Sage is a company in transition. Founded way back in 1981 in Newcastle upon Tyne, the company is one of the only British software firms to have been a long-term feature of the FTSE 100 Index, while today it employs 14,500 staff and has offices around the world. But adapting to the latest demand for Software as a Service (SaaS) technology will require the firm to draw on all of its experience and resources if it is to remain a leader in its category in the small to medium business segment.
In its first-half results ending March 2009, the firm saw revenues contract 3% on a currency-neutral basis. Including restructuring charges, its operating margin remained steady at 23% of sales, and it saw a pre-tax profit of £159.3m. Given the recession, these are hardly the results of a company in turmoil.
Yet Sage is not without its challengers. Like so many on-premise client-server software companies, it is facing considerable competition from on-demand or SaaS business software providers. This is particularly acute as it is the small to medium business segment that Sage targets that appear to find SaaS so appealing: they often lack deep pockets and sophisticated IT departments, so subscription-based, on-demand software that saves time and resource on hardware and software configuration and maintenance is a real boon.
You only need to look at the recent wins by SaaS companies such as salesforce.com, NetSuite, Workday, Kashflow, Microsoft and many more to know that Sage has a fight on its hands. It needs a credible SaaS story of its own, and fast.
Add to that the collapse of Sage’s biggest American channel partner -- Management Information Services -- which went bust in July, and you can see why competitors are keen to spread some fear, uncertainty and doubt about Sage’s prospects.
Some seasoned observers have their doubts about its strategy, too. As accountancy and technology commentator Dennis Howlett wrote recently on his website AccManpro.com, “Of course Sage sees slow growth. It hasn’t managed to get a credible [SaaS] product to market. And would you blow up your lucrative business model for one that you don’t really understand? Or rather choose not to understand?
“This is a common problem in the software industry where past success is seen as the road for the future, regardless of the surrounding facts,” Howlett wrote. “It’s almost as though vendors live in an alternative reality… The market is validating the [SaaS] model faster than Sage can innovate and that’s the problem.”
Sage’s early forays into the on-demand world have not exactly gone smoothly. It was forced to take down the beta of its Sage Live single-entry accounting on-demand product after just one month, after observers questioned its security model. So could Sage succumb completely to the SaaS onslaught?
However slow Sage has been to adapt to the new realities of SaaS, one cannot underestimate its success thus far. In its 28-year history it has seen certain business software rivals come and go, but today Sage has 5.8 million SME end user customers around the world, and is a highly cash generative business. It offers a vast array of accounting, CRM, business intelligence and ERP applications tailored to the mid-market. Market researcher Pierre Audoin Consultants puts Sage as one of the top ten European software businesses.
Perhaps, as Lawson’s CEO Harry Debes told CBR in an interview in January this year, the SaaS market will crumble within two years anyway, and everyone will be left wondering what all the fuss was about (read more of Debes’ argument at http://bit.ly/F81xP).
Yet Sage does agree that it needs a credible SaaS strategy. Speaking to CBR this month, Paul Stobart, CEO of Sage UK & Ireland, had this to say on the topic: “We’re not anti-SaaS, we’re really not. If a customer wishes to experience our technology on the web then there are a number of ways that they can do that via our partners. Every one of our suites is offered online by partners.”
Yet a hosted version of client-server software is by no means the same as a true, ground-up SaaS offering, and Sage knows it. That’s why it launched a beta version of Sage Live in January this year.
“Sage Live was an offering at the entry-level, but we took the view that we needed to do more work on what customers really wanted,” says Stobart. “That work is ongoing.” But is Sage really serious about its on-demand opportunity? “Absolutely, we have four divisions and one of them is an online division, focused on elevating the importance of online in the company – that division is headed up by Simon Black here in the UK,” says Stobart.
Sage’s SaaS plans may have stumbled out of the blocks, but the company is adamant it is serious about getting into the on-demand space. The day we went to press, in fact, Sage announced that it is having another crack at on-demand by piloting a cloud edition of the Sage SalesLogix CRM suite for commercial availability in early 2010.
Issues over data security of multi-tenancy shared applications was reportedly the problem with the first SaaS attempt, something Sage appears to have side-stepped with its latest ‘private cloud’ offering. Its latest venture, which it describes as a full-featured, ‘single-tenant’ cloud edition of Sage SalesLogix, is to be hosted using Amazon's EC2 (Elastic Compute Cloud).
“Businesses retain ownership of all their data and processes with full reuse and compatibility on-premises -- a benefit not provided by most current multi-tenant SaaS CRM alternatives,” Sage said.
Its foray into cloud-based software services will be closely monitored by the industry. The move could help validate the delivery model as a preferred option among smaller and medium-sized businesses yet further. It is not the first into the online bookkeeping and accounts space, but Sage is the biggest supplier to do so by far.
Sage said its SaaS users will be able to choose when to trigger an upgrade to the latest cloud computing edition of Sage SalesLogix, rather than have a vendor's upgrade schedule and any unwanted features forced upon them.
Plus while it offers the benefits of a hosted, on-demand solution, it’s possible to migrate to an on-premise deployment should needs change. Likewise, on-premise Sage SalesLogix customers will be able transition to the hosted edition.
Yet speaking to CBR, Stobart appeared to put certain limits on where the firm believes SaaS makes sense today: “Pure-play SaaS offerings are still very new, and we think, most relevant at the entry level,” he says. “The SaaS ERP case is still unproven. The biggest SaaS pure-play there is probably NetSuite, and it still has only a few thousand customers worldwide. If SaaS ERP was going to work like CRM has for salesforce.com then it probably would have by now.
Businesses want much more control when it comes to the core accounting of the business,” Stobart says. “You don’t have the same need to keep your ERP data on the web in the same way that CRM users need access.”
If you accept that Sage is starting to get its SaaS story together, what about the recent question marks over its channel, following the bankruptcy of its largest partner, MIS, in the US? “I can only speak for the UK and Ireland but I believe the channel is in very good shape,” Stobart says. “The great thing that Sage is able to bring to the table is strong market share – we have 800,000 customers in the UK and Ireland. They are all looked after by channel partners.
“I’m not saying it has been a walk in the park given the latest spending environment, but I believe the channel has seen the fruits of investment in Sage, and our powerful installed base,” Stobart says.
The fervour with which some commentators have urged Sage to move faster into the on-demand world is not just a sign of the competitive threat it faces from that direction, but also in some cases an affection for the Newcastle-born and now multi-national software firm. Trading Standards may have upheld Sage’s complaint in March that SaaS accounting firm Kashflow was making unfair product comparisons with Sage technology, but this won’t be the last time it must defend itself from comparisons with pure-play SaaS technologies, until it has a more credible story of its own in that field. Until then, few would claim that it has anything other than immense credibility in the client-server accounting, ERP and CRM sectors for the mid-market.
Hear Sage’s Paul Stobart explain his firm’s positioning and strategy in his own words by listening to the CBR podcast at http://bit.ly/OlH2x