Sage Analyst Day 2011: Not your Older Brother’s Sage - Part 2

Part 1 of this series analyzed the transformative events during the last few years at Sage Group, Plc (LSE: SGE) and its Sage North America subsidiary. These changes have led to the company’s analyst day held in Boston in February 2011, where Sage took a giant leap towards clarifying its position in the market.

The analyst day started with Sage Group’s CEO Guy Berruyer’s and outgoing Sage North America’s CEO Sue Swenson’s reports on their respective company’s current state of affairs. As the summary of both leaders’ presentations, Sage remains passionate about its customers and has been expanding connected (cloud-based software) services and online solutions to provide choices. 

Sage North America – the “Enrich, Connect, Grow” Strategic Framework

Himanshu Palsule, Executive Vice President of Product Strategy and Marketing of Sage North America’s Business Solutions, then presented Sage North America’s strategic framework and related Web strategy.

Palsule has been with Sage for over a decade, deservedly climbing the corporate ladder, and is an engaging presenter (sometimes with the quality of a standup comedian).

Similar to Infor’s “Enrich, Extend, Evolve” and Epicor Software’s “Protect, Extend, Converge” three-prong go-forward strategies, Sage has come up with its own extraordinary customer experience strategy with three pillars dubbed “Enrich, Connect, Grow.” Enrich refers to maximizing the performance of existing IT assets, while Connect is about growth via the aforementioned connected services. Finally, Grow is all about new customer acquisition in various ways (see Figure 1).


Figure 1

As for maximizing the performance of existing assets, in 2010 the internally measured Net Promoter Score (NPS) metric rose across the Sage portfolio. NPS quantifies how likely it is that customers would recommend Sage products and/or partners to a colleague or professional acquaintance. The vendor has also boosted renewal rates to 89 percent.

But customer value comes not only from product functionality, but also from how easy Sage is to do business with. One problematic area has admittedly been in service and support contracts, since Sage has had over 40 different maintenance and support contract flavors in its arsenal. For customers using multiple Sage products, this often proved nightmarish to navigate and handle. As a remedy, Sage recently launched the Sage Business Care program that offers three tiers of customer support (bronze, silver, and gold) and maintenance that bridge across product lines. The Sage Business Care model is going to be rolled out in phases to the various products.

Translated into the Web and the Cloud realm, extending existing IT assets means extending the Web to the customer’s desktop as well. Sage’s SData, a hypertext transfer protocol (HTTP)-based Web protocol that was first developed within Sage SalesLogix, enables that bridge between the desktop and the cloud as well as collaboration between Sage’s enterprise resource planning (ERP) and customer relationship management (CRM) product lines.

Sage Connected Services

The SData (Sage Data) framework for data and process-based integration of both on-premises and cloud applications and both Sage and non-Sage applications is the lifeblood and “secret sauce” of Sage’s second strategic pillar: Connected Services. Palsule highlighted mobility and cloud computing as the biggest drivers of change for Sage. The vendor’s strategy is simple and pragmatic: to marry the richness of on-premises applications with the reach of Web services in the cloud (i.e., accommodating hybrid IT environments). Sage’s Connected Services provide a vast area of opportunity for cross-selling and up-selling.

Connected services generally cater to either those mundane yet necessary activities that Sage’s end-customers spend disproportionate amounts of time getting right on their own or highly specialized services that require outside expertise. For customers, these connected services solve unmet business needs and add value with minimal disruption. Here is a list of some already available and upcoming mobile and Web services by Sage: data protection services, data services (backup, etc.), payroll & payroll self-services, employee benefit services, payment services, shopping cart services, electronic invoicing services, business information services, legal assistance services, tax compliance services, sales, marketing & lead generation services, healthcare services, and so on and so forth.

Some of these services come from the Sage Payment Solutions division, which provides payment card industry (PCI)-compliant merchant services for retail, business-to-business (B2B), and e-commerce businesses in processing customer transactions through credit cards, debit cards, and checks. The division makes electronic payment processing easy for more than 155,000 merchants, allowing them to accept multiple forms of payment, including credit and debit cards, electronic checks, the Check21 Act, gift and loyalty cards, and automatic recurring payments.

Sage Payment Solutions provide a wide range of secure standalone and integrated payment processing solutions. Sage Exchange, its Payment Applications Data Security Standard (PA-DSS) certified payments platform, integrates with many Sage software products to maximize the value of customers’ business systems with automatically updated credit and debit card transaction information. Future Sage Exchange releases will offer additional integrated payment capabilities, including advanced point-of-sale (POS) device integration, payment origination solutions, and cash management applications. Another major product line is SageSpark online billing and payment solutions.

As it can be seen from the above list, these online services go beyond software and make the whole Sage’s offering “stickier.” Many other vendors have espoused similar approaches (e.g., SAP, Oracle, Microsoft, CDC Software, IFS, Infor, etc.), and they typically refer to this approach as “software plus services.”

As for generally available (GA) services, Palsule showcased the online payments service, online backup service, and business analytics services for Sage Peachtree. Also presented were the following self-explanatory services for Sage’s renowned Sage ACT! contact management product: Sage Business Info services for ACT! (leveraging Hoover’s information services) and Sage E-marketing for ACT! (see Figure 2).


Figure 2

In addition to benefiting customers, Sage’s connected services should add value to partners’ offerings (while retaining client relationships), and provide them with a competitive advantage. Overall, to Sage, these connected services are expected to improve renewals and revenue, solidify its role as a trusted provider, and make the vendor a more credible player in the online world.

New Customer Acquisition Strategy

Finally, when it comes to the final strategic pillar of growth via new customers, Palsule claimed that more customers than ever are switching their software providers nowadays because of their exacting vertical needs. During the keynote presentation at the Sage Insights 2010 partner conference, he showed a “busy” slide depicting how Sage North America zeros in on various vertical industry vs. customer size needs.

As can be seen on Figure 3, Sage MIP Fund Accounting for nonprofits, Sage Timberline for construction & real estate (whose “customer for life” example was depicted in Part 1), Sage Intergy for healthcare, and Sage ERP MAS 500 for advanced distribution all cater to particular industry needs. Sage believes that its vertical focus leaves little “white space” and unfilled customer needs.


Figure 3

Sage Healthcare Division supports the business automation needs of medical practices with integrated Electronic Health Records (EHR), electronic data integrations (EDI) applications, and management systems including Sage Intergy EHR. The healthcare vertical’s attraction may have been validated by Microsoft recently moving its Health Solutions Group (HSG) from the Advanced Strategies & Research division to the Microsoft Business Solutions (MBS) group, which develops and markets Microsoft Dynamics business applications. As of now, HSG is no longer an incubation phase organization within Microsoft.

Similar to Sage, Microsoft believes that software is a critical part of the solution to today's growing healthcare challenges. The giant founded HSG on the belief that powerful software solutions, coupled with the power of the Internet, can help drive a re-engineering of care delivery models, medical research, and personal health management. HSG and MBS will each manage their own distribution channels and maintain relationships with business decision makers.

The Cloud Reality

Cloud-based business solutions, which are also known as software as a service (SaaS), are already well established beyond a peripheral, point solution presence in today’s firms, regardless of size, industry or geography. Upfront cost reduction is only the tip of the iceberg when it comes to why firms are implementing and using cloud-based business solutions. Real business improvements, such as the speed of deployment, faster time-to-market, improved service, improved processes, etc., are the key drivers of SaaS adoption.

These trends translate to a rapidly growing rate of adoption of cloud business solutions for core business systems, such as accounting and ERP. According to Saugatuck Technology, an average of 20 percent of firms today use such solutions for at least one core business system. This figure will more than double by the end of 2012. Growth in cloud solution deployment overall, but especially in core systems, is creating a future of more integrative cloud-based business and IT solutions, platforms and services.

But what Sage has also found of late is that on-premises software solutions still have tremendous staying power in the face of rampant industry enthusiasm and increasing IT budgets for cloud-based solutions.  Generally speaking, customers want improved Total Cost of Ownership (TCO), frictionless upgrades, and lower upfront costs. Needless to say, customers want the flexibility to choose.

Those who prefer on-premises solutions typically like to control the upgrade process, are concerned about security, and are uneasy about outsourcing some processes and functions that are mission-critical. These companies also like the ability to customize locally. Therefore, Sage's Online Business Solutions strategy retains a three-tier character:

  1. Pure cloud computing for the smallest enterprises, and the most cost conscious new startup businesses

  2. A hybrid (on-premises and on-demand) approach for the broad middle

  3. Rejuvenated traditional on-premises products for established conservative businesses that want continuity and few surprises

Sage’s Mid-Market Web Strategy

In the traditional mid-market space, Sage wants to provide customers and partners with deployment, pricing, and payment options flexibility. Factors to consider in this space include the following: internal infrastructure, IT resource availability, remote usage, and the customer’s business growth trajectory.

Single-tenancy is leveraged here to allow for more customizations, greater customer control, and increased partner involvement.

Sage ERP Accpac and Sage SalesLogix are the two Sage product lines that already offer multiple deployment options and have their on-premises and single-tenant cloud editions on the same code. For example, Sage ERP Accpac Online is targeting dynamic and growing mid-market businesses that are looking for a quick start, and are unwilling to spend on internal infrastructure, but still have global management needs. Key benefits from deploying this cloud solution (whose on-premises counterpart has long been reliable and proven) are short implementation timeframes and no need for large IT staff and resources.

For its part, Sage SalesLogix Cloud is a subscription-based, hosted solution on Amazon Web Services (AWS) in a private instance for each tenant (customer). The cloud edition has the full SalesLogix feature set and is built on open standards. The private tenant setup allows for upgrades to be controlled by customers at their own preferred pace.

Sage will manage the SalesLogix cloud operations in terms of database tools, instance management, provisioning, network bandwidth, monitoring portal, recovery, support, etc. Given multi-tenancy traits on the application layer, Sage SalesLogix partners can still get a piece of action by taking care of applications configuration, integration, customization, and administration.

Sage’s Entry-Level Web Strategy

Sage plans to offer small businesses a choice between full on-premise solutions with connected services or fully multi-tenant SaaS solutions in the future. In both cases there is the ability to grow and scale their business.

As mentioned in Part 1, Sage has a couple of trusted and inexpensive entry-level “accounting plus” brands that have garnered sizeable and loyal small customer bases with hundreds of thousands of active service contracts. In addition, the vendor has a strong accountant influencer channel. Factors that small customers typically consider when buying IT solutions are the time-to-market, their envisioned business trajectory, and their willingness to make early investments.

The market trends that are shaping the future in this segment start with social networks, with the number of Facebook users in the US having reached 150 million in 2010 (which was almost half of the US population). Mobility is another trend, given that 23 percent of small business employees are working offsite at least once per week. Last but not least, SaaS is a major trend too, as 12 percent of small businesses are using a SaaS solution, although the vast majority of them are still in a ‘hybrid’ model.

Thus, Sage’s goal is to connect its small customers to their ecosystem while streamlining business processes within and outside the walls of the business. For example, a single small business customer might have an ecosystem of over 1,000 members: by adding up, e.g., 40 employees, 350 vendors, 700 customers, 1 accountant, and 3 government jurisdictions.

The aforementioned Sage connected services streamline business processes such as credit card processing, employee direct deposits, mobile payments, tax filling, outsourced payroll, 401K retirement plan administration, etc. On the other hand, the upcoming Sage Online Business Solutions for small business will revolve about the following sets of processes: making money, developing customers, growing business, and managing projects.

The guiding principles in developing these online solutions are to be simple, integrated, collaborative, and connected. The key buzzwords here are Web-native services, multi-tenancy, and self-service. Currently available online solutions are the Sage Spark Billing Boss and Sage Spark Payment Boss, while additional solutions are slated for launch later in 2011.

As a recap, overall Sage’s online customers of all size should benefit from subscription-based pricing, no hardware to manage, simpler upgrades, and the Sage Advisor Technology (which will be explained in the next part of the series). Sage’s online strategy is about providing choice and flexibility to customers and addressing diverse needs in the market. The strategy should also appeal to Sage’s partners if it helps them to get invited to more prospective deals and if they continue to play a key role.

I agree with Denis Pombriant’s assertions in his recent blog post that there is no use in dreaming about converting every conventional customer to the cloud in a short term, and Sage (and many of its competitors, if you will) have done their best to support and, where possible, future-proof their customers.

Moreover, connected services is a smart way to incrementally educate customers -- even the most conservative and reluctant ones -- about the realities and benefits of cloud computing so that at some point in the future a move to the cloud might seem less daunting.

The final part of this series will analyze the remaining morning sessions that explained how partners and customers fit within Sage North America’s aforementioned “Enrich, Connect, Grow” strategic framework that was first described by Palsule at Sage Insights 2010.

In the meantime, your comments, thoughts, suggestions, or individual experiences with Sage and its individual products (or product combinations) are more than welcome.
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