1112RA From the Summit – Sage North America Reinvents Almost Everything

What is Happening?  Saugatuck SVP Bruce Guptill spent this week in Nashville participating in Sage North America’s annual customer and partner Summit. In addition to participating in group sessions with Sage channel and product executives, Guptill took part in numerous sideline discussions with Sage partners, and one-on-one interviews with Sage CEO Pascal Houillon and CTO Himanshu Palsule. Q&A from that interview will be published in a separate, in-depth Strategic Perspective for Saugatuck CRS subscription research clients.

Our net takeaway from this year’s Summit: Like other business software vendors everywhere, Sage is in the middle of a company-deep, Cloud-necessary reinvention. The rapid pace of market change has forced Sage to accept and execute a potentially overwhelming series of significant business and technological challenges, including the following:

• Re-branding. At last year’s Summit, then-new CEO Houillon upset a substantial number of long-time Sage partners by announcing a company-wide re-branding, putting core accounting and ERP software – from Peachtree to AccPac to MAS 90 ERP and more – under the Sage brand name, identified with a numbering approach denoting increasing capabilities: Sage One, Sage 50, Sage 100, Sage 300, and Sage 500. Attendees at this year’s Summit still discussed the rebranding initiative.
• Sunsetting. Not all Sage software offerings are suited to a long-term, Cloud-enabled future. At this year’s Summit, many partners were surprised to hear that Sage 500 has been given a definite end-of-life span, slated for support through 2017. Company executives let it be known (without confirmation or specific dates) that other offerings are ripe for looming EOL as well, likely including Sage Pro ERP, Sage PFW ERP, Sage BusinessVision Accounting and Sage BusinessWorks Accounting.
• Re-focusing. The sunsetting is part of Sage’s organizational and structural refocusing on core offerings and business, freeing up research, development and marketing funds to drive business where it is mostly likely to grow – i.e., Cloud-related, including mobility.
• A little off around the edges. That re-focusing extends to Sage’s product development and rollout approach. According to CTO Palsule, customers and partners “are asking us to stop creating complexity in our products. Technology has to be an enabler, not an impediment. We have to start scaling back with the complexity that we create." As a remedy, Palsule reiterated the approach of incremental, Cloud-services-based solution enhancement first explained to partners at last year’s Summit as “Sage Connected Services.” “Our products will be simpler,” Palsule promised.
• Subscription pricing. One more Sage move that upset partners earlier in 2012 was the announcement of a subscription pricing option for its ERP offerings, including the current ERP X3. Houillon described it at the Summit as a means to extend partners’ abilities and portfolios, and as a way to win back customers that are “off plan,” i.e., the two-thirds of Sage's customers that are not on any maintenance or support plan.
• Going mobile. In support of rolling out significant investments and improvements in mobile-device access to its core software offerings, Sage executives quoted a range of statistics regarding the number of business users using mobile devices now and in the near future. The statistics were likely unnecessary, given the distribution of smartphones and tablets in use during the announcement. It is enough that Sage recognizes the looming importance of mobile access to business software and data, and has made substantial strides in that direction.
• Triple-acting Cloud platform strategy. Not content to rebrand, refocus, re-position and re-invent, Sage also laid out a three-pronged Cloud platform strategy for its next-generation business software. For businesses with up to nine employees, the company offers Sage One, a multitenant SaaS offering built on the open-source Ruby on Rails web app framework. Launched in the U.S.in May 2012, Sage One is expected to acquire a series of additional features over the next 18 months, including banking integration, mobile capabilities and online invoice payment.

To address the needs of SMBs with hybridized legacy+Cloud business management environments, Sage announced a hybrid strategy partnership with Microsoft and its Azure platform. The first Azure-built offering in the market is Sage Construction Anywhere, launched this past May for North America. Azure development has been announced as “in process” for Sage’s complete ERP line.

Finally, Sage announced its next-generation ERP X3 offering, a fully web-enabled ERP platform for the mid-market that is expected to displace the existing ERP X3 over time. Initially developed by Sage overseas, the new ERP X3 platform is scheduled for North American release in early 2013.

Why is it Happening?  Any of the above exercises could severely limit the ability of any software vendor to do business effectively; to attempt all of the above at once is inviting adversity.

But Sage needs to make these things happen, and to make them happen relatively quickly. Though widely known overseas, and even though half of its customers are in North America, Sage is still relatively unknown here in the U.S. But rebranding is actually a relatively small piece of what Sage needs to make happen. It began moving toward SaaS / Cloud-based applications, including ERP and mobile access, more than two years ago.

Unfortunately for Sage, a significant percentage of its SMB customer base, and the channel partners serving that base, have been reluctant to embrace Cloud until very recently. Our discussions with Sage customers and partners this week indicate that much of that reluctance has been based on a lack of knowledge and experience regarding the possibilities and benefits of SaaS and Cloud. Channel partners felt a threat to their established business (as evidenced by the strong initial sentiment against Sage’s subscription pricing model). SMB customers we spoke with said that they had seen little compelling need to change from their legacy business management applications, especially coming out of a prolonged economic recession. Those that did see the benefits of Cloud-based apps indicated some confusion regarding which of Sage’s offerings were available in the Cloud, and with what features, and at what pricing.

The result: Confusion among customers and channel partners in a time of rampant software technology and business model change, with a bevy of pure-play and hybridized Cloud-based competitors encroaching on Sage’s lunch, and poised to eat more of it. NetSuite, for example, has specifically targeted Sage customers and channel partners.

Market Impact  A refocused, Cloud-enabled, mobile-friendly portfolio is not only the right move for Sage, it is the only strategic move that makes sense. The three-headed beast of a Cloud ERP platform strategy – Sage One, hybridized Azure, and ERP X3 – also makes sense when viewed in the context of the targeted customers and in the context of Sage’s strong emphasis on simplification. Yes, having three different Cloud platform strategies is part of simplification, as it enables Sage to simply and readily target, deliver, and support each of its three core customer constituencies – very small/micro business, hybridized SMBs with legacy ties, and mid-sized firms aiming for pure-play Cloud ERP.

Sage’s organizational and product approach should also enable much more effective and efficient R&D investment, which will be needed to keep pace with the accelerated rate of software business innovation (634SSR, An Endless Cycle of Innovation: Saugatuck SaaS Scenarios Through 2014, 27Aug2009).

But there are of course no guarantees. Management must continue to get more customers and channel partners on board, and find more/new partners as well. Sage’s partner education efforts in that regard, especially as regards SaaS/Cloud technology and business model change and management, are exemplary.

Then there is the matter of time, or more accurately, of “Cloud speed” (1044MKT, Defining “Cloud Speed” and its Impact on IT and Business, 23Mar2012). One thing that Saugatuck has long admired about Sage is the company’s careful, really methodical approach to solution development and markets. Sage makes few if any sudden moves. And we have seen much of what Sage is doing now coming for quite some time from previous briefings and discussions. But in business management software markets running at Cloud speed, time is a luxury fast turning to a rare commodity.

We believe that Sage is making the right moves, and doing so adroitly so far. We will further examine the company’s leadership vision and ability to execute this critical series of business moves in an in-depth interview with Sage CEO Pascal Houillon and CTO Himanshu Palsule, to be published for clients of Saugatuck’s CRS premium service.

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