Sage and Sage Intacct at the crossroads - why Sage Transform marked a change in cloud direction

Jon Reed Profile picture for user jreed November 11, 2022 Audio mode
Summary:
This year's Sage Transform event marked a big turning point in the future of Sage Intacct - and Sage itself. How the Sage Digital Network changes customer options lies at the center. Here's how I got there, including my sit down with Sage CEO Steve Hare.

Sage CEO Steve Hare - at Sage Transform 2022
(Sage CEO Steve Hare at Sage Transform '22)

Sage Transform 2022 is in the rearview, but I'm still gnawing on something. This year was different.

Sage acquired Sage Intacct in 2017. This was the first year the show felt like a Sage show - not a Sage Intacct show.

No, this wasn't a leadership shift - the leadership fused some time ago. This year, we saw two things: how Sage is changing the future of Intacct, but also vice versa: how Intacct is changing the future of Sage.

Sage didn't inhale Intacct and digest it

In Orlando, I wasn't sure how to approach my first 1:1 with Sage CEO Steve Hare. I decided to just put my cards on the table. As I wrote in Sage Transform '22 news review - the context behind the top stories:

As I told Hare, I really thought Sage would swallow Intacct whole, and likely crush it in the process. Then I realized Sage had figured out that Intacct could be the focal point of their go-to-market. Then I worried that Sage was luring top executives from Intacct into Sage proper, losing their mojo.

One prominent example? The elevation of Intacct CTO Aaron Harris into Sage's CTO. This is not a symbolic gesture: Harris has influenced development across Sage. As Hare told me:

There's this huge respect for Aaron throughout the organization, but I remember him coming to me and saying, 'I've been I've been to visit all of the engineering teams all around the globe. And I've gotta tell you, Steve, these are deeply talented people. So I don't want anyone telling you that, Yeah, the only high quality products and engineering people sit in Intacct. We have them all over the place. I have met these amazing people in Barcelona, amazing people in Newcastle, etc. The key now is to get them all coalesce behind a singular mission.'

Sage (rightly) realized Intacct's multi-tenant financials were a go-to-market asset, one that could be internationalized via the parent company. That is reinforced by this year's announcement that Sage Intacct is moving into France - the first non-English speaking company served by Intacct.

But there is something else going on here. As I wrote:

Now it seems that something far more interesting and high stakes is going on: infusing the larger company with the tech leadership of Intacct, and pushing to transform the entire operation - via one tech platform. How that will go is not yet clear, but it is way more interesting to follow than I ever expected.

The Sage Digital Network - an underrated news story

This leads us to the Sage Digital Network - something Harris announced last year, but in a way that seemed amorphous to me. This year, it didn't feel amorphous. The Digital Network is essentially Sage's go-to cloud development platform, serving all of Sage's products, not just Intacct. Or, for that matter, not just Sage. Sage's Digital Network is product-agnostic, delivering API-based cloud services to whatever application might want to draw on them (yes, even a competitor could use it to deliver Sage functionality to its customers).

The Digital Network will provide developers (including Sage ISVs) with a common platform to build on. In Orlando, some Sage technicians insisted to me: this has been possible before now. Perhaps, but it has not been mainstreamed within the Sage (and Sage Intacct) communities. Robust ISV development on the Sage Intacct platform has not been a historical strength.

This is where Hare comes in. After all, he's leading the overall transformation of the Sage install base. Anyhow who thinks it's easy to modernize an ERP customer base, with thousands of customers on legacy systems, please raise your hand. Give us an example of a vendor that has successfully pulled this off. A number of ERP vendors are madly trying, with varying degrees of success. But serving the multi-tenant/modern cloud ERP product, without losing or alienating customers running on-prem releases, is no small feat.

Wall Street isn't exactly patient about these efforts. Nevermind that so-called "legacy" customers don't deserve that tag. They are often fairly happy on older releases (their transformation focus might well be elsewhere). Nevermind that the maintenance revenues from older releases can be an attractive (if diminishing) profit stream.

How can ERP vendors transform their install bases - without a forced march upgrade?

I criticize investors for not seeing the longer view of enterprise customers, but in the case of legacy ERP vendors, I agree with investors' concerns, though not always with their valuations. So ERP vendors have their marching orders - but how do you balance investor expectations with customer needs? Any ERP vendor engaged in this process must provide two things:

1. An appealing modern platform, with enough vertical functionality to make the transition from functionally-rich legacy products viable.

2. A transitional option/offering, allowing customers to gradually move their assets/processes into a native/true cloud environment, as they see fit. After all, this is already happening, just with other vendors (or product lines). "Legacy" ERP customers are moving into cloud HR and CX, or even cloud procurement. But they aren't necessarily ready for ERP cloud migrations - especially in this economy. Therefore , ERP vendors need viable options for partial moves, or private cloud transitions - otherwise, their own customer base will carry on moving processes to the cloud without them, as their ERP core withers.

A couple savvy partners told me: they believe a big reason Intacct is moving into (surprising) new verticals is to build out that SaaS vertical runway, to make the move to Sage Intacct more appealing/viable for Sage customers. It's not quite that simple, but it's worth considering.

In my analysis of the Sage Intacct Manufacturing announcement, I noted that Sage Intacct Manufacturing is not intended as any type of replacement for Sage X3. The industries and manufacturing footprints of the two products are different. Still, when you consider Sage Intacct's overall vertical moves, from construction to wholesale distribution to manufacturing, the Sage influence on Intacct is obvious (I can recall a time, before the Sage acquisition, when Intacct's services CFO focus was resolute).

But it's the second point, the need for a transitional platform, that really signals this Sage/Sage Intacct shift I'm talking about. The Sage Digital Network is meant to provide this transitional framework, while also serving as a cloud services delivery platform for Sage Intacct's customers. And Aaron Harris, a top technical leader from Intacct, is at the forefront of this rolllout.

At Sage Transform, we heard about some of these cloud services, including Accounts Payable automation. Why limit access to such functionality to only Sage Intacct, when it can be made available, as cloud services, to all Sage customers?

This makes particular sense for third party, API-based integrations, such as banking and payment services. It's also a smart approach to AI development, making those features available to consume across products. I can't cover all aspects of the Digital Network in one piece, but this Sage Intacct news release from last spring fleshes out more specifics, including general ledger outlier detection: Sage adds new AI capability to further augment digital transformation for CFOs.

As I wrote:

It's a big story for two reasons:

1. Now, all Sage applications, including Sage Intacct, can draw on the same cloud services. This provides a global focus across Sage's development teams that simply wasn't there before.

2. For those Sage customers not ready to migrate to a cloud native product like Sage Intacct, now they can begin to incorporate cloud services - no matter what version or product they are running.

If you're surprise to read that Sage might envision something like this, so was I.

During my 1:1 with Hare, he was emphatic on this point:

The Digital Network has been a big part of that. This is the way everyone feels they can participate. If I go back to your point about multi-tenancy. In the end, you want as much of the functionality as possible to flow through a singular public cloud environment. So if you think about some of our legacy products, or our older products like Sage 50, or Sage 200, what we're essentially doing now is starting to remove workflows right from those products.

Hare believes cloud-based services will shrink legacy installs - without a major upgrade. This is a very different approach than the forced upgrade march:

And as we do more and more automation, we will cut them back to be more like a general ledger. Do we want these customers ultimately, to migrate their ledgers? Yes, we'd love them to, but that's where the inertia is. Customers are so resistant to moving that core functionality. So if you say, 'Look, we'll start to do this'  Because it's easy to do, people will adopt it.

My take - on cloud migrations, and acquisition surprises

I'm not in the business of pronouncing any vendor "transformed." Sage still has a long road ahead in that regard. Hare and the rest of his leadership team will ultimately be judged by how this pans out. But after seeing so many failed or underwhelming acquisitions, I see a different storyline here.

Hare and I discussed the thorny challenge of cloud ERP migration. Yes, customers need tools to make those migrations less disruptive - not to mention business cases - but the resistance runs deeper. For some, there are good reasons to stay put, such as rich industry functionality. But in other cases, the resistance may boil down to the inertia of the status quo. As Hare said to me:

When you're trying to migrate people to cloud products, they have to accept that it's not a one for one movement, right? And this is where the inertia comes. It's like, 'Well, no, but I don't want to do that. You know, I quite I liked the fact that my Sage 50 or Sage 200 does the following things.' We're like, 'Yes, but you can change your workflows; you can change the way you do things.'

There is also a data migration question:

The other thing with customers is their starting point is: 'I want to migrate all my data.' Well, the truth is, you don't really need to migrate all your data. You may have to accept that your some of your older data will stay somewhere else, because if you try and migrate, let's say, ten years of data, you'll be here for a long time.

I welcome that frank language; too many ERP executives sugarcoat the migration narrative. But now, with the Sage Digital Network push, there are customer options beyond a full-scale migration. One thing is certain: Sage is a different company because of Sage Intacct. The fate of both firms can no longer be separated. As Hare told me:

Another way of looking at this is: imagine what Sage would look like if we hadn't bought Intacct. It has become an absolute bedrock of what we're doing.

Without Intacct, Sage would just be another legacy ERP player with a cloud-washed narrative. Now, there is something much more interesting to assess. Hare:

It's really taken us down the road of truly adopting these global platforms. It's taken us a while to internationalize Intacct. But again, with the kind of power in the Digital Network, we are actually now genuinely going into these markets with these global platforms, but utilizing our local compliance knowledge, which obviously, particularly in Europe for example, is often the biggest challenge.

Looks like Sage didn't swallow Intacct up and burp, as I once feared:

Normally what happens is the big company comes in and tells the little company everything it needs to kind of do. I was determined that we wouldn't do it that way. I kind of felt that Sage wasn't ready to absorb Sage Intacct. We needed to get further through the transformation. As it happened, I became CEO, so I had more control over that.

I think what you've seen now is, as we've all as we've started to work together as a singular team, we've been able to get the best of both. So if you think about what we're doing in manufacturing and distribution, we've been able to accelerate that because Dan Miller and his team have worked with the X3 team, and the manufacturing team from the so-called legacy - they brought their deep expertise. That doesn't happen overnight.

No, it doesn't happen overnight. But the conversation has fundamentally changed; I hope this piece gave readers who weren't at the show a better sense of that.

Updated, November 12, 8:30am UK time, with a number of small tweaks for reading clarity.

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