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Analysis: Sage goes from catching-up to leapfrogging

Sage might have been seen in the past as being slow to embrace cloud technology but now it is looking to steal a march on rivals and overtake them

Despite its dominance of the accounting software market, Sage has long been perceived as a somewhat old-fashioned company that has struggled to fully make the transition to the 21st century.

For example, the British firm has faced criticism for letting itself fall behind the competition in the race to the cloud.

However, since the appointment of CEO Stephen Kelly in November 2014, the firm undergone what can only be described as a dramatic makeover. Now Sage isn’t just embracing cloud, it is investing in a host of new technologies that it believes will give it the edge on its rivals.

“Let’s be clear…we aren’t here to catch up,” said Kelly. “Now it’s about leapfrogging.”

This new sexier version of Sage was on full display at the vendor’s annual customer event, Sage Summit 2016, last week in Chicago where Kelly managed to steer the conversation away from talk of accounting software and instead focusing on entrepreneurship – a passion of the CEO. As a result, the 15,000 Sage customers in attendance were witness to keynotes from celebrities and ‘entrepreneurs’, including Sir Richard Branson, Gwyneth Paltrow and Ashton Kutcher.

Sage had also noticeably changed the usual descriptions of businesses from SMB, midmarket and enterprise to “start-up, scale-up and enterprise” presumably in a bid to elevate itself in the sales conversation.

The company also outlined a series of investments in new technologies, with new mobile, social, chatbot and IoT offerings in the pipeline, after investing £139 million on research and development in 2015.

Of most interest to channel partners though, is that Sage is now pushing its new ‘cloud-first’ growth strategy. It wants to “create the world’s leading cloud ecosystem for accounting, payroll, HCM and payment solutions,” according to Kelly

“Technology disruption has dictated that Sage reinvents its business to embrace the cloud,” the CEO said.

However, Sage maintained that it won’t force any customer migration to the cloud, which raised some eyebrows among industry-watchers attending the event. Many aren’t sure how the company will be able to fully transition to the new model while not pushing its customers to adopt cloud.

“It’s a nice comment to make; it keeps everybody happy, except for Sage themselves, who have to continue to support all the old stuff, alongside all the new stuff, increasing their support costs rather than decreasing them,” commented Quocirca analyst Clive Longbottom.

The move to the cloud will have both negative and positive implications for Sage. The products that have traditionally served Sage’s heartland – Sage 50 and Sage 100 – now come in cloud versions (Sage 50c, Sage 100c), but this means the software vendor misses out on its historical maintenance and training revenues when it changed its interface annually.

On the plus side however, putting the products in the cloud means just a single stream of code for each of the products; Sage 100 in particular can vary from country to country, with each version having a slightly different code, thus ramping up support costs for Sage. By making it a cloud product, the product is not only easier to support and rollout updates, it makes it far more scalable.

It also enables partners to sell on a much broader basis; whereas Sage 50, Sage 100, etc. have been historically aimed at SMBs who only ever traded in-country, more and more organisations now are part of the global village and cloud products make it easier to trade on a global basis.

Nevertheless, Sage will have a lot of work to do to get its channel on board with all of the changes.

“There’s still a lot of the channel, including the accountants themselves, which are still quite happy sending out CD-ROMs ever year,” said Longbottom. “So they have to get far more active with the channel, pushing them to encourage the user base to move onto the cloud platform.”

Its likely Sage will adopt a carrot-rather-than-stick approach to customer migration, making the cloud versions of its products increasingly attractive with more functionality than the desktop versions – and the channel will play a key role in the sales pitch.

Sage’s EVP of partners & alliances, Alan Laing, also said the firm is on the lookout for a new generation of partners, including those ‘born-in- the-cloud’, potentially setting the cat among the pigeons of its traditional partner base.

But one of the most significant signs that Sage is entering a new era is the firm’s own admission that, in the past, partners have found working with Sage to be a laborious process and unnecessarily complex – but it is now doing all it can to change that.

“We’ve been hearing for a long time how difficult it is to do business with Sage, and we have to fix that. So with all the overall transformation going on at the company, it was the right time to re-think how we relate to partners,” said Sage’s chief marketing officer, Santiago Solanas.

Most significantly for partners, Sage is in the process of streamlining its channel programme, consolidating 54 separate programmes worldwide into just one.

In addition, Kelly said that he wants to increase revenue generated by partners from 38 percent to 45 percent, worldwide. While not revealing any figures, Sage admitted that the UK has a relatively small channel base compared to other countries – a result of a greater direct presence in its home market.

However, Laing has pledged to grow Sage’s UK partner numbers – once again looking to new partners such as cloud providers, plus Microsoft partners interested in its announcement that is to partner with the software giant on Office 365 – to boost its numbers.

Away from the celebrities and the hype, Kelly’s appointment at Sage has made a huge difference to the way the vendor positions itself in the market. It’s willingness to sign up a new breed to of partner, and adopt a less complex approach to partnering only reinforces the view that the new Sage is ready to move into new markets and offer partners new revenue opportunities moving forward.

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