Best Software Delivers More Insights To Its Partners (As Well As To The Market) Part Three: Market Impact

Market Impact

At the beginning of June, somewhat coinciding with the onset of PeopleSoft/J.D. Edwards and Oracle drama bloodshed (see Frantic Merger-Mania Spiced Up With Vendettas Leaves Customers Anxious), Best Software, Inc., one of the leading incumbent providers of integrated accounting, business management, HR/payroll and fixed asset solutions for small and mid-sized companies in North America, and a subsidiary of UK-based The Sage Group plc (LSE: SGE.L), one of the leading providers of business management software for mid-sized companies worldwide, with annual sales of $870 million and 3.1 million customers worldwide, organized its first annual Insights 2003 conference for 2,000 business partners in Orlando, FL.

As the market battle and consolidation rage in full swing, Best Software continues to take appropriate steps to establish itself as a force to be reckoned with. For both Sage and Best Software, consolidation is neither a recent nor a startling event. As a matter of fact, Sage/Best Software is likely the most nagging thorn in Microsoft Business Solutions', Intuit's and/or ACCPAC's flesh, given it still has a bigger channel and market share in almost all small to medium enterprises (SME) categories (e.g., entry level accounting, small business solutions, contact management/CRM, non-profit businesses, etc.) via its well-crafted strategy to both develop and acquire a very complementary slew of best-of-breed products and to develop interoperability and a reasonably smooth upward migration path within its portfolio. These "customer for life" and "to lose' customer to ourselves" (i.e., to another Best product) mantras seem to have resulted in a rare organic growth these days.

However, the Best Software brand has yet to have a universal ring, like those of Microsoft, IBM, SAP, or even Intuit for that matter have. Thus, Best Software does not intend to remain a tacit lower mid-market (i.e., SME) powerhouse any longer. Given its parent's notable revenue level coming close to, e.g., J.D. Edwards' revenue, and being quite higher than those of Geac, Microsoft Business Solutions (MBS), SSA GT/Baan and Lawson Software, making it an ultimate juggernaut within the SME market per se, the time has come for Best Software's mind share to become commensurate to its size.

Given its long incumbent status and proverbial focus on the SME marketplace, its impressive product portfolio assembled through a number of sensibly acquired solutions that address the needs of the market segment, its humongous compound customer base (i.e., 1.7 million users in the US and 3.1 million users worldwide, compared to modest' 112,000 and 270,000 MBS' users respectively) and an extensive distribution channel of 6,600 value added resellers (VARs) in North America alone (and 18,000 including Sage's VARs globally), over 5,000 retail outlets, in addition to telesales, direct email & Web ordering, look for Best Software/Sage as one of the biggest barriers (in addition to Intuit) the likes of Microsoft, Oracle and SAP should face in their further penetration of the market segment.

With Best having already captured a lion's share of the market estimated to consist of several millions of small enterprises (Best's sweet spot is companies with less than 250 employees) or ~$14 billion in revenue opportunity, and continuing to capture new customers (i.e., with reportedly 60,000 new customers in the US and 115,000 customers worldwide for the first half of 2003, compared to a mere' few thousands that MBS has captured at the same time), the likes of MBS will likely have their work cut out for them despite their recently unveiled sound strategy and product offering (see Microsoft Lays Enforced-Concrete Foundation For Its Business Solutions and Microsoft Convergence 2003 portrayed an Enterprise Solutions crossroad!).

This is Part Three of a five-part note.

Parts One and Two summarized the Event.

Part Four will continue the Market Impact.

Part Five will discuss the Challenges and make User Recommendations.

Comparing Best Software and MBS

It is always amazing to see how opposites attract as well as to conversely see how similar some adversaries can be. While it is possible that Best and MBS might have looked over each others' shoulders while doing their recent go-to-market strategy homework (e.g., to place sales and marketing responsibilities within different divisions i.e., small business vs. mid-market business, which are split by customer size and method of distribution, i.e., retail vs. resellers, and to also create parallel mid-market sales organizations in charge of all customer- and partner-facing activities, including installed base sales run by Orlando Ayala at Microsoft and David Butler at Best Software), the more likely scenario is that a broad impeccably integrated horizontal offering with selected vertical enhancements, nurturing resellers network (i.e., to help partners help you), providing simplified financing and pricing, as well as catering for evolving scalability & migration needs of customers are simply the necessary tenets of success in the market segment that both contenders have grasped.

However, there are notable differences between the two formidable foes that go far beyond the differences in their CEOs' management styles i.e., between more informal Doug Burgum's dress code, hairstyle or convoluted visionary' keynote speeches (not to mention that discerning the formal MBS' reporting hierarchy and responsibilities of Burgum's subordinates is as fuzzy and evolving as to discern what exactly constitutes the evolving Microsoft .NET technology stack) and a quite opposite formal corporate style of Ron Verni, where almost everything seems to be defined, starting with whom the second or third persons in charge are and what exactly the vendor plans to release within a defined period in the future.

First of all, Best Software has long been posting profits and organic growth, whereas MBS has been burning money lately (albeit not that it would significantly alarm the Microsoft parent). A great reason for this would be Best's prudent strategy of acquiring complementary products that lend themselves to cross-selling (e.g., FAS and ACT! to Peachtree customers, or Abra, FAS and SalesLogix to MAS customers) and upward migration (e.g., from Peachtree to MAS 90 to MAS 500). To be fair, MBS has the PWA Group, FRx and Forestar products somewhere in its fold through the former Great Plains' acquisition of these respective human resources (HR), financial reporting/consolidation and fixed asset functionalities, but it still has the four largely competing flagship ERP/accounting product lines. Also, while Best is benefiting royally from cultivating its large installed base, MBS' emphasis on hunting new licenses in a stalled economy has been dismal so far.

Best Focuses on Migration and Integration

Indeed, to address the evolving needs of its customers for software upgrades/migration, Best now offers a customer migration center, as well as a migration strategy aimed at helping the higher-end companies within its small business base that are ready to move to the mid-market and beyond what its lower-end Peachtree or BusinessWorks Gold software can offer. The company has long taken steps to adopt a migration strategy under the "Keeping it in the family" mantra, as it has been offering its own above-mentioned life cycle paths, and more recently the similar migration path from the ACT! contact management application to SalesLogix, a more comprehensive and customizable CRM suite.

In fact, Best is counting on its future growth coming primarily from the migration of its smaller customers to its mid-market solutions, as ~71% of its revenue currently comes from installed base activities (i.e., support contracts & maintenance, upgrades, payroll services, training, etc.). Moreover, in addition to the first half of fiscal year 2003 migration statistics (i.e., 29% of all new MAS 90 customers have migrated from Peachtree and, even surprisingly, 14% of all new MAS 500 customers have leaped' from Peachtree, while 4% of all SalesLogix customers have formerly used ACT! and 19% of new MIP Fund Accounting Pro customers have migrated from Peachtree), more than 285,000 customers maintain support contracts, providing a stable recurring revenue stream to the vendor in these days of reduced activity in the market.

Best Software, therefore, has almost all the ingredients of the recipe for success in the SME market, i.e., the functional footprint, several strong individual product brands, deep and ever-improving channel relationships, large installed base (many of which are small offices/home offices (SOHOs) referred to as a "feeder channel"), and financial stability. Still, the ingredients and a good recipe are only a good start, while it takes time and immaculate execution to produce a succulent dish'.

SME customers continue to increasingly realize the importance of seamless integration between front-office and back-office applications, and to consequently look for one strategic vendor (i.e., one throat to choke') to fulfill and be solely accountable for the vast majority of their business application needs, particularly in the lower end of the segment. Also, many of them have long outgrown their entry-level accounting solutions a la QuickBooks, DacEasy or Peachtree, and are looking to their original provider for functional expansion opportunities in contact management/sales force automation (SFA), CRM, HR/Payroll, and so on. Often in that quest, they turn to a trusted adviser (e.g., their accountant) for advice. Also, they require applications that are flexible enough and customizable to meet their business processes rather than the other way around (i.e., the company bending as to meet the business processes rigidly defined in the software).

Therefore, recent enhancements of MAS product suites, the SalesLogix CRM package and the well-liked ACT! contact manager application, as well as the addition of vertical add-on solutions to Best's existing ERP/accounting product array should indeed render Best Software an enterprise application vendor with a wide-range footprint covering, inter alia, CRM, HR/payroll, fixed asset management, manufacturing & distribution, time & expense tracking, budgeting, project accounting, fundraising & fund tracking, and general financial/accounting software packages. Not to mention the well-attuned value proposition in-the-making for its resellers within all distinct vertical segments.

While most vendors targeting mid-market customers should be intimidated by the fact that a number of the large enterprise applications vendors are trying to sway into their space (see Software Giants Make Courting A Small Guy Their 'Business One' Priority), the above facts give credence to Best's CEO's claim that his company continues to "take the oxygen out of the room" for growth in the mid-market for intruding vendors. Its formidable slew of products comes as a result of multiple years of the parent Sage Group's effort to rake up a pile of software products through a bevy of acquisitions, although many with a common thread. Companies such as former specialty products providers Best Software (acquired in 2000), Interact Commerce (acquired in 2001), DacEasy (acquired in 1991), Micro Information Products (MIP) (acquired in 2001) and Peachtree Software (acquired in 1999), all had strong brand recognitions in their respective target niches and a market presence in the SME market in which Sage had long specialized as well. For more than two decades, the evolving and ever-growing software company has strived to deliver easy-to-use, scalable and customizable applications through its portfolio of renowned individual brands.

This concludes Part Three of a five-part note.

Parts One and Two summarized the Event.

Part Four will continue the Market Impact.

Part Five will present the Challenges and make User Recommendations.

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