Siebel's Channel Chief Reaffirms Partner Strategy

CRN: With a new CEO in place, does Siebel Systems plan to make any changes to its channel strategy? CLEVELAND: The strategy, as far as I know, is not changing. We're still marching down the same path. The issue was execution. The caveat is that all's fair in these things. I've known George [Shaheen] for nine years, and the communication back to me was that OnDemand and SMB are two critical initiatives for the company.

CRN: How is Siebel doing in the SMB space?

CLEVELAND: We're meeting and exceeding our expectations. With the OnDemand product, we have 245 percent growth.

CRN: How big of a role is the channel playing in that space with you?

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CLEVELAND: Smaller companies, in general, don't want to buy through a large manufacturer. So you have to create a channel. I have 100 people dedicated exclusively to the SMB market, which we define as [any company with annual sales of] less than $500 million. We created a new function called a territory manager, who is an account executive who would be partnered with the VARs. From an economic standpoint, we had to figure out how to get 25 percent pretax profit out of that. The secret sauce is, what do we do well and what does the VAR do well and to try to match that up.

CRN: How does that manifest itself?

CLEVELAND: We're trying to match our weaknesses and come up with something better. One such area is demand generation. If we let the VAR borrow our brand, we can contract for hundreds of events at a relatively low cost because we can get economies of scale. They can create a demand-generation event with us. They finance it, but the cost is a quarter to half of what they would pay if they did it alone. And the results are two to four times better.

Through our alliance program, we have hundreds of partners, so I thought that would be the best place to start. We've created pilot territories in the [San Francisco] Bay area, Dallas and Boston. We thought sending everything through the channel at once was a mistake, so we started with these pilot territories. We decided to learn what works and what doesn't first. We have 30-plus VARs in [Europe, Middle East and Africa] and the United States. If by the end of 2005, we have 50 VARs, I'll be happy.

CRN: What are your ultimate goals for the channel?

CLEVELAND: There are 24 territories. Eventually, we'll increase the number of VARs. I would like to do 310 events per quarter, or roughly 1,200 events per year. I would like to get to 100 percent fulfillment through the channel by the end of they year. We'll certainly try but probably won't [get there]. Everybody knows they have to acquire the VARs and train them by the end of the year. It's my intention over the next two years to push everything through the channel. It's [time] to get out of the direct-sales business in the SMB space.

CRN: How do VARs get compensated?

CLEVELAND: They get paid on the total contract value. So if the contract is for three years, that's what they get paid for all up front.

CRN: How big of a competitor is in the SMB space?

CLEVELAND: Salesforce is in virtually every one of my deals. We started out with a 5 percent to 10 percent win rate last year, and at the end of the year, we were at a 50 percent win rate. We've improved the product significantly, and we have a lot more people. The problem now is that they are in 70 percent more deals than we are. The way I am going to combat the word of mouth around Salesforce is through my VAR partners. The empirical data is showing that by delivering all the releases that we have, we have closed the functionality gap quite significantly.

CRN: How do VARs need to think about selling applications today?

CLEVELAND: There are new sources of revenue for VARs, especially on the business consulting side. Composite applications offer a wealth of integration fees. Our consulting team for OnDemand is booked solid, and we can't hire fast enough. But if I have a bunch of VARs, I am happy to give them that business. The value-add of integrators is going to be less on integration and more on the whole concept of services and education.