ERP consultant slams Sage as moribund

Profile picture for user gonzodaddy By Den Howlett May 21, 2014
Summary:
Sage's mixed market messages make for a difficult transition to the cloud. Its next steps could well determine its long term future.

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Alan Mann

Veteran ERP consultant Alan Mann took to Scoop to lay into Sage as moribund. Referencing the upcoming launch of Sage X3 v7 and a headline from CBR that claims Sage wants buyers to accept 'good enough' technology and usability ahead of functionality, Mann described the company in the following manner:

This is an astonishing remark from the Head of Sage ERP and probably tells you everything you need to know about this increasingly moribund organisation.  Coming hot on the heels of their European CEO stating that 'the Sage brand is a disaster', this speaks of a company that is finding it impossible to adapt to new technologies - particularly cloud.

Rather than take the well-trodden and generally misleading path of promising that new products will be 'coming soon', they urge their customers and prospective customers to accept the status quo, reduce their ability to compete effectively and ignore the massive benefits afforded by the latest step change in technology.

Sage has always been a triumph of marketing over product development.  Now, even that marketing prowess has deserted them.  They are left with a menagerie of unrelated products, built on pre-internet technology and no discernible and coherent strategy for the future.

While competitors will love Mann's attack, conflating 'good enough' and 'usability' to mean 'moribund' is over egging the Sage topic. In deals I see, cloud solutions may well be streets ahead of on premises solutions in the usability stakes,  they don't always fare so well in the 'good enough' department.

If anything, we find that ERP customers in particular are having to make difficult decisions around what functionality they are prepared to abandon or sacrifice in order to take on cloud solutions. From that standpoint, they have to live with vendor promises of jam tomorrow or are faced with sometimes costly customizations.

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Guy Berruyer - CEO Sage

On the other hand, I have sympathy with Mann's point about Sage marketing. The cloud rhetoric is there for all to see but it isn't evidenced by available or soon to be available products.

At the last earnings call, (registration wall) Guy Berruyer, soon to be retired CEO Sage dodged repeated questions about the way Sage counts 'subscriptions' of its Sage One solution. The problem is that despite claiming stellar growth, there is a suspicion that the numbers double count payroll and book-keeping numbers to give the impression the company is doing better than it really is. That doesn't sit well with the cloud messaging.

Cloud as global warming

I have long argued that Sage, like many other vendors which are transitioning to cloud solutions and subscription models. are faced with a dilemma that is extraordinarily difficult to overcome.

On the one hand they have become accustomed to spoon feeding financial analysts with predictable results from a well understood business model in a bid to maintain or grow the share price. On the other hand, cloud changes the business model, front loading cost and therefore dragging profits down.

It is hardly surprising then that management treats cloud like global warming.  They know it is happening but it is a question of when they have to bite the business model bullet when there is an army of investor analysts looking for any weakness with which to pound the stock price.

In Sage's case, arguing that Sage's 'marketing prowess has deserted them,' is only half the story. The company has brand recognition in spades but it can only move as fast as the market is prepared to let it. While competitors like Xero, FreeAgent and others are able to demonstrate monster growth, the revenue actualité for these vendors is little more than a rounding error when viewed in Sage terms.

Marketing flip flops

sage one 2014
My sense is that Sage's huge marketing muscle has been forced into taking the wrong approach.

Rather than leading its customers down a path that makes sense to them, Sage marketing is currently forced into trotting out the same lines that have already been used a thousand times before by the innovators in the market and for which they cannot take credit. Sending out messaging based upon captive surveys does nothing to build a fresh story because they cannot relate what they find to their product strategy or offerings.

Sage compounds the problem by making clear to investors they intend to force customers onto subscription models, regardless of whether the solutions offer the value customers expect. It's a losing proposition where any growth can only come from momentum among a huge installed base.

The real problem comes when the Xero's of the world suddenly become a genuine threat from a revenue standpoint and Sage is left to explain why it is not competing effectively. Some analysts I have spoken with believe it is too late, I say 'never say never.' But it will require a significant change in management approach that is far more willing to take well articulated risks both in product and marketing.

Verdict

  1. Salacious commentary is great fun to see but doesn't always tell the full story and if you sniff a certain level of vendor bashing then you know to take it with a pinch of salt.
  2. Nevertheless, time is running out for Sage. The fact Berruyer has decided to jump ship, albeit in a year's time, gives Sage an opportunity to consider its next step. The last four years of Berruyer's management has been characterized by a 'steady as she goes' policy with minimal risk taking that has allowed competition to render Sage almost - but not quite - irrelevant.
  3. While it used to be true that great marketing trumped problems with product, cloud has upended that presumption. Sage can no longer count on its marketing muscle to deliver in the face of competition that is far more agile, interesting and just plain exciting.
  4. Don't be surprised to see a private equity swoop that take Sage behind the PE curtain as it either transitions or is milked dry.