PRM still waiting for long-expected consolidation

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PRM still waiting for long-expected consolidation

The very public crashing and burning last summer of partner relationship management (PRM) vendor PartnerWare and the acquisition of fellow PRM player OnDemand by Chordiant for $12m in cash generated a sense that a consolidation was brewing in the market. Since then, though, there have been few indications that any further moves are imminent. But a weakening financial picture for many vendors in the space – in revenues for some vendors, in funding situations for others – certainly does not inspire confidence. Pair that deterioration with heavy marketing by Siebel in the space, and it still seems that a shakeout is likely. The question is whether that will mean M&A activity or more companies closing up shop.

Impact assessment

The message

Partner relationship management is ripe for consolidation. Small, cash-strapped vendors are looking for cash infusions to fund their 'paths to profitability.' The viability of PRM as a stand-alone technology is constantly being questioned by enterprise application vendors, and this has begun to infiltrate customers' minds.

Competitive landscape

ChannelWave, Click Commerce and Allegis all share the PRM space with CRM king Siebel and small fries like NetLedger. Vendors that also add order management and catalog applications, such as Comergent and Haht Commerce, are also often thrown into the mix. But the real threat to PRM players is not getting invited into deals where existing PeopleSoft, SAP or Oracle customers go with their preferred vendor.

The451 assessment

The market cannot sustain so many small vendors. Some consolidation has already occurred, including one high-profile flameout and one smaller acquisition. But more such activity seems on tap. Companies that might eventually move into CRM, such as Lawson, seem like reasonable candidates for PRM acquisitions.

Context As a field, PRM still has only a precarious hold on stability. Companies like Allegis, ChannelWave and Click Commerce must currently spend an inordinate amount of time and marketing energy battling the perception that the CRM and ERP suite vendors are going to demolish the need for PRM pure plays – and do it sooner rather than later. Despite a flood of marketing verbiage on the matter, this is not a battle that the pure plays seem to be winning.

The consolidation in marketing automation has not helped their case. The parallels between the market segments are striking: both are populated with smaller companies that, looking for the next big thing, struck upon the idea of helping customers with marketing to important constituencies; both attempted to use product focus as a prime differentiator from the much larger suite vendors that targeted their space; and both have been under constant financial pressures for at least two years. The marketing cohort has seen several members of its class bought for a song – MarketFirst by Pivotal, Protagona by DoubleClick, Annuncio by PeopleSoft, Xchange Applications by Amdocs, in just the last year or so.

It's like a high-stakes game of musical chairs, and those left without a major partner when the tune stops will be out of luck. The problem here is that PRM vendors may not have many beyond their customer lists to sell to – all the major application suite vendors have been working on their own PRM lines. Correctly, they see PRM as intrinsically tied to other processes, such as supply chain and financials, that they already control in many customer accounts. The push to just lump PRM into CRM suites is extremely strong – after all, a full partner relationship management suite would include tools to help partners sell, tools for marketing to and through partners and applications for servicing and supporting partners, or end customers through partners. Those functions map exactly to the standard applications in a CRM suite. The main difference is that CRM tends to target unknown customers, and the partners connected by PRM suites are known quantities.

M&A strategies There is still great customer interest in PRM, especially from the non-manufacturing companies, but actual deal-signing has been slow. The market can, therefore, probably support one or two stronger stand-alone pure plays, and the current PRM vendors are jockeying to be one of those left standing when the dust settles. For the others, an acquisition is probably the best they can hope for – and essentially every PRM pure-play would therefore be a potential target. Particularly vulnerable is Click Commerce, which saw its revenue nose-dive from $43.8m in 2001 to $18.2m in 2002. One of the company's current investors, Insight Venture Management, recently offered to buy the piece of the company it doesn't already own. Click Commerce turned down a similar offer in February, but its drooping fortunes have forced it to reconsider. If it turns down the deal, other offers are unlikely to follow until the price drops some more.

To be acquired, a PRM vendor would either have to be bought as a pre-emptive strike by a rival – an unlikely possibility – or have something to sell, and as we mentioned, that's likely not to be existing technology. But there are two areas that PRM vendors are working on that, when fully fleshed out, could make them more attractive targets. These are the areas we believe that any prospective buyer should be looking at. It is also where the pure plays should be concentrating their development efforts going forward, not necessarily to pretty themselves up for a sale, but to better position themselves for long-term viability.

The definition of partner varies widely from industry to industry. For a financial institution dealing in wholesale loans, a partner is a broker. For a high technology manufacturer, a partner would be the value-added resellers, systems integrators and consulting firms. Telecommunications vendors work with an agent model. PRM vendors are beginning to recognize the need to address these different models as distinct target markets. This has shaped up to mean a vertical strategy, with Allegis starting to cater to the chemical industry, for example. Such vertical focuses, which need to include the proper sales strategies to back them up, could help interest potential acquirers that are also strong in similar verticals.

The other technological area that could prove interesting would be an operational take on analytics for PRM. Here's a brief example of how that could work: A manufacturer has a partner program segmented into silver, gold and platinum levels. Selling a certain dollar value of product per month is the key criterion for determining the partner's level, along with qualified leads converted to sales and number of certified consultants. The analytical application would check to see if a partner has achieved all the benchmarks, and if they have, it automatically upgrades their level. This means that the partner would, without any channel management staff being involved, be upgraded to the next level of support and would be invited to participate in a new marketing campaign. The partner and the appropriate channel management personnel would also be notified of all these changes.

Potential acquirers If it is hard to find reasons why PRM vendors would be acquisition fodder, it is harder to come up with a solid list of who might be doing the acquiring. The likeliest buyers would come from the ranks of ERP and CRM vendors that already claim to be covering the PRM market. Vendors such as JD Edwards, Onyx and Pivotal have partner management technology, but haven't stormed the ramparts with it yet. Picking up a strategic piece of technology, especially if the price were right, wouldn't be out of the question.

An even more likely acquirer is ERP player Lawson. The company has a deal in place to resell Siebel's CRM to its customer; this leads inevitably to PRM sales. But, at some point Lawson is likely to decide it needs a CRM system of its own to sell. If that happened, it would also likely see the logic in picking up a PRM system.

Competition The pure plays in the field include Allegis, ChannelWave and Click Commerce. These players are constantly hustling to make short lists against each other. But companies in the demand chain management space, such as Comergent, interlinkOne and Haht Commerce, also make these lists by adding PRM elements in with order and catalog management tools. Hosted application jack-of-all-trades NetLedger has also recently plunged headlong into PRM.

The bigger threat comes from the vendors with multiple product lines. Siebel tops this list because it has made a real effort in PRM. But SAP, PeopleSoft and Oracle would all be major rivals in any account that has already invested in their technology in other areas, such as ERP or supply chain. While their product strategies in PRM are not particularly well defined, their strategy of maximizing revenues from existing accounts is quite advanced.

SWOT analysis

Strengths

Prospects for PRM are popping up in unexpected spaces, such as financial services and telecommunications.

Weaknesses

The expansion of the definition of CRM threatens to subsume the whole field of partner relationship management.

Opportunities

Building in operational analytic features would give a clear, rapid and measurable boost to PRM's ROI.

Threats

Demand chain management, CRM and ERP vendors all want to own this space; that makes rivals of powerhouses like Oracle, SAP and Siebel.

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