IBM and Kana in Customer Service Deal

Industry giant IBM (NYSE: IBM) and e-commerce software company Kana Communications Inc. (Nasdaq: KANA) announced plans Wednesday to help companies that do business on the Internet improve their customer service.

The deal, which reportedly could be worth as much as $1 billion (US$) per year in revenue for the two companies, comes as evidence mounts that customer service is becoming an increasingly important ingredient for long-term success in e-commerce.

The alliance will incorporate Kana’s Web-based software and IBM’s hardware to allow companies to manage e-mail, phone fax and in-person communications with customers, the companies said.

Long Time Coming

According to Michael Bettua, director of worldwide marketing for the Redwood City, California-based Kana, the alliance with IBM has been in development for several months and grew out of work the two companies did for National Auto Parts Association (NAPA), the world’s largest supplier of after-market auto parts and accessories.

Bettua told the E-Commerce Times that as the two companies built an Internet site for NAPA, they realized their products made a good fit. The joint effort will allow firms to begin offering customer service online the same day they begin selling products, he added.

“For companies to just put up a storefront as a way of doing e-commerce is like the Gap opening a store and staffing it with people who can only take credit cards and can’t answer questions or give advice,” Bettua said. “Right now, it’s seen as a separate component, but a year from now, there’s going to be no difference between e-commerce and customer service. E-commerce has to include service, marketing, personalization.”

Customers Want Solutions

“This alliance is driven by client demand for assistance in developing e-business strategies and Web-architected solutions,” said Stephanie Hahn, general manager of IBM’s customer relationship management solutions division. “The Internet has shifted the balance of power to customers by empowering them to choose how, when and where to conduct business.”

Companies will spend some $62 billion this year on customer relations solutions, according to Hahn. “It’s a huge marketplace, and it’s growing very, very rapidly,” she told the E-Commerce Times.

Despite the growing realization that e-commerce companies need strong customer programs to keep their businesses strong, they seem to be having difficulty delivering.

A survey released last week by Gartner Group found that of the top 50 consumer e-tail sites, not one rated “good” or “excellent” for customer service. Twenty-three percent picked up an “average” rating, the majority — 73 percent — were rated “fair,” and 4 percent came out “poor,” Gartner said.

Improving online customer service could ultimately save companies money, Gartner said in releasing the survey. Moreover, according to Gartner research director Carol Ferrara, by not improving communication with consumers, “e-tailers are annoying Web customers at a time when brand loyalty is the Holy Grail.”

Comprehensive Solution Elusive

A report released earlier this week by the Yankee Group blamed companies’ abysmal customer service record on their tendency to focus resources on technology instead of a comprehensive click-and-mortar strategy. Most customer relationship management (CRM) software, Yankee said, targets a specific part of the selling chain, and many programs do not work together effectively.

“The problem today is that no single vendor provides the full range of applications or even the platform capabilities to build such a system,” said Sheryl Kingstone of Yankee’s CRM planning service.

Building Partnerships

In addition to their work with NAPA and other business-to-business and business-to-consumer projects, IBM and Kana have been busy building other partnerships. Kana’s $4.2 billion acquisition of Silknet Software earlier this year gave the company access to a larger range of customer relations products. IBM maintains e-commerce alliances with technology companies Siebel Systems and Vignette Corp.

“There’s no money changing hands” to set up the collaboration, said IBM’s Hahn. The two companies will jointly market Kana’s software, which will support IBM’s hardware. New products are also being developed, they said. Prospective customers will be able to see how the products work at IBM centers throughout North America, Europe and the Asia-Pacific region.

The companies said they signed a reseller agreement in Japan and expect more contracts in the future. IBM sales and service professionals are being trained in the use of Kana products and will be able to market the new products.