October 08, 2004   |   Vera H-C Chan — Daphne Carmeli left her position as Netscape's vice president of marketing to start Metreo in February 2000. One month later, the Silicon Valley market crashed.

Timing couldn't have been better.

Of course, at the time, the reaction had been "uh-oh," said the Metreo president and CEO. "You talk to friends and family around me, they'd say I was whacked."

Yet Carmeli knew she had a sound concept, good staff and seed money to create and sell pricing management software. At Netscape, she had heard first-hand the problems that Fortune 500 customers had, including new economy pressures demanding that manufacturers join marketplaces, only to be commoditized and get their prices driven down.

Carmeli, who had been noticing the popularity of Priceline for consumers, wondered if there was a business equivalent, where sellers could plug in variables of product, service, shipping terms and other unique advantages that would give them a complete negotiating position. She looked for technologies that could handle all the complexities of all these trade-offs.

Then Carmeli made a connection that a Brandeis University magna cum laude math graduate is wont to do: When she had worked at Silicon Graphics, scientist colleagues from the Stanford Research Institute created compression technology to deliver smooth video conferencing. She called up her SRI collaborator to ask if the same technology concept could apply to real-time financial data. His affirmative led to Metreo (and his position as one of the four founders and chief technology officer).

Launching during the bust actually worked in Metreo's favor: In good times, people don't haggle over price. In bad times, CEOs will open the door and listen to a pitch about pricing software that will help unload inventory.

"The market crashes, and nobody's selling anymore. What's the first thing that people do? You cut and you cut and you cut," Carmeli said. But that kind of slashing can only go so far, she explained to potential customers.

"You cannot shrink your way to grandeur."

The first client was Eaton Corp., where price managers had to reconcile corporate margin-driven objectives and salespeople's commission-oriented dealmaking. The managers had to sift through thousands of quotes to find the best deals to meet goals for margins, inventory targets and market share. They'd have to wait a week -- or till the end of the quarter -- to find if a deal was good or bad.

Automating the process allowed pricing managers to feed in numbers and get a score grading how good the deal appeared according to their various criteria, as well as counter-proposals, for instance substituting products that would work for the buyer and get rid of seller's excess inventory.

Eventually, Metreo moved from price negotiation to the next question: How to figure out what the right objectives and targets were in the first place. The company reviewed customers' historic data and recognized variables that allowed them to sort customers not by geography but by buying patterns, and figure out the best times of the year to target select customers, for example.

Carmeli said that the software at first "sounded a little like voodoo" to customers. Nowadays, the success of Metreo's clients -- industrial manufacturing and distribution household names like Honeywell and Hewlett-Packard -- attests to their software's robustness. "The skepticism has vastly diminished."

Metreo, which has had annual sales growth of 1,602 percent in the past three years, will reach profitability next year, according to plan.

In starting Metreo, Carmeli wanted to be part of creating a new economy. "I didn't want to be the grandmother talking to the grandkids and how I watched it," she said.

About Vera H-C Chan
Vera H-C Chan is a contributor to the San Francisco Business Times.