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Digital Paper cuts ties with Xerox

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How do you exit a sales and marketing relationship when you’re the little guy, and youre leaving the big guy? Thats the odd twist Digital Paper Corp., a developer of business collaboration software, faced last month as it severed a partnership with Xerox Engineering Systems (XES), a division of Xerox Corp., Stamford, Conn.

Digital Paper decided not to renew its relationship with XES because the companys sales force wasnt as effective as it had been earlier, said Christopher Fountain, president-CEO of Alexandria, Va.-based Digital Paper. While 100% of Digital Papers sales came through XES in 1999, only 10% to 12% of its sales will come through XES in 2001, he said.

So Digital Paper prepared its sales and marketing forces for an all-out blitz. The company began mounting a direct sales team last year that today numbers 16 people. The salespeople began calling on Digital Paper-XES joint customers in July, immediately after the company made public the decision to dissolve the XES partnership. The relationship will officially terminate at the end of the year.

Digital Paper offered its customers pricing and service incentives to upgrade from the $10,000 to $100,000 systems XES typically sold to a higher-end product line that Digital Paper had been selling in the $150,000 to $1 million range.

Digital Paper provides customer service for its applications, which can help users compress product cycles, improve cash flow and manage procurement of complex goods, Fountain said. XES representatives often serviced joint customer accounts, he said.

"We did not feel Xerox was able to provide the level of support required," Fountain said. "In the end, we believe the risk of not making this decision was greater than the risk of staying [with XES].’’

In galvanizing sales and marketing behind a customer-retention program, Digital Paper is following a best-practices approach to dissolving a corporate marriage, said Charles Brett, Meta Group Inc. program director-electronic business. The company deliberately ruled out a mass direct mail or print advertising announcement as too impersonal, relying instead on the sales effort. Thats the right approach, he said. It is rare to see smaller companies leave partnerships with larger firms, but Xeroxs recent corporate shuffles paved the way for the move, Brett added.

Xerox is under SEC investigation for its accounting practices and has a debt load of $10 billion. It could pay as much as $500 million in settlement costs and fines for its accounting irregularities, analysts said. Management has also been in flux, with 25-year Xerox veteran Anne Mulcahy succeeding Xerox chairman Paul Allaire as CEO this month.

"Digital Paper might have an opportunity to get into the existing Xerox [customer] base,’’ Brett said.

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