brucedaley.com

Quoted in the Wall Street Journal

Web Services Face Reliability Challenges

Customers Discover New Risks With Switch From In-House Software To Online Providers
By VAUHINI VARA
February 23, 2006; Page B3

More companies have started using Web services to handle customer tracking and other tasks rather than installing software on their own computers to perform those chores. But customers of Salesforce.com Inc. recently learned there can be risks with that strategy.

Several times in the past three months, customers of Salesforce.com, one of the fastest-growing of the new Web services, were met with an error message that prevented them from logging on. Others were able to access the service, but the tasks they could perform were limited.

While the service outages were mostly brief, they point to a continuing challenge for online providers of tasks once handled by packaged software. Just as consumer-focused Web sites such as eBay Inc. have at times grappled with reliability issues, the growing number of companies now providing online business services must prove that they can reliably manage their customers' information infrastructure.

Marc Benioff, Salesforce.com's chief executive and a leading advocate for the software-as-a-service business model, admits the San Francisco company had more technology problems than expected after a major upgrade of its computer systems that began in November. He says most of the problems have been addressed, but vows to improve reliability still further.

"The whole industry is going to be held to a much higher level of accountability," Mr. Benioff says. "Our job is to prove that this is a real model, to create an industry, not just to create a company."

Companies such as Siebel Systems Inc., now part of Oracle Corp., have long sold software that is installed on customers' computers and helps sales and marketing staff manage contacts, commissions and other information needed to do their jobs. Salesforce.com allows customers to do similar chores by tapping into the company's Web site, avoiding the need to install and maintain such software themselves.

It's been a popular idea. Salesforce.com, which has grown rapidly, yesterday reported that earnings for the fourth period ended Jan. 31 rose 66% to $5.96 million, or five cents a share, from $3.59 million, or three cents a share, in the year-earlier period. Revenue rose 67% to $91.1 million. The company reported 399,000 paying subscribers, up from 351,000 in the period ended Oct. 31.

The company predicted revenue in its current fiscal year will hit $470 million to $475 million, up as much as 53% from the year ended in January.

Other companies have jumped into the growing market. Business software titan SAP AG this month launched its own Web product for managing customer information, joining such rivals as RightNow Technologies Inc. and NetSuite Inc.

Competitors haven't been shy about trumpeting their own reliability in the wake of Salesforce.com's problems. NetSuite CEO Zach Nelson says his company guarantees that its service will be available 99.5% of the time to all customers. "I've always been surprised that Salesforce hasn't stepped up to do that," he says.

Salesforce.com says the service has been operating more than 99.7% of the time this month. The last reported problem came Feb. 16, when a server failure caused a one-hour interruption in service. The company says it has agreements with some customers that include a performance guarantee, but doesn't offer one for all customers.

The repairs came too late for some customers. Andrew Langsam, chief operating officer of software maker ScriptLogic Corp., says his company had planned a one-day marketing "blitz," contacting customers about a planned Web seminar. But a Salesforce.com outage prevented employees from logging onto the site to access customer lists.

The problem forced the Boca Raton, Fla., company to postpone the seminar, costing thousands of dollars. "I can't sustain a hit like that," he says. "My CEO is very concerned," Mr. Langsam adds, although he says it will take more than a few outages to dump Salesforce.com.

Analysts don't see the problems to date as having a big impact on Saleforce.com's bottom line. "Operating costs associated with both outages and service-level agreement obligations are likely quite small relative to the company's overall size and opportunity," said Daniel Cummins at Banc of America Securities. Mr. Benioff said the outages didn't affect fourth-quarter results and aren't expected to affect the current quarter.

An underlying factor in the outages is the need to keep upgrading computer systems to accommodate Salesforce.com's rapid growth. "They're sort of a victim of their own success," said Bruce Daley, editor of the Enterprise Software Observer, a Web site that tracks the industry.

Other sites have run into similar growing pains. For example, Six Apart Ltd., which makes the software behind many Web logs, has experienced periods of downtime in recent months.

Mr. Benioff says Salesforce.com spent $50 million last year on its computer infrastructure, including the big computer upgrade. But after making the conversion, the company in December began running into hardware and software problems, including programming bugs and installation errors. He says the company has been working closely with vendors, which he declined to name, to address the problems.

Salesforce.com has also consulted with eBay and other companies that have wrestled with problems expanding their computer systems, Mr. Benioff says. To help reassure customers, it has launched an unusual Web page (trust.salesforce.com) that tracks how fast its servers are operating and provides information about any outages.

But the company is now broadly reevaluating its technology. It has long combined customer information for major geographic areas into large databases, but is considering dividing up those databases so that an outage would affect fewer customers at a time, says Mr. Benioff, who calls the experience of studying these problems "very transformational."

"We have learned a tremendous amount, and we are working to implement it," Mr. Benioff said.

Story from The Daily Camera

515 dare to plunge into frigid water

When asked why, Polar Bear Plungers plead insanity

By Brittany Anas, Camera Staff Writer
January 2, 2006

Swim trunks flapped in the wind. Goosebumps made bare arms and legs look more like chicken skin. And there was an orchestra of chattering teeth and high-pitched shrieks.

It was New Year's Day at the Boulder Reservoir, and 515 people celebrated by taking a daring dip into frigid water during in the 23rd annual Polar Bear Plunge.

About 15 people at a time stood on a dock, and before they jumped, an announcer asked them why they were doing it. Some said they lost bets; others said they wanted bragging rights. But, most commonly, the Polar Bear Plungers plead insanity.

Jerry Hodgden, 74, gave his family a double thumbs up before he took his jump. After everybody else on the dock had splashed into the water, he took his turn.

"I do a squat jump," said Hodgden, of Golden. "I don't do the swan dive."

Three people participated in the first Boulder Polar Bear Club plunge, which was in 1983 at Wonderland Lake. Club founder Trygve Bauge said his record in Boulder's near-freezing water was one hour, four minutes. Bauge, who became famous for storing his frozen grandfather, Bredo Morstoel, in a Nederland shed, returned to Norway under threat of deportation in 1994.

On Sunday, temperatures in north Boulder reached the mid-50s and strong winds whipped off the reservoir as if they were trying to scare the thrill seekers.

"I'm thinking about running away," said Carla Pexton, 21, from South Africa, as she stood in line and shivered in knee-high socks and a bikini.

Pexton, who is spending the winter working at Eldora Mountain Resort, took her jump and a few minutes later from the hot tub said her body felt as if it were being pricked with pins and needles.

For Nash Hensen, an 18-year-old Boulder High School student, the wind was like a blow dryer.

"The wind is warmer than water," he said while drying off with a towel. "It's surprisingly refreshing."

Kelley Andersen, 18, held hands with teammates from her Mile Hi Magic competitive basketball club, and they jumped into the water together.

"I want to go home, I want to go home," Andersen said as she surfaced from the water and started running to the hot tub.

Brooke Daley, 8, of Denver, might have the Norwegian spirit.

In her fleece clothing, she looked at the area of water that was surrounded by ice and shrugged.

"I've been in colder water than this," she said.

She confidently stepped onto the dock with her father and her older brother, and took a big leap before quickly doggy-paddling toward the shoreline.

A little while later, she admitted it was indeed the coldest water she's ever been in.

Contact Camera Staff Writer Brittany Anas at (303) 473-1132 or anasb@dailycamera.com.

Copyright 2006, The Daily Camera. All Rights Reserved.

Bruce Daley Quoted in The Deal

SAP dampens deal talk
Monday April 18, 6:00 am ET
By Kate Gibson

SAP AG and its chief executive, Henning Kagermann, have in recent days both fueled and downplayed talk of potential deals involving the German technology giant and a collection of U.S. software makers. Furthering the frenzy of speculation was Siebel Systems Inc.'s ouster last week of its CEO, J. Michael Lawrie, amid investor pressure for a sale of the San Mateo, Calif., provider of customer relationship management software.

SAP on Thursday, April 14, was forced to deny engaging in merger talks with rival Oracle Corp. after reports, citing a German business weekly, surfaced that quoted Kagermann as saying he "would listen" to Oracle chief Larry Ellison regarding a union.

"There is absolutely no substance to this situation other than media speculation," SAP said in a statement Friday, noting that Kagermann's remarks were taken out of context. "As CEO, he must be open to any and all offers as part of his fiduciary responsibility to shareholders."

But one observer saw more calculation in Kagermann's words. The executive's stated willingness to take Oracle's calls was his way of "sending a message to SAP investors that he is concerned about shareholder value," said Bruce Daley, a publisher of industry newsletters that track the enterprise software sector.

SAP's mixed signals are all part of a corporate mating dance that may or may not lead to anything long term, Daley said. "All these people flirt all the time; that doesn't mean they're going to have a baby."

Other published reports also had Kagermann dispelling rumors that SAP would acquire Siebel and alluding to potential purchases of other software companies, especially those in the government and financial services sector.

Unlike Oracle, which last year bought PeopleSoft Inc. to energize business applications sales, SAP does not "need to acquire the footprint that Siebel has," said Richard Davis, a Needham & Co. LLC analyst. "SAP is content to try to take market share from them with their own internally developed product."

The strategy is already paying off, said J.P. Morgan Chase & Co. analysts John M. Segrich and Kunal Dasgupta. "SAP continues to gain global market share at the expense of its peer group," the analysts wrote in a research note.

While Siebel is under pressure to cut costs, "SAP is accelerating its investment in CRM globally," the analysts said. "These investments are taking place at a time when the competition is on the ropes, as demonstrated from both Oracle (including PeopleSoft) and Siebel."

But SAP cannot afford to stand pat in the face of mounting competition from Oracle, Microsoft Corp. and other software titans, Daley said.

"SAP is becoming increasingly successful at selling CRM within its installed customer base." Outside its existing base of customers, SAP "hasn't been that successful at convincing people to buy their product," he said.

Kagermann's public stance that an SAP purchase of Siebel would not make sense because of overlapping products does not ring entirely true, Daley said. "I would argue that SAP and Siebel don't compete head-to-head," said Daley, who added that Siebel's customers are mostly in service-related industries, such as travel and leisure, or telecommunications, while SAP caters largely to manufacturers.

"Siebel is strong in a lot of industry segments that historically SAP hasn't been that strong in," he said.

SAP in February tried to acquire Minneapolis-based retail software maker Retek Inc. Ultimately outbid by Redwood Shores, Calif.-based Oracle, which on Tuesday completed its $670 million purchase, SAP has said it will not make purchases just because it can. Instead, it will make acquisitions as its business demands, such as filling out the company's product suite or allowing it to go to market more quickly.

Contrasting SAP's leadership to that of Ellison, Daley, who worked for Oracle in the late 1980s and early 1990s, said the German company's management tends to be cautious.

"Ellison has a different point of view — we should buy this company, we should integrate it, and I'm going sailing."

Bruce Daley Quoted in Wall Street Journal

Siebel Ousts Its CEO
Over Sales Slide

Siebel Systems Inc. named George Shaheen as chief executive, ousting J. Michael Lawrie, who in less than a year in the job was unable to reverse the software company's long slide and who faced an incipient revolt among shareholders.

Mr. Lawrie's abrupt departure came a week after Siebel warned that first-quarter sales of its software that companies use to track information about customers had fallen far short of expectations, sinking to the lowest level in four years. The announcement cut short hopes of a turnaround under Mr. Lawrie, a long-time executive at International Business Machines Corp.

Mr. Shaheen, 60 years old, was chief executive of Andersen Consulting, now known as Accenture Ltd., before leaving in 1999 to run Webvan Group Inc., an online grocery business that became one of the more spectacular failures of the dot-com era. Siebel Systems Chairman and founder Tom Siebel didn't mention Mr. Shaheen's role at Webvan in a conference call with Wall Street analysts, nor did the company's news release. Mr. Shaheen has been a Siebel board member since 1995.

The leadership change highlights Siebel's strategic quandary in the consolidating business-software industry, where bigger rivals such as Oracle Corp. and Germany's SAP AG are gaining an increasing share of corporate purchases while online rivals seek to replace Siebel's software with Web-based services. Indeed, Mr. Shaheen and Siebel's board may now have to decide if Siebel should be a buyer or seller in the next round of merger talks.

Oracle executives have mentioned Siebel as a possible takeover target. Computer Associates International Inc. is another potential buyer, analysts say. A Computer Associates spokesman declined to comment. Alternatively, analysts suggest Siebel may seek to boost its data-analysis capabilities by using some of its $2.2 billion in cash to acquire a vendor of "business-intelligence" software such as Hyperion Solutions Corp., Business Objects SA or Informatica Corp. Spokespeople for all three companies declined to discuss potential deals.

Siebel's shares rallied briefly on the news of Mr. Shaheen's appointment, but fell again during the conference call, in which executives didn't outline concrete plans to improve Siebel's performance. In 4 p.m. Nasdaq Stock Market composite trading, Siebel was down 29 cents at $8.68.

Mr. Siebel said no major strategic disagreements led to the departure of Mr. Lawrie, who took over from him as CEO last May. "This is all about performance," Mr. Siebel said. He said Mr. Lawrie and Siebel's board "mutually agreed" that he would step down after the board "determined that a change was necessary." The company said Mr. Lawrie wasn't available to comment.

One immediate impetus for the change appears to have been a meeting yesterday afternoon among some large Siebel shareholders to force the company to consider uses for its cash, including repurchasing its own shares. The meeting was organized by Providence Recovery Partners, a unit of Providence Capital Inc. "Either use the cash to grow the business, or return it in one shape or form to shareholders," said Herbert Denton, president of Providence Capital, which began buying Siebel shares in March.

Mr. Denton said he met privately with Messrs. Siebel and Shaheen on Tuesday. At yesterday's shareholder meeting, Mr. Denton said he didn't believe Mr. Shaheen's appointment represented a "new era" at Siebel. He called for Siebel to add at least two shareholder representatives to its eight-member board and form a committee to consider the sale of the company after its operational problems are fixed.

In the earlier conference call with analysts, Mr. Shaheen said the board is reviewing uses for its cash and "we are aware of some people who are very interested in that outcome."

The shareholder rebellion gathered strength after Siebel's preliminary earnings announcement last week. The company estimated its first-quarter loss at $7 million to $9 million, or one cents to two cents a share, including charges resulting from an acquisition. That is four cents to five cents shy of analysts' expectations before the announcement. More significantly, Mr. Lawrie said delays in closing deals caused sales of new software to fall 41% from last year, to $75 million. At the time, Mr. Lawrie blamed "poor execution on our part."

"You get one mistake with Tom and that's it," said Bruce Daley, publisher of the Siebel Observer, an industry newsletter in Denver.

Before his departure, Mr. Lawrie had acknowledged internal resistance to his efforts to transform Siebel's culture and strategy. His agenda, known inside the company as "Chapter Two," implicitly laid much of the blame for Siebel's troubles at Mr. Siebel's feet. Mr. Lawrie said customers had expressed disappointment with the results from earlier deployments of Siebel's software.

Mr. Lawrie may have moved too fast for Siebel's board. Some board members were concerned about how Mr. Lawrie "went about transforming the business," said Rick Devine, managing partner of Devine Capital Partners, a boutique search firm in Redwood City, Calif.

One competitor expressed sympathy for Mr. Lawrie. "Tom Siebel gave him the worst situation that any CEO has ever passed on to a new CEO," said Marc Benioff, chief executive of Salesforce.com Inc., which sells software similar to that of Siebel, but managed over the Internet.

Siebel has been making progress with its own Web-based offerings, reporting $11 million in on-demand contracts in the first quarter. Growth in that business hasn't been enough to counteract shrinkage in Siebel's core product line. In any event, such a transition is complicated for a traditional software company such as Siebel, because on-demand subscription revenue is recognized over time, rather than up-front as in traditional software sales, causing reported revenue to dip.

By DAVID BANK
Staff Reporter of THE WALL STREET JOURNAL
April 14, 2005; Page A3

Bruce Daley Quoted in The Street.com

Vague Promises at Siebel

By Bill Snyder
TheStreet.com Staff Reporter
4/13/2005 2:09 PM EDT

Siebel Systems' (SEBL:Nasdaq - commentary - research) new CEO got a skeptical welcome from Wall Street on Wednesday, after the veteran executive failed to lay out a clear recovery strategy for the troubled software maker.

Indeed, the stock slipped during George Shaheen's introductory conference call, after it had risen earlier in the day.

"We are a little concerned. You said you'd hit the ground running. As you speak, the stock has dropped 21 cents in disappointment over the lack of specificity," said Barry Rosenstein, founder of San Francisco hedge-fund firm Jana Partners, which is long the stock. In heavy trading, shares were recently off 21 cents, or 2.3%, to $8.76.

Shaheen, who has been on Siebel's board for a decade, replaces Michael Lawrie, who resigned under pressure after less than a year on the job.

Shaheen, 60, was CEO of Andersen Consulting, which changed its name to Accenture, and then took the helm of dot-com darling WebVan, the short-lived Internet grocery service.

Chairman and founder Tom Siebel said that Lawrie's departure was by mutual agreement with the board. "The board greatly appreciates Mike Lawrie's professionalism and his diligent service to the company," Siebel said in the press release announcing the shake-up. "We respect Mike and wish him the best for the future."

Pressed for more details during the analyst call, Siebel said that differences over the company's strategic direction were not an issue. "This is all about improved and acceptable performance. That is the only issue."

Earlier this month, Siebel said it would miss its first-quarter targets, saying revenue in the March quarter will range from $297 million to $300 million, vs. the Wall Street consensus of $337.48 million. At the time, Lawrie promised to cut costs and reduce -- or eliminate -- lines of business that have not performed well. The company reports final earnings for the quarter on April 27.

But Siebel said that he and the board did not base their decision on just one quarter's results. "Look at results over the last four quarters. They did not meet investors' expectations and they did not meet our own internal expectations," he said.

Bruce Daley, who publishes the Siebel Observer, said it had become apparent to company insiders by the end of February that Tom Siebel had become unhappy with Lawrie's performance. And while Siebel has withdrawn from day-to-day management, he remains active behind the scenes. "Anyone who thought he was going to step back and just play golf was wrong," Daley said.

Analysts who follow the company were still caught off guard. The conventional wisdom, as one analyst put it, is that the action could mean that the company will be up for sale.

"But remember, people said that Lawrie was brought in to sell the company," said Sanford Bernstein analyst Charles Di Bona, who noted that the company has a poison pill in place that would probably ward off low-ball offers. So finding an appropriate buyer willing to pay a premium could be difficult, he said. Bernstein does not have a banking relationship with Siebel.

Tom Siebel did not speak to the buyout question, but did say, "This is not an interim CEO position. George has stepped up to deliver consistent leadership and improve the company's performance."

The company's poor performance and large cash balance -- $2.2 billion -- has angered institutional investors, some of whom plan to meet in New York Wednesday evening. Analysts were quick to ask Shaheen how he plans to put Siebel back on course.

"My key role is to deliver on our promise of customer value. It's my experience that it is the best fuel [to boost the stock] ." He went on to reiterate his predecessor's opinion that expenses must be brought into line with the company's actual business. Shaheen said he wasn't ready to make cuts, but said he would have at least some of the plan ready by April 27, when the company announces its final results for the March quarter.

Bruce Daley Quoted in Mercury News

Duffield resigns from PeopleSoft

CO-FOUNDER, CEO EXITS BEFORE FIRM'S TRANSITION TO ORACLE

By John Boudreau

Mercury News

Dave Duffield, co-founder and chief executive of PeopleSoft, has resigned from the company that will be acquired by business-software rival Oracle after an acrimonious, 18-month fight.

Duffield, who rejoined PeopleSoft in October after his predecessor Craig Conway was fired as CEO, left the company Dec. 21. The Pleasanton software company disclosed his departure Tuesday in a single sentence of a regulatory filing.

Neither PeopleSoft nor Oracle would comment on Duffield's departure.

Oracle spokeswoman Deborah Lilienthal said the Redwood Shores company expects ``the deal to close after the first of year.''

Analysts were not surprised by the resignation of Duffield, also the company's board chairman.

``He's got no role to play in the new company,'' said Albert Pang, research manager of applications software at IDC. ``It's a cash deal. He's cashing out and that's pretty much the end of it. Most high-level PeopleSoft executives are going to leave, one way or another.''

It's fairly common for top executives at companies being acquired in friendly deals to stick around to help with the transition. ``Normally, the acquiring company would hope to obtain the senior management for a significant, healthy transition period,'' said Chris Dillon, head of mergers and acquisitions at the Silicon Valley law firm Gunderson Dettmer.

But the Oracle-PeopleSoft saga was anything but friendly, dragging on through 18 months of lawsuits, antitrust proceedings and repeated rejections by PeopleSoft's board.

Moreover, the respective CEOs represent different cultures. Duffield was something of a Jerry Garcia of the tech world, the seeming opposite of the warrior-like figure of Oracle's Larry Ellison.

``I don't think there would be a place for Ellison and Duffield in the same company,'' said Donovan Gow, an analyst at American Technology Research.

Major stakeholder

Duffield, with a 6 percent stake in PeopleSoft, was the beneficial owner of 22.96 million shares as of Nov. 30.

He stands to gain $608 million from the Oracle takeover. Maddie's Fund, an Alameda-based animal protection charity that Duffield started, holds an additional 3.6 million shares worth $95.3 million in the buyout.

J. Bruce Daley, editor of the industry newsletter The PeopleSoft Observer, said Duffield didn't appear to be someone who would run a software company over a long period.

In the summer, he bought the 570-acre Western theme park the Ponderosa Ranch, which overlooks Lake Tahoe and was associated with the 1960s television series ``Bonanza.'' And he had turned to philanthropy in recent years, creating a foundation to protect stray animals, named after his deceased miniature schnauzer, Maddie.

No parting words

The charismatic PeopleSoft leader, known for signing memos with his initials, D.A.D., did not address the company's more than 11,000 employees about his Dec. 21 departure.

In an emotional e-mail to employees after the PeopleSoft board accepted Oracle's final $10.3 billion bid Dec. 12, though, Duffield wrote that he was ``deeply saddened by this outcome.''

Duffield, who believed in creating a ``fun'' corporate culture, abstained from voting on the deal, in which Oracle agreed to pay $26.50 a share.

Oracle's relentless pursuit of PeopleSoft is part of its strategy to build on its core database software business by acquiring its rival's successful applications software product line.

PeopleSoft also disclosed that it will end a consulting contract at the end of the year with board member Aneel Bhusri, who also abstained from voting on the Oracle offer. Bhusri, board vice chairman, will receive $125,000 a month for three months of work.

Bruce Daley Quoted in Briefing.Com

Mike Tarsala's TechWatch -- SEBL (SEBL) 9.13 -0.10 : We have confirmed with a company source that Jeff Pulver, Siebel's vice president of worldwide marketing, is voluntarily leaving the company as of tomorrow. Bruce Daley, editor of The Siebel Observer newsletter, who also says he has confirmed that Pulver is leaving, notes that the departure could give CEO Mike Lowry a chance to put in one of his former employees at IBM into that position.

Briefing.com Note: We don't think one mid-to-high-level executive leaving Siebel is a big deal -- unless we see additional executives leaving. That said, we do note the persistent rumor that David Schmaier, Siebel's executive vice president, could leave -- although that's been talked about since mid-2004, and he's still at the company.