Sage Software Continues to Execute

Posted: May 17, 2007 in CRM

Sage Software is having its annual Insights user meeting this week in Orlando and I am filing this piece from there.  More than 3,000 partner representatives are in attendance which accounts for a broad array of products that include ACT!, SageCRM, SageCRM.com, and SalesLogix on the front office side plus a blizzard of accounting and ERP products for the back office.

Although it is not the only front office software company to sell through the indirect channel, it is the only one I can think of with such a complete focus on that distribution model which presents some unique challenges as well as some advantages for the company.

A few years ago Sage was an oddity that didn’t even have rights to its own name in North America and for awhile used Best Software on this continent.  Back then there was no shortage of pundits who said that Sage’s days were numbered and that when the likes of Microsoft, Oracle, SAP and others got into the SMB space it would be lights out for Sage. 

Well, the short story is we’re still waiting for that to happen and a lot of erstwhile competitors have come to relearn the old truth that the SMB market is a very different game.  In some respects it might be like the difference between chess and checkers but a good chess player can still get his or her clock cleaned by a checker player on a mission. 

According to CEO Ron Verni’s Monday keynote, since 2003 the company has more than tripled its North American revenue to just under one billion dollars.  This year’s run rate puts it comfortably past that milestone and globally Sage has been a billion dollar company for some time putting it in elite company with the largest software companies on the planet.

Unlike many other companies in the front and back office spaces, Sage has grown by acquisition and it has sometimes been challenging for the company to present a unified front.  The good news though, is that with time Sage has been able to blend its product lines and its operations into a cohesive group so that today it looks and operates much more like a company with a lot of products rather than a company with a lot of business units trying to make sense of its goulash. 

The result is that Sage can credibly present itself as a front to back office solution provider in multiple and diverse vertical markets such as construction and real estate, medical office management and numerous other areas where its partners establish areas of expertise around ERP and CRM.

Sage is by far not a perfect company and it will always have the challenges of a software company trying to build and sell products and with so many products to ride herd on the challenges will not likely diminish.  Sage also has to juggle the requirements of a diverse group of resellers which is no small task in itself. 

What is interesting to me though, is the forward direction and vision that it is presenting to its partners.  In no uncertain terms the message to the business partners is that delivering traditional systems integration services is no longer enough.  Making sure all the green lights are on is not a way to make a living if you are delivering front and back office solutions to the SMB market.

For example, one of the keynote speakers was Joe Pine author of “The Experience Economy,” who in the late 1990’s was perhaps the first author to advocate customizing goods and services into customer experiences.  In my mind there is no better setting for that message to take hold than a reseller channel which must compete against other providers — sometimes providers selling the same products. 

Appropriately, two of the strongest themes at this conference are integration and customization.  A lot of other software companies are striking similar notes on either customization, integration or the ever popular customer experience these days but what I hear from them makes me think that these ideas are things that can be added on as a final step in the delivery process.  It reminds me of the old idea of inspecting for quality at the end of the manufacturing process rather than finding ways to build quality into products. 

With its army of resellers whose livelihoods are dependent on delivering unique results for SMB companies, Sage can, in some ways, better focus on the customer experience and the customization and integration that make it possible.  In the end, the SMB space might be a classic example of the free market in action where numerous vendors make best fit solutions at specific low price points.  If anything, the partner channel is most likely Sage’s secret sauce and a strong barrier to entry for competition which accounts for why this company that grew by acquisition is such a tough and successful competitor.

Comments
  1. Jason C says:

    I think you give Sage far too much credit here. This is an industry aggregator run primarily for the benefit of sharholders, not customrs. As a potential investor, I admire their business model. As a potential customer, I’d run from them. Their growth comes almost entirely via acquisitions, with organic growth rarely above the low to mid single digits.

    During their latest six month reporting period the global CRM revenue for Sage was some 34 million Pounds, or just under $70 million. Here’s a quick research exercise for you. Go to http://www.sec.gov and pull up some old filings from Interact Commerce (the acquisition where Sage got SalesLogix and ACT!). You’ll find that in Interact’s last two quarters as a public company they delivered some $61 million in CRM related revenues. That was in 2000. So in seven years Sage has grown that figure by $9 million (including the addition of Accpac CRM revenue). I’m not very impressed.

    They have utterly failed to take advantage of the apparent integration opportunities before them. Go back about 5 years and they were boasting about the cross sell opportunity they had with offering CRM to their various accounting customer bases. Financial analysts were reporting it was in excess of a $1 billion opportunity, and boosting Sage’s share price as a result.

    Am I correct in assuming that your list of “companies I like” are also companies who are your clients? If so, good for Sage. They could use some of your thinking.

  2. Thanks for the insightful post David.

    It is interesting that the M in SMB definately need a partner to implement the solution, I am not sure that the S does. Perhaps a generic remote-sold solution works there because of the cost of service vs. volume argument.

    Do you know what the economic mode of the channel distribution is? Who gets which bit of the value? Do partners have any “protection” in this regard? Do they, like Salesforce.com seems intent to do, charge partners for participation or do they encourage them by direct and indirect methods.

    Any idea what the wholesale vs. retail markup of products are and how they avoid channel conflict.

    Cheers
    Gareth

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