Global versus Local Channel Approach, Who Will Win?

MBSThe Global Channel Approach

On one hand, "super" or "mega" value-added resellers (VAR), or resellers that are morphing into mighty systems integrators (SI), are developing for MBS products to the point that it looks like a new level of distribution is being created that should help with the impending internationalization and verticalization of some MBS products.

For example, the 3,000-person large Seattle, WA-based Avanade, which is owned almost equitably by Accenture and Microsoft, recently purchased En'tegrate Software, a Chicago, IL-based reseller that was one of the largest MBS Axapta resellers in the US. The VAR had also developed the MBS Axapta add-on solution for lean manufacturing, and a wizard-based configuration and system setup tool suite dubbed ERP Complete, which was acquired by Microsoft prior to Avanade's acquisition. The tool guides Axapta users through each implementation step, and has reportedly allowed some companies to cut the implementation budget by even one quarter of the initial estimate. ERP Complete comprises four major modules that provide automated support for program management, software configuration, and communication management, and that deliver a library of additional resources for Axapta partners. The tool, which will initially be provided free to all registered Axapta partners in the Microsoft Partner Program, has also reportedly reduced total cost of ownership (TCO) for Axapta in many manufacturing implementations.

This is Part Five of the Is "Sage" Wiser and Better than "Best"? series.

As outlined earlier on, part of MBS' overall strategy is to simplify and speed up software implementations and reduce the TCO for all of its enterprise applications. Much of the implementation-related research and development (R&D) work has been carried out at the platform and architecture level, whereby one of the objectives of Project Green, the initial initiative to create a new generation of component-based business applications, was to ease implementation. However, with the project being dependent on the much-delayed Longhorn operating system (OS) release, the application development schedule also had to be pushed back, together with the implementation-related development. Meanwhile, MBS had to keep content its substantial install base and attract new customers, likely contributing to the yet another pragmatic move to acquire the toolkit rather than wait for architecture-level changes down the track.

Further, Tectura, an MBS VAR based in California with $150 million (USD) in revenues, but which aims to have a total revenue of $300 million (USD) by 2006 and $500 million (USD) by 2007, has been expanding across the Atlantic with several 2004 acquisitions, such as of former Aston Business Solutions and Cosmo Consult (both with strong European roots). At the end of June, the company added another company in a whole new geography to its portfolio—Enterprise Solutions Group (ESG), with around 300 Axapta and Navision professionals in 14 offices across Asia. Also, ePartners Solutions, based in Irving, TX, and with $60 million (USD) or so in revenues (that in 2004 also acquired Chantilly, VA-based EYT), and Interdyn, a $40 million (USD) consortium of MBS Great Plains resellers, both established European connections in 2004, while Altara, a $16 million (USD) in revenues, Cedar Ridge, NJ-based MBS VAR recently opened its London office, with plans to have up to 60 people working in Europe by the end of 2005.

As indicated earlier on, this need for MBS VARs to achieve bigger scale and international expansion is being fueled largely by two MBS lines that come from former Navision acquisition, Axapta and Navision, which are strong in many overseas markets owing to their traditional multi-national capabilities and presence, but which are also growing in North America.

By contrast, Great Plains, the best-known SME enterprise resource planning (ERP)/accounting product in North America (and still a major revenue contributor to the MBS top line), and Solomon, one of the best known project accounting packages, are not well known overseas. This is by no means to imply an uncertain future for these products. Quite the contrary, the above-outlined upcoming releases seem to be well thought-out roadmaps in tune with the users' needs and to preserve each product's niche strengths. For example, last year's acquisition has rendered Great plains as a NFP solution response to Best's superiority in the segment (see Microsoft to Add "Encore" Functionality to MBS Great Plains 8.0), while ever more intrinsic integration with Microsoft Project and the Outlook user interface (UI) metaphor will vouch for Solomon's acceptance by project-based companies (see Solomon Stands the Test of Time Despite Changing Masters).

MBS does not believe there is value in rewriting existing code, but rather it is focusing on the aforementioned revised Project Green, which, in a revised form has become an effort to build a next-generation extended-ERP system that is supposed to place all MBS enterprise applications on a pure service oriented architecture (SOA) (rather than on a single, rewritten code), but on separate tracks as to preserve the differentiating traits of each ERP product. The way the SME segment is (i.e., it requires small nimble applications for the lower-end of the spectrum as well as medium-size, complex applications for the upper-end of the spectrum), seems to need the people and process focus that is depicted above. Going forward, with all applications being converged within Project Green, MBS does not still want to create the monolithic entity of, for example, SAP R/3, against which it might today still be competing, in addition to other challenges associated with a revolutionary (rather than evolutionary) approach.

However, MBS does not yet have a set-in-stone product roadmap, nor has it announced a final delivery time line for Project Green, albeit there are recently unveiled revised plans for a gradual delivery (in two so-called waves, with different extent of SOA enablement and code convergence). At this point, the vendor is using .NET technology indirectly by exposing current applications through XML and Web services to allow customers and partnering independent software vendors (ISV) to integrate current applications to .NET. Such a strategy would leverage middleware and integration tools, such as the Microsoft SharePoint Portal Server and Microsoft BizTalk Integration Server, which are built on the .NET technology.

Sage/Best—The Local Channel Approach

Sage/Best, on the other hand, seems unlikely to see such global-scale expansion of its resellers, at least in part because there seems to be more investment money available for those doing business with Microsoft. Yet, Sage is investing heavily in supporting the channel as it always has. It is also reportedly seeing consolidation of partners regionally and a movement towards a unique focus on Sage products. For example, Net@Work recently merged with American European Consulting in New York, whereas ERG merged with Burch Consulting in Texas, both creating a broader combined skill set and services to customers as a result.

Recently, we have also witnessed Microsoft attracting some resellers (e.g., ePartners and Tectura) to go solely for MBS products from previously peddling both MBS, Exact, or Best. Two at least can certainly play in this game, as significant Sage partners such as BDO Seidman and ITG, among others, have dropped Microsoft Great Plains to focus exclusively on Best products. The truth of the market place is that the universe of business partners for business management applications is not rapidly growing with unknown partners suddenly deciding to get involved with enterprise applications for the first time. Instead, the universe of existing applications partners is relatively well known, and some movements from product to product within that universe occurs naturally.

Sage has more than 6,000 VARs in North America already and is seeing movement towards partners dropping competing products to focus solely on Sage products. Also, MBS recently appointed former Best's executive Craig McCollum as VP of MBS sales strategy, in great part due to his experience in handling multi-code products, which might indicate MBS' two-prong approach to maintain local strengths of some products on one hand, while nurturing global opportunities on the other, particularly for Axapta.

Furthermore, Sage/Best does not market many of its major products on a worldwide basis, which means less need for international resellers. The vendor has long contended that insistence on a single accounting platform across multiple worldwide operations is not a big issue in the middle market, and that localization is the solution. For that reason, the vendor has strictly pursued a best-of-breed approach, favoring a local product with a local touch. Sage markets different lines in different countries, buying leading players in Spain, Poland, France, and so on, that are little known elsewhere.

On the lower-end, Sage has Peachtree in the US, while Simply Accounting is the number one market share leader in Canada, and former Softline's Pastel, the number one in South Africa, does not sell much elsewhere. For larger SMEs in the US, that choice has meant ACCPAC, MAS 90, MAS 200, and MAS 500, along with Peachtree, BusinessWorks, FAS, and the Platinum for Windows (PfW) BatchMaster line. In the UK and the Southern Hemisphere it has been offering the Line 50, Line 100, Line 200, and Line 500 products, while in France it would be Ciel, and elsewhere in Europe, other popular local brands like SP in Spain. As a result, not many customers can integrate the UK Sage product lines (e.g., Line 500) with the US Best Software counterparts (e.g., MAS 500), albeit the same would currently hold for MBS' Great Plains, Solomon, Axapta, and Navision product lines.

While one could argue that separate products in separate countries is a necessity to provide a best-of-breed localized approach, still, some might perceive it as an excuse for the result of a market share increase opportunity buying binge. In the SME market, it is true that a small percentage of companies in fact manage their books across political and geographic jurisdictions, so, while there is demand for international products, that demand is small compared to the overall market. It is also true that businesses want more products designed specifically for them—thus the movement to more vertical industry-oriented products and the logic of nationally developed products. The French appreciate a French product that supports not just their language but the nuances of their business processes. As a vendor, it is valuable to have an increased market share, but equally valuable to provide customers with products suited to their needs. Where an international product is required, Sage offers choices, such as ACCPAC and Platinum for Windows, and there are valid reasons for doing so. In these cases, the degree of localized functional support may not be as deep as locally developed products, but the weight of a client's need for international integration may be heavier and therefore make that compromise acceptable to a customer.

The Impact of ACCPAC

On its hand, Sage/Best Software's ACCPAC product line remains international, but primarily in the English-speaking regions. Originally founded in Vancouver, Canada, and subsequently based in Pleasanton, CA, prior to being acquired by Sage, ACCPAC has offices in Australia, Canada, India, Ireland, the Middle East, the Netherlands, South Africa, Southeast Asia, and the UK, and it also has more than 500,000 customers in more than 130 countries worldwide. Of those, over 140,000 are larger SME customers, notably in the US, Canada, South Africa, Australia, and Singapore, while ACCPAC also serves 400,000 smaller SMEs predominantly in Canada.

It has developed its global strategy centered on the Windows-based, open-architecture Advantage Series from the ground up as an international product, available in multiple languages with multicurrency support. Its three editions—Small Business, Corporate, and Enterprise—scale from single-user remote locations to enterprise environments. To that end, a company in the UK can, for instance, have a subsidiary in the US, South Africa, or Canada running on the same software due to a large number of currencies including the Euro, currency gains/losses, GL transactions, check writing, and support of a goods and services tax (GST) and value added tax (VAT) available features.

Prior to acquiring ACCPAC, Best Software, in particular, never had a product that satisfied core accounting in Canada and internationally. Let alone the specific regional requirements like in India, such as excise for manufacturing, sales tax, payroll, or fixed assets with two depreciating rates applied for each asset—in terms of Indian Companies Act and Income Tax Act, which ACCPAC will manage with ease.

Last but not least, ACCPAC might still be leading the pack in delivering multicurrency/multinational and inter/intra-company consolidation capabilities and in built-in financial report writers that provide flexible query and report creation without programming. It does not localize multilingual software by developing patches from existing local software and tweaking it for new markets, but it rather develops its multinational product from the ground up to ensure it is relevant to the market it is to serve. Not to mention ACCPAC's hosting capabilities, which are yet to be seen by MBS and are being embraced by the Sage/Best parent.

Consequently, the major quandary for Sage/Best might still be whether to base the long-term strategy on leveraging ACCPAC's technologically superior and more international product into an overriding and somewhat unifying enterprise solution, or to remain as a conglomerate of stand-alone solutions with strong brand names. As to partially provide the answer to the above quandary, in June, Sage/Best Software announced its plan to deliver a series of Best Suites for a range of industries, all designed to advance the company's drive to service the industry-specific needs of its vertical market customers. Best Suites will thus include solutions for accounting practices, construction, distribution, manufacturing, non-profit, and real estate. With each Best Suite, customers can begin with a recommended core accounting package, and then select additional applications such as customer relationship management (CRM), human resources (HR), and others, as their business needs dictate, and as their businesses grow. Using this linked building-block approach, customers can eventually think in terms of a complete business solution, rather than purchasing isolated applications, to create an integrated end-to-end business process.

Integration of the Best Suites product portfolios is made possible by two Best Software technologies—Best Software Integration Framework and Best Software Common Desktop. Best Software Integration Framework provides a common protocol that enables data and process integration between Best Software front- and back-office applications and third-party solutions, with a technology that is based on Microsoft .NET and XML standards. Initial implementations of Integration Framework are being shipped in Europe, integrating SalesLogix with Line 200/500, an accounting product marketed by Sage/Best Software parent, The Sage Group, plc.

Further unifying the company's solutions and vertical industry initiatives, Best Software Common Desktop offers a single point of entry for users to organize and access Best Software applications. It will provide a common interface across Best Software applications, providing users with solutions that deliver best-of-breed functionality for their respective industries, coupled with usability standards that are shared by all of those applications. In addition, using hypertext markup language (HTML), the Common Desktop will deliver relevant user content, such as software maintenance, updates, and product enhancements, based on the customer's products and versions.

Best Software's current initiatives extend its solid foundation of established industry expertise gained through company acquisitions, including Timberline for construction and real estate; both the MAS and ACCPAC product lines, which have deep roots in manufacturing and distribution; MIP for non-profit organizations, and CPASoftware for accounting professionals. The company will begin to roll out its vertical initiatives over the next 12 to 24 months, as it implements Common Desktop and Integration Framework into its products.

If one is to judge by the past, Best does not easily sunset product lines. It is still marketing the antiquated DacEasy, releasing a few nominal upgrades in the market every now and then. Somewhat resembling SSA Global, the vendor's rationale is that if it can still make money with old products while continuing to satisfy customer demand, it will, which seems plausible in this economy (see SSA Global—The Right Product Strategy).

Only time will tell whether "the tail will be able to wag the dog", given that in Sage/Best's case, ACCPAC's revenue contribution is minute compared to other, even antiquated product lines. On the other hand, although ACCPAC has a notable worldwide presence, and the number one position in, for example, Canadian and South African accounting markets, it has no market leadership in many crucial mainstream regions or in certain vertical segments. Still, one may notice Sage embracing many old ACCPAC ideas, such as hosted applications, platform agnosticism and end-to-end provision business computing scope. The willingness of a traditionally conservative giant to learn from an innovative child is quite refreshing.

Yet, in the long term, the difference between being a "stable SME vendor" or "the SME leader" will be in showing its thought leadership beside a mere market-share number, where MBS believes its eventual ability to offer the as-unified-as-possible code base across hosted and on premise solutions will prove to be advantageous. Many SME incumbent vendors have indeed embarked on major projects to converge disparate functionality within several acquired product lines into new generation of business applications. While these undertakings are still largely a lengthy work in progress, the promise is within SOA-based modern architectures, which should allow resellers to sell extensions to the applications, while preserving the migration path for the foundation accounting/back-office components.

This concludes Part Five of the Is "Sage" Wiser and Better than "Best"? series.

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