The fall of the CRM market founder is the clearest indication yet that the CRM market has undergone fundamental change and that the old guard is being replaced. It also cuts the enterprise CRM market down to just two vendors, Oracle and SAP.

While the deal gives Oracle a major CRM boost and is expected to bring Oracle and SAP level pegging in the CRM market share stakes, even their size is no guarantee of future success as both are under pressure from on-demand vendors such as Salesforce.com.

That the new model is a threat was evident when SAP admitted recently that it was planning a hosted CRM service this year, and Oracle is apparently planning to put more emphasis on its hosted CRM option at its imminent user conference. Microsoft’s about face on on-demand CRM recently was also testament to its rising position.

Predictably, Salesforce.com CEO Marc Benioff greeted the news with enthusiasm saying it would create new opportunities for his firm. Oracle put Siebel investors out of their misery today, he said. We have been doing that for Siebel customers for years. Client/Server software is being consolidated by Oracle just as mainframe software was consolidated by Computer Associates.

Oracle’s strategy is simple, Mr Benioff said. Instead of innovating, buy as much installed software as possible, call it all Oracle Fusion, and make sure it all uses Oracle’s database. Now, the same thing that happened to PeopleSoft will happen to Siebel, it will die.

Mr Benioff asserted that the industry would not remember Siebel, that it will be a bygone name and brand as Oracle milks the revenue from its 4,000-strong customer base.

While reports of Siebel’s compete and utter death are premature, there are major issues for the existing customer base. But at the same time there is no reason to panic. Oracle plans to support Siebel for the foreseeable future and its treatment of the PeopleSoft customer base indicates that it has sufficient understanding of user concerns and is unlikely to take radical action to further unsettle what will become an important revenue stream.

Although, ultimately, it will incorporate Siebel CRM into Fusion, it also plans to continue selling the suite via a dedicated sales force, at least initially, and it will safeguard the Siebel offering because Oracle also plans to make it the center of its CRM strategy. It makes perfect sense because Siebel’s CRM functionality is superior to Oracle’s.

However, while that might be good news for Siebel customers, it raises questions for former PeopleSoft CRM customers who could be using CRM functionality from Vantive, PeopleSoft’s newer model or JD Edwards’ You Centric-based CRM software. These could be sidelined as well as those Oracle customers who have opted for Oracle CRM.

Oracle says it also plans to continue developing Siebel’s on demand product. That makes sense on one level because Oracle’s hosted offering has never taken off and only has 200 or so customers, while Siebel On Demand is the fastest growing area of Siebel’s business. However, it is also written in IBM DB/2, uses IBM’s WebSphere platform and is hosted in IBM data centers. Given that Oracle is battling with IBM in the database and middleware sectors there is a question over whether this objective is achievable.

Although Oracle says its relationship with IBM has improved since the acquisition of PeopleSoft, whose technology was also IBM-centric and which was effectively IBM’s largest ISV, it is difficult to see how it can continue, especially as Fusion is all about moving Oracle’s diverse applications onto its infrastructure stack.

A key issue for Oracle and its customers is just how well it will manage the integration and redevelopment of the Siebel product line along with its other home grown and acquired products. It is a huge challenge. For CRM alone there are seven code bases to contend with. Outside the CRM arena there are also additional code bases to add to the mix as a result of other acquisitions, such as Retek.

Far from settling, the dust is still rising from the news about Siebel.