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By Mike Trigg (TMF Tonto)

I appreciated Paul's kind comments toward the kid (me), but don't think for a second I've gone soft. Although I've yet to read his response to my initial argument, there's been hinting around Fool HQ he too will practice some "fuzzy math" and attempt to awe you with comparable growth rates in the ERP market. Despite the fact that drawing parallels between different industries to determine future growth rates is a hazy practice, I won't even attempt to circumvent those remarks. Instead, I'll stick to the facts in his initial argument.

He began by discussing the exploding growth rates in enterprise software. Although ERP has begun to mature and rates have slowed, he states that CRM software is the next big enchilada. I'll remind my friend Paul, just for future reference, that Web-enabled ERP applications involve a great deal more than cutting costs. It deals with empowering employees to make better decisions. Centralized information and automating business processes improves the quality of information and lets workers make mission-critical decisions anywhere, anytime. Nevertheless, this debate could go on and does little for our purposes here.

First, I take issue with his comments regarding Siebel's improvement on the days sales outstanding (DSO) front. He's correct in stating the improvement from 74 in the recent quarter, compared to 88 one year ago. However, it's also important to note this is typically the slowest quarter for Siebel with the fewest demands on the sales force. As many of you know, a low DSO signifies a lack of back-end loaded quarters where salespeople cut all sorts of deals to meet sales quotas. Siebel boasts a trailing DSO average of 87 and posted 98 days in the third quarter (ended Sept. 31) last year. Thus, the recent improvement is impressive, but tells us little regarding long-term success in this area. I'll be taking a wait-and-see approach, while it appears Paul is content with the recent quarter.

My biggest qualm with Paul's argument dealt with the assertion that Siebel has no serious competition. This is hardly the case. The 53% figure, which by the way I gave Paul, represents the old market and I clearly showed the CRM space has evolved to include niche providers and traditional database and ERP companies like SAP and Oracle. In fact, Siebel hasn't hidden the fact the mid-market is a huge growth opportunity. Meaning there are a plethora of companies waiting to Web-enable customer-facing operations, and the battle for that business is really just beginning. However, this notion leads us to an interesting element that I failed to discuss earlier.

Competition will also begin to affect the company's product offering. Siebel's applications are rarely outmatched and provide a great deal of functionality. However, with more niche providers entering the space, product offerings will become more focused to better meet the needs of customers. As companies begin to understand the technology better, demand for customization in the delivery of content and data will become commonplace. There have been a number of small competitors entering the space to make focused product offerings. This will only make the environment more difficult for Siebel down the road, as it is forced to tweak its products more and more. Get the picture? Everyone has their sights set on this company.

One last thing about that CNBC interview with Tom Siebel. In the same discussion, a recent alliance with an upstart named Salesforce.com and IBM is referred to. Big Blue, a longtime Siebel partner, chose Salesforce.com software for some of its mid-market and low-end business. He also mentioned a number of other competitors that in his words have high-quality products and satisfied customers, proving once again the market is becoming increasingly competitive.

In the end, Paul can say little about the competitive environment. Whether or not you agree with my valuation argument, the truth remains: Siebel will no longer stalk over the CRM space in the previous fashion. There are simply too many companies looking for a piece of the pie. As more and more enter the space, Siebel's revenue growth will slow and market share will erode. That doesn't mean that it's a bad company or it won't still be number one in the sector, but it does mean that the days of 100% revenue growth will cease. For someone to claim that those types of numbers will continue simply doesn't understand the state of the CRM market.

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