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By Alorie Gilbert, 22 January 2004 08:10

NEWS As much as 15 per cent of all customer relationship management software sales will involve application hosting services within the next few years, Tom Siebel, Siebel Systems CEO, has predicted.

Siebel, whose company recently entered the customer relationship management (CRM) hosting market, made the prediction on Wednesday while discussing the company's fourth quarter financial performance with securities analysts via teleconference.

The outspoken CEO also claimed that Siebel will become a top player in the software hosting field, much as it dominates the CRM software market today. "We'll indelibly change the dynamics of the hosted CRM marketplace for the next couple of years," Siebel said.

With the market for CRM software expected to top $3.5bn in licence revenue by 2006, according to Forrester Research, 15 per cent is far from pocket change. Witnessing the rise of hosting rival Salesforce.com, which is getting ready to go public this year, Siebel dashed into the software-as-a-service field last fall through a series of partnerships and acquisitions.

Siebel touts partnerships with IBM and BT, who have each agreed to host and sell Siebel's $70-a-month software, called Siebel OnDemand. The company acquired Salesforce rival Upshot to further boost its OnDemand business, and said this week that it would scoop up Ineto Services, a 15-person company specialising in hosted contact centre software, for as much as $5m.

Siebel quietly released the hosted system that it developed with IBM in December, said Siebel executive VP David Schmaier. He declined to say how many customers have signed up for the service but noted Siebel has turned up 5,000 sales leads for its OnDemand product and 500 companies have expressed interest in it.

"Interest is quite high," Schmaier said. "We think this is a big market and a fast growing market. We think much of that business in the pipeline will close."

Salesforce, Siebel's high-profile rival in that niche, appears to be on the offensive. The company issued a series of press releases this week claiming that several Siebel OnDemand customers are switching to Salesforce's competing service. Siebel executives brushed off the threat when asked about it during Wednesday's call.

Despite optimism for their budding hosting business and the CRM software market in general, Siebel executives refused to offer financial guidance for the second half of 2004 or call an IT spending recovery, citing a still unpredictable economy. "We are clearly not in the business of predicting what the economy will do," Siebel said. "I would like to believe [the fourth quarter] was not seasonal but only time will tell that."

Alorie Gilbert writes for CNET News.com.