Obtree's new CEO is leading the firm into a daring, but needed, change in business model. Last week it announced a new round of capital to fund the move.
Frank Boller who became CEO of Obtree Technologies in November says that the young software consulting firm would be divesting itself of its consulting and services unit.
"We are now a pure software house operating on a partner-focused business model," says Boller.
Towards that goal, it has signed up some top tier partners in recent months, including IBM and Autonomy.
Obtree Technologies employed a large consulting team that has traditionally sold the licenses for Obtree's proprietary content management software to the end customer, rather than using resellers.
The company is spinning off Born Informatik, a company that it acquired two years ago. Now the content management software firm will keep only a small group of consultants employed primarily to train the partners.
Separating software licensing from consulting is critical to inspire the confidence and trust of new reseller partners.
If a software company wants to sell licenses to the customers of systems integrators and independent web consultancies, it is extremely difficult to do so if its consulting department is competing with those same systems integrators and web consultancies for new projects.
In the past, Obtree often found itself competing against partners on big projects.
The web consulting business is a cash cow but it is a short-term perspective to want to hang onto it.
Besides, such a business model is more attractive to investors. The valuations of software companies are based on fat margins that offer scalable growth potential.
An IT services companies has thinner margins and can only grow revenues by constantly increasing human resources.
To maintain liquidity during the transition, that is to make up for the shortfall in revenues from the lucrative consulting business, Obtree raised 18 million SFr in additional capital last week from un-named investors, some who were private, according to Boller.
Based on research done by Swiss Venture Update, early investors such as Pictet and IQ Capital did not come back for this round. No confirmation could be acquired from Swiss Life Equity.)
"For a short time it is like driving without a safety belt, but for the long term it should pay off," Boller told Swiss Venture Update.
Day Interactive, a peer Swiss software company in the same market, is finally making its move to become a pure software company too, after promising to do so since its last press conference it held before its IPO in 2000.
According to investment analyst, Timon Zielonka, Bank Leu, the company shed 20 percent of its staff, mostly from the services unit.
"Over the past year Day has been developing a strong partner program. If you look at its recent implementations in Germany and in the US, you will see that they are mostly done by partners."
Obtree and the HP way
Boller who worked for more than a decade at HP in Switzerland wants to promote a similar corporate atmosphere in the Basel based firm.
"It is a culture where people take responsibility. It promotes transparency. It is very similar to what HP does," says Boller.
In the opinion of this reporter, HP's leaders, until recently, always were concerned about building a great company, rather than getting rich quick.
After a brief stint as CEO of Diax, an alternative telecommunications operator in Switzerland that merged with Sunrise, now the number two operator, Boller moved to Obtree.
Obtree's largest market is the UK, followed by Switzerland. It will increase its sales activity this year in Germany and the US.
It has recently released two new products, one is a suite to manage the content for web portals and the other is for SAP environments.
This is the second round of capital for the company within the past twelve months.
As recently as July, Obtree raised 17 million francs from a consortium of investors, including IQ capital, Pictet, Swiss Life Equity.
The company has gone through a number of transitions since its founding in the mid nineties.
Its founder Jose C. Valcarce stepped down from his CEO position in 2001 to make room for Manuel Ebner, a young financier, to manage the firm.
Boller, an experienced IT manager, was selected a few months later to take the helm.
By Valerie Thompson