The Four Hundred

SEDONA, a provider of customer loyalty software for banks and financial services institutions, announced last week that it plans to sell its customer base to Fiserv, a $1.9 billion conglomerate that provides software and solutions to the financial services sector. The decision came just days after SEDONA failed to find outside funding to rectify a cash shortage that was threatening to bankrupt the company. This was Fiserv's fourth acquisition in November.

SEDONA's decision to sell its customer relationships for its flagship Intarsia CRM line is the culmination of a process that began earlier this year to move to an indirect sales model, said Alyssa Dver, vice president and chief marketing officer for the King of Prussia, Pennsylvania, company. "It really wasn't the focus of our company anymore," she said. Selling software and supporting customers is "a lot of work, and it wasn't serving us at that point. It doesn't fit in with our core competency," which is writing software, she said.

SEDONA will continue to develop Intarsia and sell it through its new network of resellers, Dver said. In February, SEDONA entered into a strategic partnership with Sanchez Computer Associates, in which Sanchez would resell Intarsia under its Sanchez CRM label and work to integrate Intarsia with its own application, called WebCSR. Similar OEM relationships were later established with Financial Services Inc. and FISERV Customer Contact Solutions, the FISERV subsidiary that just announced its intention to acquire SEDONA's customer base.

Intarsia is a Web-based CRM application that was designed to give banks and other financial services providers a single view of their customers and to promote loyalty among its customers. Some of Intarsia's capabilities include lead and referral tracking, profitability management, and campaign management. The application, which runs on OS/400, Unix, and Windows platforms, is commonly bolted onto core back-end transaction processing applications for the banking industry, such as those sold by FISERV, ALLTEL, and Jack Henry & Associates, among about 30 others. The software, which was written in Java 2 Enterprise Edition and uses XML for data interchange, was first deployed on Unix and Windows systems, but it was later ported to OS/400 with help from IBM's Rochester, Minnesota, lab because of the OS/400's prevalence in the financial services industry, Dver said.

Intarsia was SEDONA's only product, and soon SEDONA's only customers will be its resellers. The company would not disclose the number of Intarsia users that it plans to sell to FISERV. Nor would it disclose the value of the transaction. That information was considered private between the two companies, which are both public, company sources said.

The ongoing financial struggles of SEDONA, which lost about $21 million in 2000 and 2001, came to a head last month as the company ran out of cash to pay its bills. First, SEDONA defaulted on its lease agreement for its corporate headquarters. Then the company failed to come up with $208,000 in order to make payroll for the October 25 and November 8 pay periods, and it informed employees that they may be required to go on temporary leave to help the company cut costs. SEDONA subsequently announced plans to come up with additional funding to keep the company out of bankruptcy. However, by week's end, the company announced that it had failed to come up with external funding and that it may have to liquidate company assets. The next Monday, the sale of its customers was announced.

The sale of SEDONA's customer base has nothing to do with its cash shortage but is the result of the process that began earlier this year to move from a direct sales model to an indirect one, Dver said. "What we do really well is build software," she said. "What we have struggled to do well is customer support. We have such a tremendous engineering and R&D organization. Customer support winds up being a drain on this."

While Dver admitted that it does raise questions when a company that promotes software to build customer loyalty winds up disposing of its own customers because maintaining those relationships is a drain on higher priorities, she emphasized that the decision shouldn't be misconstrued. "It is certainly a tough message to make clear," she said. "We certainly didn't do this blindly. It's always a concern [for a customer] when they transition from something that's familiar to something that's not familiar. But it's not like Sedona is going to disappear and go out of the picture."

Enthusiasm for CRM software has been tapering off recently amid reports of customers getting stung by expensive and lengthy implementations that end up showing little results, and perhaps SEDONA's decision to separate itself from its customer base could actually be viewed as an effective use of CRM technology, with the right perspective. After all, the underlying tenet of CRM is to apply your resources in the most effective way to the customers who will be the most receptive to your offering. In SEDONA's case, the company tells us, that meant writing software, not selling and supporting it. SEDONA applied this principle to itself and took the bitter medicine, no matter how unpleasant it tasted.

Investors didn't much care for the remedy, in any event, as SEDONA's stock, which is traded on the Nasdaq, was down by about 10 percent, or $.02, to about $.18 per share, immediately following the news.