Could Sage sell paint? Or does it have a cunning plan?

In all the back and forth going on about Sage’s half time results I received this from one observer:

They’re not a software company in the true sense. They’re morphed into something that smells more like a (public) private equity portfolio where the software is a means to a revenue end. It could as well be selling paint.

Ouch – that’s got to hurt. If you’re a buyer, would you feel happy about your primary supplier having this market perception? Despite the barbs – and trust me they are pretty acerbic in some channels – I can see the logic. If you advise clients on portfolio strategies then you’ll get the point. In the broader analysis, the money people seemed happy about the way Sage is aggressively paying down its debt but when you look at the share price it’s not performing well. Why should you care? While the software industry comes in for plenty of criticism, innovation of the kind I understand is critical to ensuring good business health. Sage is barely making table stakes at the moment.

And as it moves further away from its original purpose, the aggregated data shown in its public statements gets more difficult to parse with certainty. That’s not good, either from a trade or financial analyst’s perspective. It is a company becoming less rather than more transparent. But then on another call I was asked an interesting question: ‘Do you know if Sage is developing for the Force.com platform?’ There then followed an interesting back and forth before I revealed that this is not the first time I’ve heard this rumor which I have yet to confirm.

If true then this is something about which professionals should take notice. Force.com is Salesforce.com’s development platform. If you are a developer and prepared to pay Salesforce’s entry fees then you get a playground upon which you can build pretty much anything you like. The beauty is that:

1. You have a much faster product build than is the case starting from scratch. That’s because Salesforce.com takes care of the infrastructure.
2. Applications built on the Force.com natively integrate to Salesforce.com with (comparatively) little additional work required.

Add it all up and you are much faster to market than is usually the case with the potential of reaching the 92,300 companies that run on Salesforce.com. A first glance would say: ‘no brainer’ but then you have to ask, ‘why isn’t everyone doing it?’ Actually, a lot of developers are building out apps that work with Salesforce.com but very very few have anything approaching a workable financial accounting solution in the marketplace. Financialforce.com with which Salesforce.com has an investment ($client) is the only one I know with demonstrable traction. It will at some stage likely be joined by Workday which has solid HR and is tuning up for a proper financials launch in early course. But these two companies play in a larger space than Sage.

In Financialforce’s case, it is more likely to pick up Sage upgrade customers. If you’re following along so far then the next logical question is: ‘Can Sage develop something on the Force.com platform that is competitive for the markets it serves?’ I think the answer to that is ‘unlikely.’ While I have applauded its public statements about ring fencing SaaS/cloud development, building on the Force.com suggests it is trying to build out a second string to its own upgrade market opportunities. Right now, the emphasis is on the French based X3 solution. Sage will try rationalise this as ‘choice’ but in reality, the on-premise, license fee addicts will try block and tackle to ensure whatever comes out the other side is at worst on par with X3 and similar offerings rather than the obvious competitor it should be. All of that is just for starters. There are at least nine other broad issues to consider:

1. There are many technical issues to building on Force.com with which Sage will not be overly familiar and there will be hurdles it cannot easily overcome.
2. Implementing Force.com apps is usually pretty straightforward but if you are doing something major like a finance system then you need a lot of help. It is possible automate a lot of data conversion work but implementers are often faced with helping customers make a substantial technical leap. The fact you may be an experienced Line 50 user doesn’t help because we’re talking IT stuff that cannot be avoided. Sage will have to assume responsibility for the onboarding since there is nothing much of value for its channel to contribute in exchange for value received. At least at current price points. That’s expensive work and means Sage has to build a specific style of services organisation. Having the famed Sage Call Centre wont do the job.
3. The flip side is that you can imagine Sage building a volume model, gaining some experience, leveraging its Google relationship to add a bit of spice into the mix and then throwing that over the wall at the channel. That wont be easy either because as Skyytek will tell you, cranking out a volume based reseller business requires very different disciplines than are currently present in the UK market. But let’s not be too pessimistic.
4. There is time to get the job done. Provided that Sage is willing to make the financial investments needed to ensure a clean start. This is where I get nervous. Sage has not demonstrated any particular appetite to pour money into this type of investment. Other SaaS vendors will tell you it’s possible to get going on a few hundred thousand pounds/dollars. True – but not in the Force.com world. In this world you have to run incredibly quickly which inevitably requires large investments.
5. UNIT4, FinancialForce.com’s ultimate parent recently signaled an ongoing commitment to investment that has led FinancialForce.com to quickly verticalise into professional services. That trend will continue. Can Sage match the required investment levels? Of course it can but only if it is willing to take the inevitable risks.
6. I have to ask whether the UK market is truly ready for this style of solution. Note that while FinancialForce.com has a significant UK presence, its efforts lean towards the US market which is much larger than the UK. NetSuite’s current UK operation represents less than 10% of the whole. Could Sage leverage its existing US market position? How would it solve the reseller problem?
7. Can Sage price such a solution correctly? Sage’s likely target market presents particular problems. While Salesforce.com has done very well, small companies with (say) 10-15 users quickly find costs to be prohibitive. I have a ‘flight’ case on my desk at the moment. It’s not a complicated business yet there are a string of issues which suggest an alternative. Would Sage be faced with the problem of businesses migrating off Salesforce and effectively scuppering their financial implementations? I’ve seen it happen.
8. All these questions raise doubts in my mind. As someone who has been close to principle players the last couple of years, I see only too clearly just how challenging it can be to not only build functionality but get the right customers on board. There are no short cuts and unless Sage can intelligently anticipate the problems there is every chance it will experience the same problems as all others who operate in this field. One mis-step in gauging the market alone could send them down a costly blind alley.
9. But its greatest impediment comes in how Sage views development. It has a habit of assigning profit responsibility to internal development that doesn’t fit well with the investment model I am discussing here. If certain numbers are not met then that’s it – game over. However efficient that model might be today, it is useless in the cloud world.

If Sage is indeed developing along the lines I am hearing, truly understands the challenges and has the internal will to make it happen then we could be in for an exciting ride. But an awful lot of stars will need to be correctly aligned.

Post image courtesy of Jeremy Waite

Thumbnail image courtesy of Sharenator