"Partnerships are a little bit like Las Vegas weddings; they don't tend to last," says Rod Johnson, research director at AMR Research in Boston. They also share another similarity--there are a lot of them. "It seems to be the press release of the day, the new partnership announcement," he says. There are so many that a common breed, the very loosely connected partnership of vendors that may share only a press release, is often referred to as a "Barney partnership" or "press release partnership." Can any of these rapidly forming partnerships benefit your company? Yes, and no.
This rapid formation of partnerships is a sign of the maturing of the CRM market. First came the emergent stage, when various point solutions appeared, a necessary but unstable part of the market's evolutionary process. Laurie Orlov, research director at Forrester Research in Cambridge, Mass., thinks that the early spate of point solutions was the result of various vendors guessing at what businesses might want. "It wasn't really clear what was required to serve the customer. A lot of point solutions emerged in the CRM market as experiments in how to best serve the customer."
Now the convergent stage is occurring. "Especially because the landscape is so scattered with so many vendors, there is a need in the marketplace to establish yourself as having a complete offering and break away from the pack," says Scott Nelson, vice president and research director at Gartner in San Jose, Calif.
Nelson describes the crowded CRM playing field: "If you look at the broad sweep, Siebel clearly is the leader right now. Oracle is in that space, but hasn't yet shown the depth of functionality to compete--but in a sense has to be viewed as an up-and-coming leader. The clout that Oracle has in the marketplace and the vision that they've put together, once it's supported by functionality, is the package that will make them a player in the long term.
"If you look at subsegments, clearly both PeopleSoft and Nortel are leaders in more of the drill-down areas of particular applications. E.piphany is a leader in marketing automation and the market tends to look toward it as far as what kind of capabilities you've got to put together. When you get down into very small niches such as personalization, you get a Broadvision, or in campaign management, you get an Exchange or a Unica. Then you go from very wide, but not always real deep, applications down to very deep but narrow applications, and you've got different leaders there."
Competing for market advantage motivates vendors to forge partnerships. Vendors of point solutions, with their narrow target markets, cannot survive on their own among so many software choices. Consequently, point solutions are usually acquired or their makers partner to become part of a more complete solution or a "mini-suite." Market leaders want to fill out their functionality offerings very quickly in the fast-paced CRM software market, and sharing technology through partnerships can get them to market more rapidly than developing technology in-house.
Wall street also influences partnerships. Nelson says that vendors need to consolidate if Wall street is going to view them as players in the space. "If you don't do it, then they start to say that you're a niche player and they'll direct resources to somebody who has a broader application." Putting together a broader application through partnering also provides a broader target market. Perhaps the strongest driver for partnerships is the vendors' desire to expand their field of sales opportunities through joint selling. Finally, some partnerships are driven by customer requests--these, according to Nelson and Gartner colleague Colleen Amuso, tend to work out well.
Partnerships, when they meet customer demands, can be useful. As the space evolves to reflect the need for enterprise-wide systems that can present a unified view of a company to its customers, CRM solutions require more functionality.
"You need more and more of these pieces coming together and clients want more pre-integration," Nelson says. "They want less vendors to deal with--the one throat to choke phenomenon--they want to pick up the phone and deal with one vendor if something goes wrong. This is not an area anymore where you can go it alone. One way or the other, you either have to become a suite player, or you have to become part of somebody's broader suite. It's producing camps in the CRM space that clients have to navigate through. In some cases they end up with some players in a particular camp that they're comfortable with and others that they're not. But if they want that pre-integration, they have to go with that broader offering."
Integration--the most time-consuming and expensive part of any solution rollout--is, of course, the key customer demand. Integration is also the most difficult aspect to render. When you choose solutions from a vendor with partnerships, the problem of reintegrating when one or more solutions are upgraded to another version is always arduous. The integration difficulty also arises when the two partners' product strategies diverge. "To keep those integration points relevant as the applications are shifting underneath, it's very important that companies get contract commitments from the vendors to maintain the integration, independent of the releases," says Johnson. It's important to understand from the beginning which vendor is going to support the products. "Who's going to maintain not just the level one support--who's going to handle the call, who's going to close the call--there are multiple levels of support," he says.
As the CRM market evolves, partnerships develop in complexity as well. Moving past the "press release," or purely marketing stage of partnerships, partnerships may next attempt an effort to string together a complementary suite of solutions. "You can look at SAP, who has taken the approach that the marketplace is so nascent and there's so much to develop that they're not going to invest resources in that--they're going to bring together third-party packages under their umbrella," Nelson says. "While that has not made them a dominant force in CRM, it has made them a player without having to commit themselves too greatly.
"You also get particular niche players that have done well by being able to stay focused on their niche, while using their partnerships to get a broader offering," Nelson says. "I'm thinking of somebody like Exchange in the campaign management space. They're still just a campaign management solution, but they've partnered for more and more of the rest of the pieces, so that they can go to market with a broad solution but can stay very focused on the one thing that they really came up doing and not become diluted in trying to do lots and lots of other things."
The most aggressive suite partnering has been done by market leaders such as CRM vanguard Siebel, software forerunner Microsoft and hardware giant IBM. Either as a means to keep a lead or force their way into the CRM market, the big companies partner big. They also offer more in some of their partnerships. In addition to functionality, these partnerships add value through development of APIs and other integration middleware with partners. Some companies offer certification programs, which guarantee that a partner's solution will offer a certain level of integration to their product.
Siebel has been creating strategic partnerships since 1997, when Bruce Cleveland spearheaded its partnering program. Nelson describes the company's partnering style: "You get people like Siebel, who I think have done a good job, in the sense that what they've said is, 'yes, we do want to take control of our code, but we realize that we can't do everything, at least not in the short run. So we will pick key partnerships to augment our offering to hold our position in the marketplace and understand what clients are looking for before we eventually make a commitment to developing our own application or buying somebody.'"
There's value in this approach. "Siebel now has an ecosystem of hundreds of complementary software products that they certify the integration to the product," adds Johnson. "The product's gone through the lab and the basic interface actually works. That's a huge value add that customers see Siebel as spawning this community of complementary software, and these vendors are actually making the investment to at least do a portion of the integration up front."
Microsoft has long been building a presence in the CRM market by partnering with many CRM solution providers through its certification programs, as well as acquiring specialized market leaders, such as Great Plains. It has partnered deeply with Pivotal and recently, with Onyx to add the financial vertical to its CRM repertoire.
IBM is poised to become another hefty player in the CRM space, through partnerships with CRM market-leader Siebel, HR solution provider PeopleSoft, and its e-marketplace alliance with Arriba and i2. Johnson sees IBM as moving beyond the value-add partnership into the joint venture mode. "Usually these big hardware companies or big software companies maintain their independence because they really want to partner with everyone. They want everyone to sell software that optimizes the purveyor's hardware platform or their software platform. IBM has really been the first major hardware company to step out and say, 'all vendors aren't created equal, and we're only going to pick the best of the best and invest aggressively, and develop markets with them.' The main vendors they have partnered with are Arriba and i2 Technologies and those relationships are really mega-relationships with millions of dollars in co-op marketing funds.
"IBM is training their sales force to sell their products, they're training their services people to sell the software, and as a result, all these application vendors are committing to support and optimize their products for IBM's database platform, optimize their products for all of IBM's hardware," he adds. "They probably kept lawyers busy for several weeks building the contracts because their relationships are super complex. It's not just between IBM and Arriba and IBM and i2. It's between IBM, Arriba and i2 all connected together."
It's possible to have too much of a good thing. Nelson cites situations where vendors partner with their partner's competitors. "A good example is IBM's partnership with Siebel. They were doing fine with Siebel Sales and Call Center. Now they [Siebel] have announced their new marketing offering, which as part of it has Informatica and Ithena as partners. Both of those compete with IBM products. So now IBM is saying, 'We'll sell some of the Siebel suite, but not other parts, because we don't want to undercut our own offering in that area.' These partnerships become tangled webs that in some cases become counter-productive to what was originally hoped for.
"Long-term, I think what happens is that these partnerships have to move to the next level. You go from the press release partnership, which is of no value, to the actual joint selling/joint development partnership, which is where most of them are right now, to a higher level, which is a much tighter exclusivity among them. They basically become joint ventures; they become very tightly coupled and you start to get more control over the partnerships so that there aren't the conflicting relationships. We're seeing some of that already. Some of the partnerships are starting to move to the next level and are becoming almost a step prior to merger or acquisition.
"A good example is the Exchange/Microstrategies partnership, where those two have become so close and they've invested money in each other, that the next logical step for them would be a merger between the two companies. Because of that, neither Microstrategies nor Exchange is willing to work with rivals to the other."
Protecting Your Investment
Partnerships come and go, and the commitments vendors have to each other's products can be transitory or a prelude to acquisition. Nelson warns that you need to prepare for these inevitable partnership and acquisition changes. "Architect a flexible solution. Be prepared for the need to swap out solutions over time as the marketplace changes, but always build your architecture toward very standard, open approaches that make it easy to do that."
Nelson describes another protective step, "So that in the event of an acquisition or significant version change, you are not stuck with a black box you cannot manage, have your software code escrowed. That's a process where the code is basically turned over to a third party--companies like Northern Trust in Chicago, Chase Manhattan in New York and Wells Fargo in San Francisco. The code is kept by a third party so that if there is a significant change of ownership and certain contractual things occur, the user can go to that third party and receive the actual source code and have access to it to modify it, maintain it, and know what's going on in the system. They won't turn it over to the user if these conditions don't occur, because obviously it's an asset of the vendor and you don't turn that over.
Nelson also urges, "Keep your contract terms short. Think strategically and invest tactically. Look for short payback cycles from these solutions, from 12 to 18 months. Be prepared for the very real possibility that you will replace vendor solutions long-term because of changes in the marketplace, but if you've gotten payback in that short period, then that won't be a problem. Make sure that senior management and capital committees are prepared and understand that these changes may occur over time.
"Look for signs of real commitment to the point of money changing hands, and issues that affect the sales forces day to day. When I'm talking to vendors I like to know about the kind of information they are providing Wall street as far as expectations--what percent of sales will come from partnerships, how exclusive the partnerships are. The more exclusive, the more is riding on it."