An overall positive rating reflects the depth of functionality of Siebel s sales and service applications in v.7.5.

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1 Vendor Ratings, Michael Maoz Research Note 28 April 2003 Vendor Rating Update: Siebel Systems, 1H03 An overall positive rating reflects the depth of functionality of Siebel s sales and service applications in v.7.5. Siebel Systems Overall Rating: Positive What You Need to Know: Despite challenges, the broad product set and strong integrator partnerships will help Siebel Systems push through the transition to new technologies and tools. Customer relationship management vendors such as SAP, Amdocs Clarify and Pegasystems will limit Siebel s influence in specific industry verticals (for example, banking, insurance, discrete manufacturing and telecommunications) during the next 24 months. Siebel will continue to lead the CRM suite market during the next 36 months in ability to execute, outpacing the competition in delivering CRM application modules that can be integrated for the front office. Siebel will continue to execute on the application and technology fronts, but there will be areas, such as marketing applications, multisystem integration capabilities and ease of platform support, that require that users exercise particular diligence during evaluations. The company has a good technology vision, consistent with Gartner s understanding of technology and industry trends. Siebel s significant application capabilities make it a consistent leader on user shortlists for sales and service. Analyst Comments: Siebel Systems surpasses competitors in developing and delivering customer relationship management applications. Challenges await as it migrates to new technology, fends off competitors, and works on more flexible and usable products for wary buyers. Detailed Rating: Initiative Rating Change Corporate Viability Strategy Positive No Change Financial Promising Down Revenue Growth Promising New Cash Position Positive New Marketing Positive No Change Organization Positive No Change Sales Organization Promising New ESP Support Strong Positive No Change Product/Services/ Technologies Product/Service Positive No Change CRM Sales Suite Strong Positive No Change Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Customer Service and Support Suite Positive No Change Marketing Analytics Promising New Customer Relationship Optimization Promising New Field Service and Dispatch Positive New Partner Relationship Management Positive New CRM Application Suite Positive No Change Technology Promising No Change Software Version Control Positive No Change Pricing Positive Up Customer Service/ Product Support Sales/Distribution Promising No Change Large Enterprise Positive New Small and Midsize Business Promising New Support Services Positive New Corporate Viability: Siebel Systems, with approximately $675 million in customer relationship management (CRM) software revenue in 2002, will automate more sales and service personnel than Oracle, PeopleSoft and SAP combined through 2004 (0.8 probability). As individual CRM vendors are viewed more as pieces of an overall customer solution by enterprises, the Siebel Strategy rating remains positive. The success of the company s new products and direction during the next 12 months will be critical to Siebel s long-term position. There are five challenges facing Siebel during the next three years: Grow an executive management team with the experience of growing a company from $1 billion to $10 billion Continue to stabilize the executive sales management team worldwide Increase success as Siebel shifts sales to a higher proportion of smaller sales transactions (lineof-business and departmental sales) and becomes less dependent on megadeals ($5 million and greater), and seek new opportunities (for example, applications as a service) Better describe and demonstrate the capabilities of new technology initiatives, such as.net, WebSphere and Universal Application Network (UAN) Demonstrate a clear ability to hold off Microsoft and SAP in their respective markets The company is well-disciplined and has a pragmatic, result-oriented leader in CEO Tom Siebel. The company has almost $2.2 billion in cash and is likely to achieve $1.5 billion in annual revenue for FY03. The source of the revenue is almost evenly split between software licenses and service revenue. An average of 35 to 60 new customers is added each quarter and, in a harsh economic environment, still at a pace that exceeds the competition in head-to-head sales situations. In contrast to enterprise resource planning (ERP) rivals, such as Oracle, PeopleSoft and SAP, that depend almost exclusively on their installed base for CRM revenue, Siebel continues to win deals in the open market. Whereas most of its enterprise application rivals often claim sales of human resources, contracts, entitlements, business intelligence, data warehouses and content management applications as CRM revenue, Siebel revenue can be directly measured through contracts for sales, service and marketing systems, from which it derives more than 90 percent of revenue. 28 April

3 Products/Services/Technologies: We have maintained the Siebel Product/Service rating, as well as the CRM Application Suite rating, at positive based on the pace of both the company s move to support new technologies and recent product acceptance of v.7.5. The individual Magic Quadrants that constitute the CRM research at Gartner consistently find Siebel as either a leader or challenger, with a rare appearance in the niche player category (incentive compensation). The company continues to outspend and outmarket all enterprise rivals for its sales and service applications. Siebel will continue to be the dominant provider of packaged CRM applications during the next three years. Through 2006, the bigger challenges to the company will be the UAN initiative, as well as progress in simultaneously adapting to.net and IBM WebSphere. Siebel is adapting its technology to support multiple, standard platforms and standards to help protect customer investments and reach new prospects. UAN has had little discernible effect on prospective customers that speak with Gartner analysts. It is often perceived as a defensive strategy to fight initiatives such as SAP s NetWeaver, although the Siebel initiative was proactive and prior to NetWeaver. UAN has predecessors, such as RosettaNet packaged integrating processes (PIPs), but it is uncertain how the Siebel offering will fare. Vendors that offer predefined off-the-shelf business processes succeed when the offering is also highly tailorable. Unless UAN allows the degree of configurability that users demand, it will not succeed. Success will be measured by the ability to encapsulate 70 percent or greater of a business process and support the other 30 percent through customization. Early indications for UAN are positive. The pace of upgrades from early versions of Siebel to the new v.7.5 product is improving, with more than one-third of the installed base in the process of upgrading, but there is still evidence of the user impression of limited flexibility and the complexity of the Siebel platform and tools. Users should be encouraged that the latest product direction is positive in that it matches the Gartner technology sweet spot : Web, three-tier, repository based, tool configuration, support for Windows NT or Unix, crossdatabase coverage and a good release migration strategy. Siebel plans to enable more of its architecture to run natively on these commercial application server environments, rather than on its own proprietary application servers. This is consistent with an emerging trend we see in the market. One by one, vendors will need to make similar choices. E.piphany, Onyx Software, SAP and others have made their choices. Siebel s intention to support Windows and Unix platforms natively via common code is possible, but ambitious. However, although it is ambitious, we do not think that the strategy is flawed or that Siebel is insincere. The vision is positive, and the company is committed. The execution challenges and recent history of the early r.7 give Siebel an overall Technology rating of promising. Performance issues experienced by users following the standard Siebel configuration recommendations will need to be resolved over the coming nine months. A short-term challenge is for Siebel to demonstrate to customers with highly customized v.6.3 and v.7.0x implementations a clear return-on-investment statement that convinces them to adopt Siebel v.7.5 rather than wait for a future Siebel v.8. We are upgrading our rating of Siebel s pricing strategy from promising to positive because of its increasing flexibility with customers on license costs and contract negotiations. On average, 50 percent of Siebel s revenue in any financial quarter comes from its installed base. We expect Siebel to demonstrate increasing creativity and flexibility to reduce the complexity of its pricing model and lower the license cost of its software to stay price competitive. All prospects must perform in-depth reference checks with Siebel customers who have implementations similar to those under consideration. This will provide context and 28 April

4 allow an enterprise to determine to what extent it can reasonably expect to receive Siebel s full attention. This is especially important for smaller accounts (contracts of less than $500,000) or businesses with low brand recognition. Siebel has already made some changes to improve its pricing strategy, such as rolebased pricing and pricing bundles; however, it remains the most expensive player in the market, as measured strictly on an upfront per-license basis. Customer Service/Product Support: Siebel s professional service organization (PSO) has evolved at a faster rate and with better execution than any of its competitors. Through 2004, only Amdocs Clarify will match Siebel s PSO in the tactical implementation of the vendor s CRM software (0.8 probability), and Amdocs is much more narrowly focused on a vertical capability rather than broader industries. The management of Siebel s PSO is on a par with, or better than, the best CRM external service providers (ESPs) for tactical implementations, although ESPs surpass Siebel for business process initiatives. To remain relevant to enterprises, Siebel must do a better job of responding to the greater sophistication that buyers require from a CRM application, and do so with less perceived aggressiveness than has been widely experienced by customers. We have had recent customer complaints that the turnover of Siebel technical account managers (TAMs) is causing difficulties with upgrade decisions, as well as customer confusion over the multiple service offerings: TAMs, the Quickstart program and PSO. Recent organizational changes will improve the user implementation and support experience during the next 12 months. However, customers continue to complain of the need to turn the account red (that is, aggressively escalate the issue) to get the attention of the support organization. The company hires a third party to survey the installed base quarterly to see how installations and upgrades are progressing, and this has been a strong tool to monitor and prioritize product development and improvement. Related Research and Ratings: CRM Suite Magic Quadrant 2003: Business-to-Business CRM Suite Magic Quadrant 2003: Business-to-Consumer EMEA Sales Applications Magic Quadrant 1H03 Rating Definition: Strong Positive Positive Solid provider of strategic products, services or solutions. Customers: Continue investments. Potential customers: Consider this vendor a strong strategic choice. Demonstrates strength in specific areas, but is largely opportunistic. Customers: Continue incremental investments. Potential customers: Put this vendor on a short list of tactical alternatives. 28 April

5 Promising Caution Strong Negative Shows potential in specific areas; however, initiative or vendor has not fully evolved or matured. Customers: Watch for a change in status and consider scenarios for short- and long-term impact. Potential customers: Plan for and be aware of issues and opportunities related to the evolution and maturity of this initiative or vendor. Faces challenges in one or more areas. Customers: Understand challenges in relevant areas; assess short and long term benefit/risk to determine if contingency plans are needed. Potential customers: Note the vendor s challenges as part of due diligence. Difficulty responding to problems in multiple areas. Customers: Exit immediately. Potential customers: Consider this vendor only if there are no alternatives. Acronym Key CRM ERP ESP PIP PSO TAM UAN Customer relationship management Enterprise resource planning External service provider Packaged integrating process Professional service organization Technical account manager Universal Application Network Core Topics Business Strategies, Technologies and Apps. for Customer Service and Support ~ Customer Relationship Management Creating Business Value for CRM ~ Customer Relationship Management Siebel Systems Headquarters: San Mateo, California Web Location: 28 April