Sage gifts cloud to newbies as it price gouges for hosted solutions

Sage has started to execute on its harvesting strategy, gifting more of the cloud market to newer solutions. This will not work.

Sage UK has started to execute on the 'harvesting' element of its strategy outlined recently to UK analysts . According to AccountingWeb UK, Sage Accounting Club members are far from happy about a 56% price hike for Sage 50 in its hosted variant. More to the point, the issue became amplified when Sage failed to change their public website content to reflect the new pricing. And to add insult to injury, Sage makes Accounting Club members who offer this option responsible for outstanding receivables if the end customer stops paying the monthly fee. 

Sage's answer to these complaints is shocking.

Mark Duncan, product manager for Sage 50 Accounts Hosted, came on to the site to answer Logika’s complaints.

The wrong web price has been fixed and Duncan explained that the increase was designed to set a similar cost of ownership for Sage 50 Hosted as for the Sage 50 Accounts Professional edition with full SageCover. The cost of ownership had been calculated over a three year period of use, and during the first year the hosted approach would work out cheaper, Duncan said later.

The price increase was the first since the service was introduced in late 2006 and reflected investment in the underlying hosting infrastructure and a shift to the latest version, Sage 50 Accounts Professional 2012.

[My emphasis added]

I'm not sure what 'investments in the underlying infrastructure' is meant to mean. As I recently pointed out, Sage UK spends a miserly 6.75% of revenue on ALL R&D. In talking about infrastructure on the analyst day, Sage said that it plans to transition from its present arrangements to Microsoft Azure. This is expected to be a lower cost platform than the one Sage currently operates. 

Competitive issues aside, Gary Turner, MD, Xero UK put it well when he said:

The problem any legacy software business faces when implementing this kind of strategy is the significant short to medium term impact this shift has on revenues, as people move to paying monthly for everything instead of upfront for licenses and annually for maintenance.

I think it's pretty obvious from what Sage executives said last week and from this kind of gouging behaviour that they have absolutely no intention of taking that revenue hit themselves. Instead they are cynically passing the cost of chronic bad product management to their customers in the hope that enough of them will just bear the cost for fear of change, or ignorance about the alternatives.

This goes much deeper. In my recent analysis of Sage strategy, I pointed to my other analysis I made on Sage where I said:

The real problem lies in the boardroom. When Paul Walker stepped down as CEO, the company had a golden opportunity to usher in a fresh set of eyes. Instead, it opted for a more refined version of what went before. How that decision was reached remains a mystery but you can bet that institutional investors didn’t have faith in the management team to make radical changes. You can also bet that the existing management didn’t have the stomach or vision to make change.

More of the same in this context includes repeated price hikes that are difficult to explain or maintain in a market where the price trend is either 'hold' or down, not up.

The point about shifting responsibility for non-payment to the Accountants Club member is an interesting one. Many cloud contracts provide for unspecified price hikes along with terms that require full payment of fees in the event of cancellation. This is rarely invoked although many cloud providers will find inventive ways of increasing cost to the customer, often by upselling functionality or adding users. This is the first time I have heard of terms that include a shifting of repsonsibility to a third party - in this case the reseller. It is bound to alienate a core constituency upon which Sage relies and which the cloud vendors know is critical to growing their markets. 

Sage is running out of good explanations to offer customers as it continues on what seems to me to be a perilous strategy. Its own third party network of hosting providers already offer a more cost effective alternative. Sage says that once the new system has bedded in that it will listen to Accountant Club feedback. I rather suspect that by the time it gets around to doing that, members will have already voted with their wallets. 

In the meantime, I maintain my view that Sage has, through a variety of mis-steps over the last five years, gifted its natural market to the new cloud players. That trend can only be set to accelerate.