Sage half year: revenue continues to fall

In a further measure of how retarded Sage was in buying the healthcare division in the US market and just how vulnerable its results are to US economic trends, it’s half year results to 31st March show a continuing overall decline of 4% with a fall of 5% in North America. Describing the US result as ‘progress’ in the slide deck, subscription revenue fell 2% while software and software related services revenue fell a whopping 13%. SBS contracted 6%, payment solutions fell 2% while the healthcare division contracted 2%. The company expects the US stimulus packages will improve matters in 2011.

Subscription revenue in the UK grew 5% while software and software related services fell 11%. A 4% decline in mainland Europe revenue was described as a ‘resilient performance’ with ‘sound Spanish business impacted by weak economy – revenues  -9%.

A key indicator of how well a vendor is doing comes in subscription contract renewal rates. Sage says that 76% of its SME business renews. On that basis, Sage is having to effectively bridge a full quarter of its renewals in order to maintain UK growth. That’s an expensive proposition and contrasts sharply with SaaS renewal rates which I consistently hear are in the low 90% range.

In what some will see as a veiled reference to the saas market, another slide said: “SMEs are cautious of new technology but prepared to spend where it brings real business benefits.” My interpretation: “Sage customers and prospects are cautious about investing in Sage products and services.” If my analysis is correct, the saas market in all sectors is growing at rates that far outstrip the number losses Sage is reporting. That suggests to me that Sage is not the only company losing market share but that it will continue to lose while it doesn’t have a credible presence in the market. However in a stating-the-obvious nod to the market, Sage said: “Online accounting will be attractive for some SMEs, particularly small and micro, and web-native businesses.”

Sage believes it is well placed to deliver connected business solutions. By this it means a mix of on-premise and cloud. It may be in some territories and in some domains but the picture is chaotic with solutions all over the map. This is the price a company pays when it acquires technology rather than trying to build out and onto the global stage. In prepared remarks, Paul Walker CEO of Sage said: “We actually have quite a mixed strategy to recognize that different customers have different views.” It’s a credible argument but one that’s bound to lead to all sorts of discussions about whether there is a clear development road map. My sense is there isn’t one.

But it is in Sage’s remarks about saas/cloud that it demonstrates a horrific lack of market understanding. Mr Walker claimed: “Very few if any [of the saas solutions] are pure saas.” He must have missed that Freshbooks has more than 1 million users signed since 2004 and that 8% of those are in the UK. He also talked about small businesses entering information into an online cashbook that the accountant can access for bank reconciliation purposes. He described this as “Seeing data in a different way. For Sage that’s one of the critical things about saas solutions. ” I can almost see the tears of joy streaming down the cheeks of management at the saas players I know. That is such a retarded way of doing things. Modern saas systems either have or will have the ability to grab bank data directly from the banks and push that into the accounting solution. No reconciliation required. Seeing data the SAME way as the client is equally critical. How else would you resolve problems? Having the data visualized for different purposes is a different thing altogether.

It is clear that Sage is starting to come under fire for its chaotic saas/cloud position. Yesterday, Duane Jackson, Sage’s bête noire and saas circus monkey (and CEO Kashflow) told me that analysts are starting to call him up. As I quoted on ZDNet:

…the analysts have been interested in what went wrong with Sage Live, and what struggles Sage are likely to face in adopting a SaaS model – specifically looking for more meat around comments I’ve made in the past about it cannibalising the on-prem model…

if Sage bring in fresh blood from the outside that embraces SaaS then it could get very interesting in Newcastle. But if they recruit internally then perhaps not. Although I’m told that some of the internal people are very pro-SaaS and Paul Walker blocked a lot of things. So based on that then maybe even a new CEO recruited internally could make waves.

I suggested that perhaps “waves” isn’t what a lot of Sages institutional investors want, but I was told that isn’t the case and there’s a strong feeling that Sage are missing something important.

It’s too late – that boat’s already sailed.

See Sage 31st March 2010 results (PDF)

Tagged as: Business-to-Business, Duane Jackson, Paul Walker, Software as a service