Mark Smith's Analyst Perspectives

In a very quiet and very subtle move, Callidus Software  (NASDAQ: CALD) has offered to purchase the assets of ForceLogix for about $3.75 million. This sales applications software company provides sales coaching software to help sales managers realize the full value of their sales representatives. In 2010, Callidus Software entered into an OEM agreement to embed ForceLogix within a new offering called Sales Coaching; it clearly concluded that the opportunity to expose the application to further opportunities in its customer base was too important for ForceLogix to be allowed  to continue to operate independently, and so it used some of its stated cash position of almost $11 million at end of September. This step into a pre-sales and sales management application is a key move toward expanding its sales performance management position. I would guess that Callidus sees some significant revenue growth in 2011 and beyond for its purchase.

The ForceLogix application is one that I have been tracking for many years. It has come a long way; its latest 5.5 release includes a series of great advancements. The core application is known to be quite robust in providing a series of performance and process metrics about a sales rep as well as guidance on places to improve. The advancements that came out in August with the new version include support for sales manager coaching, performance improvement plans and reviews and coaching suggestions. In addition, the application includes an offline version with synchronization to enable coaching and reviews even when not connected to the Internet. Critical advancements in workflow, notifications and tracking make the core application more robust, and its utility is improved with new management views for assessing actuals, competencies and trending. These advancements support what our sales benchmark research found improve efficiency of sales processes is a top benefit of sales performance management that every organization should be investing into and Callidus is one of the key suppliers of it.

It’s important to note as well that ForceLogix had stepped up its development efforts along with focused sales efforts. In fact, its list of customers has grown to include Corning, Lenovo, Motorola and others. Foreshadowing this move, ForceLogix had already been expanding its integration with Callidus with single sign-on and use of underlying information and metrics. Now with Callidus buying the assets, will it offer jobs to all of the employees and keep the same level of investment and growth? Time will tell.

On the Callidus side this is a positive growth opportunity, and one that comes as the company has been reducing its operating footprint and costs. Despite this shrinkage, Callidus is closing new customers both at home and across the globe (which is a growing percentage of its business); among those added are AAA of Michigan, ESPN, Health Net and others. Callidus has been working its way through a very difficult transition from a license-and-maintenance model for its offerings to a recurring software-as-a-service rental approach that now represents 72 percent of its total revenue in its third quarter results. This conversion is no easy task and as it finds further growth in the market will provide an interesting case study of business management and an operating model transformation.

Focusing on profitability and margins is good financial management, especially for a public company, but it alone is not enough if the company isn’t able to market itself effectively against peer competitors – in this case, competitors like Merced Systems and Varicent, which have been increasing their marketing and sales efforts, and Xactly, which appears to have flattened its spend in this area. Most interesting was the pullback of Callidus’s efforts with salesforce.com; at the latter’s 2009 Dreamforce conference it showed the new set of products in which it had invested significantly and which I analyzed.  Since then Dreamforce 2010 has come and gone and Callidus did not even exhibit at the event. Although in my opinion salesforce has not invested significant effort recently in advancements for sales forces (See: “Can Your Sales Force Trust Salesforce.com?“), there remains activity in that area, and all of Callidus’s direct sales compensation competitors were present and this year’s show and actively in dialogue with prospects and Xactly appears to have the front seat as salesforce uses its products and has many partnering activities in motion.

Competitively, Callidus, like others, will face the reentry of Oracle into this space with its Fusion CRM for Sales which I have recently assessed (See: “Sneak Preview and Analysis: Oracle Fusion Applications for CRM and Sales Organizations“), and major releases from Varicent (See: “Sales Compensation Easier To Manage with Varicent 7“) and Merced (which already has a Coaching Plus application that it highlighted at its recent conference. This will make it even more important for Callidus to effectively market its advancements and value if it is to compete in this highly competitive environment. It has appeared in 2010 that it has removed itself from most common marketing activities to slash its operating expenses. For Callidus the question is whether SAP will come back and embrace Callidus as a partner or as an acquisition or will IBM decide to expand its existing sales analytics solution.

Callidus has also found some other critical application expansion opportunities. It recently highlighted an onboarding application that has had yielded growth in the insurance industry – it helps streamline agents’ ability to operate across carriers quickly, in some cases in only 30 minutes compared to the week or more required in a manual process. This application is yet another example of the potential of sales performance management.

I believe that in acquiring the assets of ForceLogix Callidus Software has a great opportunity for growth, but it will have to beef up and improve its marketing efforts to ensure it can compete for consideration in this area. It has a solid foundation as we have assessed its company and products in our Value Index. Clearly the newly augmented application will offer an opportunity to sell back to its customers, but Callidus must reach for the larger opportunity of organizations starting with sales coaching and then progressing to improvement in sales compensation and other sales performance management applications that it has and should expand, build and partner more for in the future.  

Regards,

Mark Smith – CEO & EVP Research