsoft partnerships to follow the same trajectory. Economic pressures have also forced Siebel to lay off nearly one third of its staff (2,400 workers) since the end of 2001. At the end of the 1990s Siebel was considered one of the fastest-growing software companies in history. That momentum continued into 2000, with growth of 121 percent. By 2001 revenue for the company was $2.8 billion. However, by 2002 revenue fell 22 percent, to $1.64 billion. Siebel remains the dominant market leader in the CRM enterprise space. At the end of 2002 the company had 24.9 percent of the enterprise--CRM market, down from 28.5 percent in 2001, according to research by Gartner Group. Siebel's closest rival is SAP, with 15.9 percent, up from 10.9 percent the year before. It is too early to tell if this means that Siebel will be a leaner, meaner competitor. Recently First Albany analyst Mark Murphy reiterated his neutral rating on Siebel. The rating stems from Murphy's view that some near-term risks remain due to the underperformance of the company's stock as compared with its peers in the software sector. On the upside he also noted that Siebel is negotiating a huge ($12 to $15 million) deal with one of its existing customers.