A Modern Love Story

Falling in love is an intrinsic part of human nature. Falling out of love is equally woven into our characters. At some point we all buy into the sentiment expressed in a Stevie Wonder song, "I believe when I fall in love with you it will be forever". When forever turns out to be only a few months, or a few quarters in the case of the financial community, we are disillusioned. Our unrealistic expectations for the object of our desires' capability to do good for us are now matched by equally unrealistic estimates of the harm they have caused. Our affection soon turns to anger, our concern to contempt, our devotion to disregard. This is as true on Wall Street as on any other street.

When Siebel System stock (Nasdaq: SEBL) was trading at its all time high in March of 2000, it was easy to see why many institutional investors thought it be forever. A well managed, profitable company, dominating its market space, growing explosively in revenues and earnings. What was not to love? Yet as we first reported in Issue 96 Wall Street's Long Love Affair with Siebel Systems Coming to an End at least in equities, nothing lasts forever.

The latest sign of how far institutional investors have fallen out of love with Siebel Systems came when the Teachers' Retirement System of Louisiana filed a law suit alleging the company failed to properly account as expenses $22 million in stock options given to Tom Siebel and President Paul Wahl. The fund has engaged the high powered Delaware firm of Grant & Eisenhofer (G&E) to represent its disillusionment. G&E has carved out a profitable niche for itself by representing institutional investors, typically public employee retirement plans, in federal securities litigation. If G&E is chasing ambulances, they are doing so from a Rolls Royce.

Documents filed with the SEC make it appear that Siebel Systems granted a split-adjusted exercise price of $4.91 when the shares actually closed at $8.48 and later granted shares at an exercise price of $40.53, while the shares closed at $42. None of this is new information. Two similar claims were brought against the Siebel System in 2000 and were promptly dismissed.

Its easy to understand why. What possible reason would Siebel Systems have to grant options that were not equal to the fair market value of the company's common stock on the date of the grant? If Siebel and Wahl wanted more compensation, it would have been easier just to grant them more options.

The difference between now and then is that the stock in 2000 was trading around $110 dollars a share and now is trading around $7. Despite this single digit stock price, Siebel System's shares are trading 700% above their offering price.

Sensing weakness in its case, G&E recently amended the suit to allege that Tom Siebel falsely certified financial statements under the recently enacted Sarbanes-Oxley Act because the company did not account for the options expense properly. How to correctly account for options, many of which will never be exercised, is the next headache that the good jurists of Delaware will have to endure.

Even though baseless claims are brought against companies every day, this suit has received wide attention because of the considerable emotion behind it. Investors are feeling betrayed and mislead at the moment and the subject of executive compensation is a particularly painful one. Yet if they could put aside their disappointment, investors might see that the company still has some of the qualities they fell in love with in 2000. Even now Siebel Systems is:

• profitable
• cash rich
• adopted by large companies as part of their core business process
• surrounded with a powerful partner ecology
• and at $7 a share a lot better value than it was at $110.

In fact Sun Microsystems (Nasdaq: SUNW) announced that it has deepened its global strategic alliance and will expand the development, marketing, and sales activities it does jointly with Siebel Systems.

"With 79% acceptance in the market, we believe J2EE will prevail," said Scott Anderson, Director of the Siebel Alliance at Sun. "But ultimately it's the customer vote with their dollars that counts."

Research Indicates Customer Satisfaction Does Not Guarantee Loyalty

According to research from Miller-Williams Inc, despite what many companies assume, customer satisfaction does not guarantee customer loyalty. After conducting 12,277 interviews with customers of 33 PC, software, e-commerce, telecom, media and automobile companies, the San Diego based research firm concluded that the relationship between customer satisfaction and loyalty varies tremendously between industries.

To determine this, respondents were asked to described how closely each company met their ideal. The more successful companies had the smallest gap between the customer ideal and their performance. Among the leaders were Dell, Yahoo!, Siebel Systems, Toyota, HBO and Cingular.

Respondents were then asked to rate the importance of thirty company attributes when making a purchasing decision. The attributes covered topics such as financial stability, customer satisfaction, industry alliances and senior management credibility. A correlation analysis was then done to measure how closely one attribute predicts the another attribute.

In some industries, such as Media and Telecom, customer satisfaction is a very accurate reflection of customer loyalty. In Software, the relationship is less straightforward.

Specifically in the case of Siebel Systems, the data indicates that while Siebel customers are very satisfied they are not very loyal. In contrast, Microsoft customers are less satisfied, but more loyal.

"I think its a matter of focus," said Gary William. "The reality is that customer satisfaction is important but sometimes it's not enough. No one should take for granted that just because customers say they are satisfied, that their commitment to repurchase is guaranteed."

Miller-Williams is the collective effort of Robert B. Miller, co-author of "Strategic Selling", and Gary A. Williams, co-author of "Change The Way You Persuade" in Harvard Business Review, May 2002. For more information please contact Amy Ferraro, Director of Research at (619) 725-2714 or amy.ferraro@millwill.com.

Satmetrix Validated with Siebel

Satmetrix version 8 has been successfully validated with Siebel 7.5. The integration provides managers with a single location to analyze loyalty and transactional data for their customers within the familiar Siebel user interface. Loyalty data, reported in Satmetrix, can be viewed on its own tab in the applications.

"We believe customer loyalty is more important than customer satisfaction," said Roselie Buonauro, Chief Customer Officer and a co-founder of Satmetrix. "A high satisfaction level does not directly correlate with the intention to buy again."

Customers of Siebel Systems and Satmetrix Systems can tailor sales, marketing, and service programs based upon ongoing electronic dialogs with their customers. The integrated solution provides managers with a more complete picture of their customer relationships.

"Joint customers, such as Webmethods, will gain a better a sense of the customer's attitude when they use Siebel," said Buonauro. "That way they can just adjust their approach accordingly."

Satmetrix Systems provides software solutions for improving business loyalty by providing customer feedback data. Cable & Wireless, eBay, Fidelity Investments, Hewlett-Packard, Lucent Technologies, Network Associates, and Siebel Systems have all adapted on Satmetrix software. Satmetrix Systems is headquartered in Mountain View, CA. For more information contact Doug Doyle, at 435-615-7182 or dougd@satmetrix.com.

Satmetrix version 8 integrates with Siebel 7.5 and is currently available.

See it! Try it! Do it! The OnDemand Personal Navigator Validated

Knowledge Product's OnDemand Personal Navigator Version 6.5 has been validated with Siebel 6 and the company has joined the Siebel Alliance Program as a base Software Partner.

The OnDemand Personal Navigator is software-based training tool that is tightly integrated into enterprise applications to give users context-sensitive help without requiring them to leave the application.

"The issues are becoming more compelling now," said Dale Cline, President. "Increasingly companies are coming to the realization that the best way to increase adoption is by providing training that employees actually use."

OnDemand's architecture consists of the OnDemand Developer and OnDemand Player. Both are Microsoft Windows applications written in C++. The OnDemand Developer uses an embedded database to record, edit, and playback step-by-step power user sessions. The OnDemand Player then presents the content created with OnDemand Developer in any of three different modes: the hands-free See It! mode; an interactive Try It! mode; and a step-by-step Do It! mode.

Knowledge Products is headquartered in King of Prussia, Pennsylvania. Founded in 1986, Knowledge Products has over 700 customers in 12 countries and is recognized as the market leader in enterprise training software. Knowledge Products is a division of Global Knowledge, a Welsh, Carson, Anderson and Stowe portfolio company. A good contact at the company is Jennifer Fogg, Director Business Development at 214-576-0272 or jennifer.fogg@globalknowledge.com.

Bob Bear Joins Zilliant

Bob Bear has joined Zilliant as Executive Vice President of its Solutions Group and will lead Zilliant's professional services organization. Bear was formerly Vice President of Global Services Operations for Siebel Systems.

Zilliant provides software and services to aid companies in better managing their pricing. Headquartered in Austin, Texas, Zilliant is a privately held company. Investors include ABS Ventures, Austin Ventures, DB Capital Venture Partners, Trellis Partners, and GE Capital.

Bear joined Siebel through Siebel's acquisition of OnLink Technology in 2000. At OnLink Bear was the VP of Professional Services. Prior to OnLink, Bear was the Vice President of Professional Services for Manufacturing at PeopleSoft and Director of Client Services for Red Pepper Software. Bear's career also includes positions with Avalon Software as well as industrial engineering and plant operations positions. He has a B.A. from Northern Illinois University and an M.B.A. from Illinois Institute Of Technology.

"Customer satisfaction and clients' willingness to serve as positive references are the key factors in company-building today. I intend to make these the anchors of Zilliant's solution approach," said Bear.

Assessing the Value of the Universal Application Network

The Universal Application Network or UAN promises to be one of the most far reaching initiatives Siebel Systems has ever undertaken. Accenture partner Stephen Lorack has a unique perspective on the UAN. As the lead partner in Accenture's global software practice he has been instrumental in helping define it. To understand Steve's thoughts and views on the UAN, click here.