Last June, Rule Maker co-manager Matt Richey picked the brain of Foolish research analyst John Del Vecchio about Siebel. It's interesting to go back and read the piece, because many of the questions that were left unanswered have since been resolved, particularly regarding the competitive environment. The Oracle marketing machine has long claimed it was stealing market share from Siebel. When John and Matt talked about the company, they decided to wait until Siebel reported second-quarter results to see how fast application sales were growing, and if Siebel was increasing market share, to determine the success of Oracle. Fortunately, we now have a full year of results to determine how Siebel has managed the competitive pressures.
Market share is particularly important in the software industry because of increasing returns.
This happens because technology buyers are conservative and they demand technologies that are standard and work effectively with the rest of their infrastructure. As more copies of a leader's software are sold, it increases the likelihood of its becoming the standard, causing even more copies of software to be sold and reinforcing the growth cycle. In other words, mind share equals more market share. Siebel has displayed increasing returns over the past year. With Siebel's increasing returns and strong market share across the many market segments of CRM, the company has begun to display all the inklings of a Rule Maker.