Sage’s latest saas attempts: a further analysis

Jason Stamper at CBR does a great job trying to get under the skin of Sage and its saas efforts. I would say that – he quoted me having asked my opinion prior to meeting the company. But seriously, this is possibly the most complete assessment I’ve seen of Sage’s efforts, juxtaposed against its standing in the market. I particularly like the punchline:

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.

It’s true. Those of us who are urging Sage on do so for many reasons, principally to help validate the market for saas accounting solutions. That may well change as the newcomers advance their positions. Despite my ongoing support for the little guys, nothing would please me more than to see Sage come to market with something credible. Why? Because despite my ongoing critique, this is a company that has done better than any other in the UK software market and should be seeing this as an opportunity to build on success. If it does not take this opportunity then I fear for its customers as they continue to pay maintenance but for what? Unfortunately, it doesn’t look as if Sage is going there anytime soon:

Yet speaking to CBR, [Paul] Stobart [Sage UK CEO] 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.”

You can parse this many ways but the one that immediately springs to my mind is that Sage can’t find it within itself to give up control of its on-premise franchise without the fear of disrupting its business model. It’s a DNA thing coming from a company that’s enjoyed tremendous success and can’t see past that to a point where things start to tail off.

The second thought is that Sage is misreading the market. NetSuite may only have a few thousand customers but that translates into $40 million in revenue in the last quarter. Sage claims 5.8 million customers with last half revenue of £748 million ($1.225 billion) NetSuite is getting around $6,500 per customer per quarter. Sage got just $211 from each in the half. I know the analysis is flawed because of currency fluctuations and reliance on customer number guesstimates but regardless of any adjustments, who’s really winning? The order of magnitude difference is too large to be ignored.

The third thought is that Stobart is giving salesforce.com more credit than it deserves and forgetting its own history. Sure, salesforce.com is a $1 billion plus business today but it has taken both that company and NetSuite more than 10 years to get to a position where they warrant continuing attention. Sage was founded in 1981, didn’t float on the UK stock exchange until 1989 and finally entered the FTSE 100 in 1999. That’s 18 years in the making and Stobart wants to see similar success today? These things take time and despite all the hype around saas there are very few overnight success stories in business software.

It doesn’t have to be this way. When you look at the history of software development, it almost always starts with a handful of developers. How that’s organized is a matter of discussion. For instance, CODA has managed to get its CODA2Go service into the market while remaining firmly within its existing corporate structure. The key has been top down support from CODA’s CEO and a hands off approach by its Agresso masters. CODA is growing its saas team but it still counts less than two dozen in development. From what I hear, Sage’s efforts have been dogged by political infighting and interference with an otherwise small but enthusiastic team. Nothing is more damaging to software development and the results are plain for all to see.

Despite what the naysayers might dream, SAP has managed to get an ERP suite service to market. Again, within the context of a much larger organization and having spent hundreds of millions of dollars, it’s a monster product. Sure, SAP has its problems but the Business ByDesign service is out there running SME companies. Here’s a short video from a customer talking about their ByDesign implementation. I have an invitation to revisit in three months to see how well they’re doing. Elsewhere, the 40+ wannabes in the UK saas market are run by tiny teams. Some are doing better than others but collectively they are defining the shape and look of 21st century software. That’s what’s exciting in a market that had become dull.

Sage’s problems can be overcome but in its case, the company has to find a way of freeing up sufficient resources AND support a new organization from the top down. To this outsider, it is blindingly obvious but I can well understand the internal turmoil that must be convulsing Sage’s management on this topic. But think about its strengths. Sage is in the luxurious position of generating plenty of cash, something the new entrants can only envy. Sage could throw $500,000 to $1 million at the problem with ease and barely notice the difference. It’s a rounding error in their accounts. That’s an order of magnitude more money than most of the new entrants can hope to dream about in the current venture funding climate. That alone should give Sage the confidence to really get serious about the topic. They have the people and I’m sure they’d enjoy the challenge a cash rich, freed up organization would bring.

The near term risk for Sage isn’t going to come from the new entrants. They have years to go before they become a genuine threat. If that ever happens. I argue that the new entrants can comfortably forget Sage because the newbies are mostly reaching a segment of the market that Sage cannot service very well. When I hear that a new vendor is going after Sage customers I say ‘Doh!’ It’s a guaranteed waste of marketing spend. The real risk is that in seeing choice, customers who are fatigued by the bloatware that Sage’s flagship product has become, will simply drift away. I am already seeing that in SAP customer examples. It’s happening in dribs and drabs today but a year or two down the line when SAP hits the marketing gas pedal hard? And by then what about Xero which is working like crazy to add functionality?

The alternative is perhaps the harshest critique any software company can endure: irrelevance.

Tagged as: ERP, netsuite, sagesoftware, Salesforce.com, SAP