BMC Turns To Channel To Rebuild Fortunes

The reason for the 180-degree turn is simple, says Darroll Buytenhuys, senior vice president of worldwide sales, services and marketing at BMC: The average deal size at BMC has shrunk from what it once was in recent quarters, meaning that it is no longer cost-effective to rely on a direct sales force to close business each and every place the enterprise systems management software company engages a customer. Thus, the company needs a leveraged model, Buytenhuys says. And he and his colleagues inside BMC are making significant changes both inside and outside the company to ensure that the programs, partners and policies it puts in place are world-class.

Recently, VARBusiness was invited to observe and participate in a meeting of the company's channels and alliances team. The setting was a Marriott not far from the company's sprawling Houston campus headquarters. There, I was asked to speak for an hour on the state of the market and vendor channel best practices, in particular. Afterward, VARBusiness huddled with Buytenhuys and other BMC channel managers including Paige Erickson, vice president of channels and alliances, and William Donahoo, vice president of business development with the company's Enterprise Data Management initiative. Here's what we found.

Like several once high-flying enterprise software companies, BMC hit a brick wall shortly after topping $1.7 billion in sales in fiscal 2000. Sales slid in both fiscal 2001 and 2002 to $1.5 billion and $1.3 billion, respectively. Any ambitions to crest the $2 billion sales threshold faded, much as they did at BEA, Siebel and elsewhere, because, in retrospect, the company failed to build a leveraged model and healthy partner ecosystem that could dramatically increase the size of the BMC universe.

Buytenhuys notes that the company has built successful partner ecosystems overseas, in Europe in particular, but not here in the United States, where it relies on a direct sales force. November 2001 marked a low point for the channels team at BMC. That's when the company announced layoffs, which, according to Erickson, hit the channels team hard. Since then, the company has turned around completely and rebuilt its channels and alliances team. It has taken resources formerly assigned to the direct side of the business and moved them into the alliances team. Overall, it has increased internal resources for channels and alliances by 135 percent.

The changes under way at BMC are part of a broader plan to reorganize how the company goes to market. For example, the company no longer recognizes the entire size of a deal upfront when contracts are signed; now it recognizes revenue over a period of time, lowering initial deal sizes, but providing BMC a more steady and predictable stream of revenue.

Erickson says the company now has ambitious goals to go along with its emboldened channels organization. Ideally, she'd like to see indirect sales increase as much as 15 percent year over year. If all goes according to plan, BMC is hoping that indirect sales account for 25 percent of the company's licensing revenue.

To make that happen, the company has undertaken a number of initiatives. First and foremost, it has rearchitected its channel programs and added a tiered system for the first time. Partners can sign up as either Gold, Silver or Bronze partners, for example. The company has also embarked on a partner recruitment program. Ideally, it wants to establish ties to some 450 or so partners, roughly 10 percent of which could be Gold partners. Finally, BMC has also begun the process of moving its business partners into customer accounts better-suited to a trusted outside partner. According to the company, 75 percent of the check-writing customers BMC has will eventually be served by third-party business partners.

After attending the event, I walked away with several impressions. First, it is clear that BMC is serious about building a true, leveraged business model. Second, the company has put seasoned and proven people behind the effort. Donahoo, for example, is a former Novell executive who knows firsthand how valuable a healthy channel can be. (In the interest of full disclosure, it was Donahoo who arranged for me to fly down to meet with BMC officials and attend the event.)

Progress aside, the company still has some challenges to sort out. It's still trying to determine how robust a certification program it should build. While recognizing the value of having a fully trained and tested base of allies, it is still trying to determine how much value such a program would be to partners. In addition, the company is still sorting through some basic blocking and tackling issues. For example, it may want to rethink classifying some partners as "bronze," a classification few aspire to be.

However, as evidenced by the company's Partner Guiding Principles, BMC has made legitimate strides in alliance-building of late. Among other things, notes Erickson, the channels teams has received executive commitment to the program and its partners, created a clear market for third parties, identified the tools and resources that it must provide to solution partners and, finally, pledged to resolve conflicts with partners quickly. The latter could be key given that sales of professional services have grown to 6.8 percent of revenue from 3.1 percent of total revenue since fiscal 2000. While hardly large enough to give partners fits just yet, its just one more thing for BMC to monitor as it transforms its business and embraces a leveraged model.