Will Sage Group Cement Its SME Leadership with ACCPAC and Softline Acquisitions? Part Seven: Challenges

Challenges

In March, Best Software, Inc., one of the leading current providers of integrated accounting, business management, human resources (HR)/payroll and fixed asset solutions for small and mid-sized companies in North America, announced that its parent company, UK-based The Sage Group plc (LSE: SGE.L), had completed the acquisition of ACCPAC International, Inc. (www.accpac.com). 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 nearly $900 million (USD) and 3.6 million customers worldwide in fiscal 2003. ACCPAC International, Inc. (was, until recently, an independent subsidiary of the software powerhouse Computer Associates International, Inc. (NYSE: CA).

This brings us to the inevitable downside of the painstaking integration effort yet to be devised for an ever-increasing number of remaining products in the Sage/Best family and to be subsequently exerted, as there is always a large time bracket from concept to actual materialization. The number of distinct code bases is indisputably sizable, making the task of providing clear migration paths between these quite arduous, as it can be witnessed by this analyst who had a time of making sense through the maze of above-mentioned product announcements.

The mitigating factor for impending integrations, in addition to ACCPAC's open architecture, is the fact that Best CRM Solutions' progenitor, the former Interact Commerce, had long formed product alliances, some of which were with its future accounting siblings like the MAS product lines, so the intra-Best Software integration task did not start from scratch. However, this might not be the case for the rest of the product portfolio, as integration is never a simple feat anyway despite SalesLogix' well-known Open CRM' initiative, a number of mid-market ERP product alliances, and subsequent product integration experiences (deals with Exact Macola, Intuitive Manufacturing Systems, Made2Manage, and Expandable Software being some, as a matter of interest). A quite similar situation exists with the Abra HR/Payroll product that, like SalesLogix in the CRM market, has a prominence in the SME HR market and has been used via many OEM or any other arrangements by a slew of vendors.

The major problem, however, might be of a philosophical or existential nature. Namely, despite many above-mentioned cultural similarities between ACCPAC and Sage/Best, the major chasm seems to be their different approaches to the global nature of their products. That is to say, unlike Sage/Best Software, Exact Software, Softline, and MBS, ACCPAC's Advantage Series is a single-code product line that operates on an international basis, whereas the others have obtained multiple product lines through acquisitions, which they have attempted to paste together around the world but that are unable to work with one another. Conversely, Intuit or NetSuite still largely operate within the North American market and have been recruiting their fledgling channel. Sage and MBS are not exactly uniformly global companies, as their product offerings differ for different markets. Also, these vendors are still in a quandary about which of their numerous ERP products to integrate to—SalesLogix (or now even ACCPAC CRM) or Microsoft CRM, respectively.

Sage/Best contends 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 parent vendor has strictly pursued a best-of-breed approach, favoring a local product with a local touch. In the US, that has meant MAS 90, MAS 200, and MAS 500, along with Peachtree, BusinessWorks, Best 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), and the same would hold for MBS' Great Plains, Solomon, Axapta, and Navision product lines. While these vendors could produce a spin that separate products in separate countries is a necessity to provide a best-of-breed localized approach, still, it might be perceived as a lame excuse for the result of a market share increase opportunity buying binge.

ACCPAC, on the other hand, with offices on five continents, 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 four editions—Discovery, 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 available features, such as support of a Goods and Services Tax (GST) and Value Added Tax (VAT), as well as currencies including the Euro, currency gains and losses, GL transactions, and check writing. The users can also leverage ACCPAC CRM and other non-core accounting business applications.

International companies would rather not deal with several different enterprise packages, differing features, and no ability to exchange data. ACCPAC also looks favorably on those resellers and developers who have extended themselves globally, while Sage/Best's VARs are fairly local. As an example, ACCPAC Business Analysis Suite, which makes it easier for accountants to prepare a client's consolidated "health report" and provide budgeting and forecasting advice, has been the brainchild of an Australian firm, InMatrix.

This is Part Seven of an eight-part note.

Parts One, Two, and Three presented the Event Summary.

Parts Four, Five, and Six discussed the Market Impact.

Part Eight will make User Recommendations

Best Software Brand Recognition

Thus, despite the seemingly well crafted marketing campaign, the Best Software brand is still much less known than those of its individual products (e.g., ACT!, SalesLogix, or Peachtree, and especially ACCPAC). The company will, for some time to come, still likely suffer from either the "Best who?" syndrome or confusion with the former Abra, Carpe Diem, or FAS provider only. Additionally, the wealth of corporate names and a likely unwieldy slew of products within each of Sage's divisions and groups presents sales and marketing confusion for the company, both internally and externally across the globe. Sage is a cry far from a uniformly global company, as its product offerings differ for different markets, particularly on both sides of the Atlantic. For instance, while the unified Best brand will be increasingly applicable for the North American market, Sage offers a disparate line of products for small business comparable to the above-mentioned Best's line (e.g., Instant Accounting for a single user, Line 50 [for up to 5 users], Line 200 [for 525 users], and Line 500 [for up to 1,000 users]) for the other international markets.

While Best Software's (formerly also known as Sage Software in the US) MAS 500 manufacturing modules come from 2002's purchase of ERP vendor Haitek Solutions, Line 500 comes from the Sage Group's 1999 acquisition of Tetra, a UK-based mid-market ERP vendor. These deals have consequently resulted in different ERP products offered by different units of the Sage Group. After the Tetra acquisition, the Sage Group formed Sage Enterprise Solutions, based in the UK, which offered an ERP suite initially called Sage Enterprise (renamed recently into Line 500). Therefore, the one face to customers' motto might only be applicable within certain markets per se (e.g., North America, the UK, or France), and very unlikely across the globe.

Consequently, the major quandary for Sage/Best will be whether to base the long-term strategy on leveraging ACCPAC's technologically superior product into and overriding a unified enterprise solution, or to remain as a conglomerate of stand-alone solutions with strong brand names. If one is to judge by the past, Best does not easily discontinue 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, it will, which seems plausible in this economy.

The Competition

However, 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 unified 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 unified modern architectures that should allow resellers to sell extensions to the applications, while preserving the migration path for the foundation accounting and back-office components.

For example, Microsoft recently released Microsoft Business Network (MBN), a web-based communications network that allows transactions to be exchanged between trading partners via XML or EDI, tied directly into ERP applications of Microsoft Office applications. MBN is a combination of on-premise software integrated with Microsoft Office, MBS applications (albeit currently only with MBS Great Plains) or Microsoft BizTalk Server, and hosted web services. It was designed to help businesses work more easily and effectively with their trading partners (suppliers and customers) through a fully automated Microsoft .NET-connected solution, thereby increasing efficiency with a deep degree of integration throughout their business and desktop applications and lowering the total cost of business-to-business (B2B) collaboration. In other words, MBN uses the messaging and collaboration facilities of Microsoft Outlook and the integration facilities of BizTalk Server, to solve the supply chain connectivity part of the overall supply chain management puzzle.

Another extension that is soon to be available for all MBS' product lines is nearly ubiquitous FRx's applications for financial reporting, consolidation, and forecasting (see FRx Poised To Permeate Many More General Ledgers). The other vendors have not been sitting still either, Exact's e-Synergy and Exact Event Manager products being other object cases of ERP extensions (see Exact Software Working Diligently Towards the "One Exact" Synergy).

ACCPAC Response

Again, some products within ACCPAC's arsenal, such as ACCPAC Exchange, seem as the most appropriate answer to the above examples, but time will only tell whether "the tail will be able to wag the dog" in Sage/Best's case, given ACCPAC's minute revenue contribution compared to other, even antiquated product lines.

On one hand, ACCPAC has raised the bar by offering its customers multidimensional choices:

1) start with accounting and add other tightly integrated business applications as needs arise;

2) start with a simple set of enterprise applications and grow to more advanced level applications;

3) run applications in-house or on a subscription base;

4) run on a wide range of platforms—Windows or Linux OS, and Oracle, IMB DB2, SQL Server, or Pervasive database; and

5) run on a local area network (LAN) or provide access via the web.

Not many peers, if any, are able to offer a product that is designed to accommodate new technologies easily and that caters for a long term growth with an abundance of flexibility, like in the case of ACCPAC customers, which should be tempting for Sage to extend to its other major 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 nor in certain vertical segments owing to the fierce channel competition from more aggressive, better known and wealthier competitors like MBS, Exact Software, Epicor/Scala to name a few, and not to mention the current parent company. The vendor still has some US states where it has no reseller as yet, and it still derives as much revenue from Canada as from the much bigger US market.

Product Overlaps and Other Obstacles

One could even notice a number of product overlaps and likely competitive clashes, most notably between ACCPAC CRM and SalesLogix products. While the first one is broader, fully web-based, and thus amenable to hosting, the latter is functionally deeper and with quite a larger install base. How Sage/Best will preempt these two products from cannibalizing each other's opportunities remains to be seen. There is a similar situation with ACCPAC HR and Abra products. The picture becomes even more complicated with Softline, which has been ACCPAC's fierce competitor in South Africa, Canada, and Australia. While Softline's BusinessVision could be an intermediary point between Peachtree and MAS 90, can and should Best afford two Microsoft FoxPro-based source code products, such as Softline's AccountMate and ACCPAC Pro Series?

Thus, while Sage/Best has a myriad of products in its portfolio that could benefit from integration with ACT!, Abra, MIP, FAS, and SalesLogix, the company must clearly send the message that most of these already integrate with MAS 90, MAS 200, and MAS 500 (the only major exception being ACT! and MAS 500 within Best's offering), and articulate its plans and the timeline for any still outstanding integration between its products. Otherwise, it may face confusion and anxiety amongst both its current and potential customers as well as within its VARs. While the idea of enabling the research and development team to gain economies of scale by leveraging the same technology foundation to build common application components as commodities that can be deployed within the entire product portfolio is tempting and promising in the very long run, it will only happen in a few years time in the best case scenario, if at all, and most likely only for Best Software's offerings in North America. The mitigating factor is that, before that long-term evolution takes place, data and personalization setups will be transferable all the way up from entry-level products to enterprise-class systems, making migrations smoother.

Best Software Competitive Challenges

Best Software will still have to address other challenges in order to continue to thrive in this ruthless competitive environment. The competition is flying from many directions, since the company competes in many diverse markets. To that end, in the traditional back-office market, the threat comes from the likes of Intuit, NetSuite in the small business accounting market, via its peers (e.g., MBS, Exact Software, Epicor/Scala to name a few), to the Tier 1 vendors storming down the market. In the pure HR/Payroll mid-market, its archrivals have long been ADP, Employease, Ultimate Software, Unit 4 Agresso, IBM, Cezanne, and Lawson, while in the pure-CRM mid-market, they would be the likes of Onyx, Pivotal, Kana, E.Piphany, Salesforce.com, Salesnet, UpShot (now part of Siebel Systems), and FrontRange, particularly given ACCPAC's competitiveness within the hosted CRM marketplace (see Comparison of ERP and CRM Markets' Life Cycle Snapshots). Not to mention that SAP, Oracle, and PeopleSoft will likely be faced in all the above markets as well. Even in the non-profit market, which is currently out of reach for all the above foes, there is still a stiff competition from Blackbaud, which boasts a broad and integrated product line beyond mere fund accounting and fundraising functionality. The fact is that in the last reported period, if one would discount the acquisitions, Best's revenue would have been virtually flat, which is in a great part due to the dynamism of many of the above competitors.

Consequently, there is still room for functional enhancements despite some of the products' leading positions. To that end, Best will likely have to eventually build or acquire additional CRM functional enhancements (e.g., database-based marketing management, data mining/analytics, and support for field service) to round out a complete CRM suite. Not to mention the need to bolster MAS 500's external/field service and multilingual capabilities, well beyond only English and Spanish. The vendor has also been working on extending its web integration side as to bolster its collaborative role-based portal solution strategy and delivery. Again, only time will tell whether and when ACCPAC's prowess in these areas will be directly leveraged.

The company has also only recently extended its reach to the professional service automation (PSA) area, with the recent project management enhancements to MAS 500 and ACCPAC Advantage that might make it competitive with the above-mentioned peers, although MBS Solomon maintains the edge due to being continually enhanced within MBS (see Solomon Stands the Test of Time Despite Changing Masters). Best's recent acquisition of Timberline, a provider of integrated financial and operations software and services for small to medium businesses in the construction and real estate industries, with more than 20,000 active customers, predominantly in the US, and a blended distribution channel consisting primarily of independent solution providers, complemented by a direct sales operation, should however, complement and extend Best Software's existing construction-oriented solutions such as MAS, Peachtree, FAS Construction-in-Progress Accounting, and Platinum for Windows (PfW).

To that end, on May 5, Best announced general availability of an enhanced link between its FAS Asset Accounting and Timberline Office products. FAS Asset Accounting is part of the FAS suite of fixed asset accounting, inventory, and reporting solutions, while Timberline Office is an integrated collection of financial and operations software designed specifically for the construction and real estate industries. The new FAS-Timberline Office Link should enable customers of both products to fairly easily post depreciation information to their general ledger. It is offered in addition to the existing link between FAS Asset Accounting and the Equipment Cost module within Timberline Office. FAS customers can also use a Universal Link to post depreciation to ACCPAC, BusinessWorks Gold, and Platinum for Windows by Best, and many other systems.

However, MBS definitely has the edge in financial consolidation, budgeting, and reporting, with its earlier on mentioned ubiquitous FRx products, which, interestingly, are often bundled within many Best's products, in an OEM fashion.

This concludes Part Seven of an eight-part note.

Parts One, Two, and Three presented the Event Summary.

Parts Four, Five, and Six discussed the Market Impact.

Part Eight will make User Recommendations.