Retreat, Rebuild Then Rebound

Software reseller returns to its roots after tripping on professional-services unit.

In an industry where too many companies try to be everything to their customers, Software Spectrum is happy to return to its roots.

The large, pure-play software reseller is returning to more familiar territory after taking a professional-services detour a couple of years ago.

Software Spectrums thinking, at the time, seemed logical. In addition to reselling low-margin software, the company attempted to administer volume licenses and offered technical-support services that handled trouble-shooting calls from customers.

Software Spectrum made an acquisition to build a professional-services arm, but there was little to no payoff.

"The synergies ... between the product services and the consulting services businesses never came to fruition," says Roger King, president of product services at Software Spectrum."The utilization rates were not there, and we never got into the long-term engagement business," King adds.

Changing Course Last May, the company decided to get out of the services business after the division posted a net loss of $5.9 million on revenue of $45 million.

By August, it closed 10 of its 16 professional-services offices, and sold six of its offices in the Asia/Pacific and North American markets. It sold its North American network to Buchanan Associates, a systems integrator.

Software Spectrum also sold its CRM unit to Pivotal Corp. for $6 million in December last year.

Today, Software Spectrums primary business is reselling software and technical-support services for end-user clients and for software publishers. For both categories, the company offers Web-based and telephone-based support for end users, and also acts as the outsourced support service for software publishers.

New Offerings Although its technical-support services unit, known as Spectrum Contact Services, accounts for less than 10 percent of the companys revenue, it is an area the company is looking to grow, says King. To do so, the unit has expanded its services to include new areas of support to offset severe declines in its call volumes. The volumes sank last year when one of its largest customers pulled back dramatically on third-party support.

To minimize such declines, Software Spectrum this month announced that its expanded support services would add customer-service issues, such as billing and inventory management, to its communications, consumer goods and services, and financial services, among other areas.

This customer-service outsourcing push will be supported by e-mail, Web-based contact and telephone support.

Is this a radical departure for Software Spectrum? Yes and no. As end-user customers pull back on third-party support, companies like Software Spectrum have to find new revenue streams. "We are always looking for smart ways to extend our business," King says.

No ASP Envy But the company, which could have made a natural jump into the application service provider arena, has stayed on the ASP sidelines because "the economics" are not there, King says.

In January, the company rebuffed a proposed merger from Chell Merchant Capital Group, led by Cameron Chell, who was the founder of ASP FutureLink.

These days, staying focused is an important part of Software Spectrums outlook, as it slowly builds up momentum. "Focus is a great thing in a tight-margin business," says King.

Thats certainly true, but Software Spectrum isnt out of the woods yet. For the nine months ended Jan. 1., net sales rose 24 percent, but net income from continuing operations fell 59 percent.