Partners Feel Growing Pains From Business Objects' Expansion

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Business Objects' deal to acquire financial planning and performance software maker Cartesis for some $300 million is an intriguing next step in the company's ongoing transformation, but the business intelligence (BI) software vendor needs to take care not to alienate its channel as it reshapes its business, solution providers warn.

Business Objects is in the midst of an overhaul aimed at shoring up its position as the leading vendor in the BI field, a market bigger vendors like Microsoft and Oracle are looking to carve off pieces of. "Buy or be bought" is the expectation analysts and shareholders have set before pure-play BI vendors, and Business Objects has opted to buy.

In the past two years, it has picked up planning software makers SRC Software and ALG Software, along with data quality technology developer Firstlogic, SaaS (software-as-a-service) platform maker Nsite and visualization software vendor Infommersion.

The company is also adjusting a number of its operations as it works to expand its Global Services organization and dramatically boost its midmarket sales. Helped by acquisitions like its splashy Crystal Decisions buyout in 2003, Business Objects nearly tripled its revenue in the past five years, to $1.3 billion, and has told analysts to expect double-digit growth in 2007.

But partners complain of some growing pains from Business Objects' push to maximize its revenue. Most notably, a campaign to compel all partners offering training services to become authorized education partners -- and to pay fees for that designation -- has sparked bitter outcries from a number of services firms. Even some partners that have ponied up for the training license remain annoyed about it.

"We got the pressure, and they corralled us in," said Bob Vander Woude, vice president of sales and marketing at Preferred Strategies in Soquel, Calif.

A J.D. Edwards (JDE) specialist, Preferred Strategies had long conducted Crystal Reports training sessions customized for customers' JDE deployments. A letter from Business Objects last year informed the company that if it wanted to keep doing Business Objects training, it needed to become an official training partner and comply with the program's terms, including licensing fees and the use of official Business Objects-sanctioned training materials.

"We said, 'But we don't even use the manuals.' They said, 'Everybody has to buy the manuals,'" Bob Vander Woude recounted. "It limits our flexibility, and means we have to charge more for our training."

While Preferred Strategies decided to pay up and remain on good terms with Business Objects, others have walked away from the vendor.

Don Gilsdorf, president of Gain Focus Technologies in Mobile, Ala., is another "application-specific" trainer who offers custom Crystal Reports training to customers in his target market, users of Exact Software's Macola ERP system. If Business Objects' policies make it too onerous to deal with, he'll steer his clients to other vendors, Gilsdorf said.

"This is the point that Business Objects seems to have developed amnesia about -- consultants like me are making them successful," Gilsdorf said. "If they reward my efforts with a $25,000 training license [fee], I'll drop them like a bad habit."

Business Objects confirmed that it wants all companies offering training services to become licensed, casting the push as a "quality assurance" initiative.

"The program helps ensure these customers are trained by certified instructors that meet Business Objects standards and that they receive the most up-to-date course materials as part of their classes," Danielle Tomlinson, Business Objects' Director of Americas Education Services, said in a written statement.

Aside from the training issue, other seeds of discontent are sprouting in Business Objects' channel. Partners routinely grumble about low margins and conflict with Business Objects' direct sales staff; Preferred Strategies' Vander Woude is battling a loophole over training credit quotas that means that partnering on sales with Business Objects' direct staff can cost Preferred Strategies money. Other resellers say they wrangle with Business Objects over sales to larger enterprises, which the company increasingly considers its turf.

While Business Objects is looking to boost its midmarket sales, even there, its new programs have triaged some partners out of its ecosystem. A number of VARs cheered Business Objects' recent launch of Crystal Decisions, a new product bundling with lower entry prices of around $20,000, designed to appeal to midmarket customers. But for one former Bronze partner (the lowest rung in Business Objects' partner program) who focused on the small end of the SMB pool, the new line would have raised the price tag for his average deployment.

"It went from where I had a starting solution at $7,500 to $10,000, and the cost would have doubled," said the ex-partner, who requested anonymity. "I had a couple of prospects drop it right away. I think what [Business Objects is] trying to do is create a space for their bigger enterprise players to allow them to better come downstream, but it was pricing me out."

Business Objects executives don't dispute that the company has aggressive growth plans. It's hoping a rising tide will lift all boats.

"We really view ourselves as building an ecosystem," said Mark Doll, Business Objects' general manager for Global Services and EPM (enterprise performance management). "We're trying to grow our services at a pretty aggressive rate -- 20 percent to 30 percent per year -- but we want to grow the overall market at a bigger rate than that, to grow the ecosystem. Our market is the 'I want one throat to choke' clients. Anyone who wants greater subject matter expertise should use a partner."

The company also doesn't plan to slow its shopping. On a conference call today with analysts, CEO John Schwarz said his company is keeping its eyes open and plans to be "relatively active."

Doll backed that view, naming one particular EPM niche he's still looking to fill: governance, risk and compliance management software.

"We're going to continue to invest, build and buy in that space," he said.

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