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CRM, Vertical Markets, and the Rise of the Partner

By Denis Pombriant
May 18, 2005 5:00 AM PT

Several macro trends are working their way through the CRM industry right now and having a direct impact on how CRM is sold. These trends include application hosting, tailoring horizontal CRM applications to fit the specific needs of vertical markets, and increasing reliance by software vendors on reseller channels to better meet the demands of specialized markets.

CRM, Vertical Markets, and the Rise of the Partner

Even in application hosting, whose major attraction is seen by many as its low-cost and pay-as-you-go pricing model, vendors are embracing an indirect model. But at the end of the day, how software is sold is far less important than ensuring that a CRM application -- or any other business application for that matter -- fits the customer's needs. Moreover, "fit" is not a one-time issue for most customers. As their businesses change and their requirements evolve, companies of all sizes require relationships with vendors who understand their businesses and their industries.

The Reseller Market

For smaller companies, these vendors are resellers of major software brands who make it their business to bring advanced technology down to them. But resellers are not literally defined by the category designation. If they were, there would be little reason for the primary vendor to give up part of its margin so that another organization could sell its product.

The reseller channel makes the lion's share of its revenues by adding services and by adding value to the primary product, and increasingly, that's where verticalization comes in. Many of the resellers I have spoken with have carved out fairly narrow niches in the market where they have developed expertise -- financial services, for example -- or specialized applications that improve the suitability of horizontal CRM applications for specific markets. Thus, in return for giving up some profit margin, software vendors gain a competent sales force and some valuable domain expertise that they may not be able to develop in-house.

The reseller channel -- or lack of one -- can act as a significant barrier to entry for software vendors with expansion in mind. Without a strong and knowledgeable channel, many would-be vendors will simply be out of luck. Enterprise software vendors build large systems and big infrastructures when selling to early adopter customers, who are frequently large companies. When the time comes to address the needs of smaller companies, many enterprise vendors fall down. Their products are too big and complex and require too much configuration and customization for smaller companies who cannot afford the overhead.

Predicament for Vendors

The software market and the CRM market in particular, has reached the point where successful companies know they need to embrace the indirect channel if they expect to garner a significant portion of what many call the "mid-market."

Verticalization and the rise in importance of the indirect channel -- are vital to the future success of all CRM vendors and they drive a certain sense of urgency in the industry. The availability of resellers to partner with larger vendors entering the indirect channel is somewhat inelastic, meaning competent resellers do not spring up overnight.

A reseller channel takes time to build and many of the software vendors entering the indirect market today find themselves competing for the attention of the same resellers. These resellers have spent years building their companies, their vertical market expertise and products, as well as their reputations and many will not be eager to swap those positions simply to go with a new supplier.

Any decision by a reseller about who to partner with goes far deeper than revenue splits. Since the majority of a successful reseller's revenue can come from selling additional services and specialized products, resellers need to carefully consider how their companies will transition to working with a new or additional vendor partner and the costs involved.

The Model Franchise

Although it has undergone several name changes -- the most recent announced in May 2005 at Insights, its international user meeting -- Sage Software, a.k.a. Best Software, has developed an enviable position in the indirect market for CRM solutions. Also known for its back office accounting solutions such as the MAS family of products, Sage has built a reseller program based on popular CRM products such as ACT!, SalesLogix, and ACCPAC, a hosted offering.

Sage has been careful through a series of acquisitions to build a product line that closely matches the stages of company evolution, providing CRM products for single users to enterprises. In the process, some overlap has been inevitable, for example, ACT! was once a single user contact manager, but the most recent release provides a version of ACT! that is based on a relational database and can support organizations with up to fifty sales people. This capacity span overlaps with SalesLogix at the high end and ACCPAC on the hosted side.

While many people would see this overlap as a problem, Sage has done a reasonably good job of mitigating any issues in several ways. For example, many Sage partners offer multiple products, ACT! and SalesLogix, for example, so that a single vendor can assist customers as they grow into more sophisticated solutions.

This week, Sage is meeting with its resellers and customers at its annual user meeting, Insights which is being held in Dallas. At last year's meeting in Orlando, I learned to my surprise that world-wide, the company generated more than US$1 billion in revenues for its combined product lines. That's quite an accomplishment and compared favorably with competition like Salesforce.com, NetSuite, Siebel, SAP, and Peoplesoft/Oracle and others that sell similar products regardless of their space. While there are some important differences, for example, much of Sage's business comes from its back-office accounting products, there are many similarities, too. Sage has become an important force in CRM and its partners give it an important weapon in the on-demand/on-premise wars.

I don't expect either side to declare absolute victory soon but it is interesting to see that there is still very effective competition at that level in the market. Moreover, at last year's conference Sage was talking about a future integration platform for its products not dissimilar to the integration technologies that other companies have either been talking about or have recently delivered which use advanced technologies like Web services.

It may be too early to say anything definite, but it sure looks like there is a lot of life ahead for traditional software vendors -- provided they can assemble the right channel partners.


Denis Pombriant is a well known thought leader in CRM and the founder and managing principal of the Beagle Research Group, a CRM market research firm and consultancy. Pombriant's latest report, CRM WizKids: Taking CRM to the Next Level, identifies emerging CRM leaders and their innovative technologies. In 2003, CRM Magazine named Pombriant one of the most influential executives in the CRM industry. Pombriant is currently working on a book to be published next year. He can be reached at denis.pombriant@beagleresearch.com


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