Strategic ties

It's no wonder, then, that startups and old-guard software companies alike are trying to capitalize on the opportunity by developing applications that can automate interactions with business partners over the Web. "Partner relationship management is becoming the strategic high ground," says Drew Williams, vice president of marketing of software vendor ChannelWave Software.

Partner relationship management (PRM) software includes applications that pass sales leads forward to dealers, pass orders back from dealers, coordinate marketing campaigns and help dealers team up with specialist partners to assemble package deals.

Companies say that PRM software will boost sales. Compaq Computer thinks its new eChannel system will bring in $100 million over four years by helping the computer maker manage its 60,000 partners. Analysts say the market is growing fast: IDC projects it will grow from just $37 million in 1999 to $497 million by 2003.

Allegis, ChannelWave and OnDemand lead the market, according to IDC. Even so, all are struggling to survive until the market kicks into high gear. Allegis and ChannelWave both went through layoffs in the past three months, but ChannelWave says it has just received $27 million of funding in escrow. OnDemand has forged a partnership with Siebel Systems.

Meanwhile, big enterprise software firms — most notably customer relationship management (CRM) vendor Siebel — have begun marketing their own offerings. Siebel CEO Tom Siebel predicted in April that ChannelWave and another company, Partnerware, wouldn't last the year. Siebel is known for bashing the competition, but analysts agree that the first quarter of 2001 has not been kind to stand-alone PRM vendors.

"It's the economic environment," says Deborah Bernstein, vice president of Pequot Private Equity, an investment arm of Pequot Capital Management. "PRM is about revenue generation. Companies are much more focused on cost savings."

Beyond that, PRM vendors need to tackle three problems, Bernstein says. First, some are still trying to migrate their software from client-server architecture to Internet-based architecture. Second, it's unclear whether customers want the enormous suites that vendors are selling and, finally, they have to deal with their own cash crunch.

"Some have burned a lot of money and don't know how to get to breakeven. They have to review their business models," she says.

Nevertheless, analysts agree that there is value in the software. Companies sometimes use tens of thousands of dealers, resellers, retailers, agents or distributors to sell their products. It's hard to keep track of them all, let alone what their capabilities and strengths are. PRM vendors say they can help companies organize those indirect sales forces, leverage their abilities, collect better customer data and boost sales.

Qwest Communications International used ChannelWave's Partner Loyalty System when it rolled out Q.Marketplace — a hub for its 1,300 resellers — last February. "It's a solid investment on our part," says Craig Schlagbaum, Qwest's director of channel management. "We've already put in close to 3,000 leads, and 70 percent have been followed up. That's the kind of inter activity you can get on this. Before, we'd send [out a lead] and hope it would be followed up. We'd never know the result."

Vendors also point out how customers fold these tactics into overall corporate strategies. "It is expanding beyond its original goals of managing business partner relationships to supporting more sophisticated and strategic efforts," says Karen Smith, a senior analyst of Aberdeen Group. That's where other software vendors are becoming interested in PRM. They see it as a way to connect the demand chain with the supply chain.

"There will be some acquisitions," predicts Bob Thompson, president of Front Line Solutions, a CRM and PRM consulting firm. Alliances between companies will also play a role in this, especially as CRM expands into more and more of the PRM market. This helped forge partnerships between Siebel and OnDemand, and between ChannelWave and E.piphany.

Says Meta Group analyst Steve Bonadio: "PRM is getting subsumed by broader CRM trends. There'll be a shakeout."