SCALIX CORPORATION: THE EVALUATION OF A SALES MODEL

Group - 2

Q1) In 2003, Scalix delivered zero revenues against what was believed to have been a modest target. What do you think is wrong here? Why isnt the product selling?

1) Linux Platform requirements 2) Emergence of Competitors 3) Scalix did not have a strong customer base 4) Product lacked features and functionalities 5) Overall eco-system issues 6) Increasing success of MS Exchange

Question 2
Describe the sales model for Scalix as of May 2003. Be as specific and as complete as possible. What are the resources required by the model (both initially and at maturity)? What are the assumptions regarding deal success rate and time to close? What are the economics of the solution currently in place? What are the critical factors that will affect the viability of this model?

Sales model evolution

Customer Product Service

Medium enterprise: 5000-15000 seats

Linux based e-mail and calendaring platform lower costs addresses scaling issues Linux based e-mail and calendaring platform. lower costs addresses scaling issues

Direct selling at CIO level

Large enterprise: over 15000 seats

Direct selling at CIO level

Sales force and resources required

Lavery Enterprise sales veteran OTE package: $270K

Field representative 1 experience in selling in email industry New York based $100K+ OTE of $220

Field representative 2 experience in selling in email industry Chicago based $100K+ OTE of $220

Assumptions regarding Deal Success Rate

From Capital one and Perot example, we see that they believed the deals would be successful because: 40-50% cost savings for companies CIO and CTO support in both companies Aggressive supporters of Linux Product was completely ready for market Sales target: $408 in 2003 and $4.4 million in 2004 Scaling issues in current systems Increasing cost: for 10000 seat enterprise cost was around $4.4 million per year. Security issues IBMs Lotus: Very expensive Microsoft: Gap in what customers were saying and what MS was saying

Assumptions regarding time to close

They had not set limit regarding how much time they would invest on a deal. Didnt have any assumption regarding when to scrap the deal Capital One took 6 months, Perot also took several months

Economics of the solution



Direct sales model Compensation package of $220K to direct sales people Model thrives on bulk deals or Medium and Large enterprise deals More effective when a brand is established in the market Lesser frequency of ordering but more volume per order Inside sales model Compensation package of $120K to inside sales people Model more useful when deal size is mid market or small enterprise deal More useful for a start-up or a small size company Model thrives on higher frequency of orders but less volume per order

Critical factors
Presence of small enterprise in the market Are these companies willing to switch to Linux from Microsoft Maintaining the price difference vis--vis competitors Efficient telesales team especially for mid market enterprises Maintaining contacts and touch points in the clients enterprise Lowering the distribution cost as the volume per order is small and frequency of order is higher Inside out information about the product and operations

Q3) What did Scalix learn from the sales cycles at Capital One. Perot Systems. and Cincinnati Financial? How should it respond?

Capital One: Educate the Technical and Operation team, Importance of convincing people lower than the CEO and CIO. Perot System: Develop the product completely. Product should meet the requirements of the customers. Cincinnati Financial: They need stronger customer base and a well structured and planned approach. Provide solution to customer queries.

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Q4) Given the success at city of Bloomington and county of Pottawattamie. should Winokur abandon direct sales to medium and large enterprise accounts? What are the economics of telesales compared to the direct sales model? How would you oppose selling into the mid-market?

Large organisations are looking for market ready product and not a product which is still undergoing trials Scalix doesnt have credibility in the market and hence difficult to clinch deals with medium and large enterprises Selling product to mid-market companies will build brand name for Scalix Sales to mid-market will help Scalix uncover the key lessons which will be of help in improving its product In small enterprises stakes are low so Scalix can learn from their mistakes during initial stage The strike rate in a telesales is quite high as compared to direct sales Time to close the deal is short so the time and money spent is utilized aptly

Q4 (cont..)
We have to employ only inside sales representative for whom salary is 120K. In direct sale we have to give commission on each sale to outside representative but no commission is to be provided to inside sales representative With more sales in mid-market, it will give Scalix an image of organization which caters to only small players Large organisations will refrain from entering into any sort of sales with scalix With more deals in small segment Scalix will not be able to know what quite new happening in the market. They could complacent if more deals start happening in small segment and Scalix will not upgrade its product.

5. You are Glenn Winokur making your first presentation to the Scalix board of directors in July 2004. What are you going to say, and how are you going to say it?

Targeting medium and large sized enterprise is incorrect Scalix product is not market ready Estimation of size of deal and time of deal closure is incorrect Focus only on as a cheaper alternative to companies not as a superior product Scalix doesnt have brand name so not feasible to target large size companies

Ans 5(cont..)
Have both short term plan and long term plan Compare the two models and showing that inside sales model is more viable at this point in time Linux has the highest expected CAGR and hence will be a product of the future Try to get funding of more money so that the product can be improved like anti spam, anti spam email archiving etc Focus on USP i.e., scalability and reliability at lower cost

New Strategy
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Use telesales to increase the customer base and reduce transaction closure time. Focus on learning from the mid-market segment to capture medium and large sized organizations. Dont use outside sales model for time being Promote Scalix as better and lesser cost alternative to windows and IBM lotus notes