Sage plans to invest heavily in fiscal 2019 to grow its software as a service business and move more to a subscription model. So far, Sage is off to a solid start, but the year ahead is likely to highlight how well the company is able to manage the transition to be a cloud provider.
The company, which makes enterprise resource planning software for midmarket firms, just concluded its fiscal 2018. The company grew its enterprise contracts in the U.S. by 15 percent and boosted its cloud-related revenue. The ultimate goal is to grow both its cloud-connected (on-premises software that connects to the cloud) and cloud native sales.
For fiscal 2019, Sage said it will boost operating expenses by about £60 million with two thirds of that sum allocated to product and innovation. Sage also said it would increase research and development to build out its Sage Business Cloud efforts. As a result, Sage said it will simplify its portfolio to focus on products in its Sage Business Cloud or moving there. Sage's cloud portfolio includes Sage Intacct financials and Sage People, a human capital management application.
In fiscal 2018, reported Nov. 21, Sage delivered organic revenue of £1,82 billion, up 6.8 percent from a year ago. Subscription revenue was up 25.2 percent from a year ago to £839 million. Operating profit for the year was £427 million.
We caught up with Nancy Harris, head of Sage's North America, business to talk shop.
The competition and threats from above and below. Sage competes with everyone from Salesforce to Workday to Intuit across various enterprise markets. "The key thing about Sage is that we offer solutions in our accounting/ERP, payroll and HCM across multiple segments. We see competitors focused on one sector, but we see small businesses that ultimately graduate. We compete on the breadth of the product portfolio," said Harris. Intuit rolls out new QuickBooks product for mid-market customers
How quickly will customers migrate to the cloud? "The U.S. is the most cloud adopted market we're in. We're offering our customers choice. Cloud connected is a step toward the cloud. Cloud native is for companies that want to be cloud first," said Harris.
She added that a product like Sage 50 takes cloud tools such as Office 365 and connect them into an on-premise product. Cloud tools are an extension of on-premises software in Sage's cloud connected definition. Cloud connected software is sold as a subscription and recurring revenue.
Harris said that there are multiple customers who don't want their financial data on premises, so the category is far from dead. Other customers choose to go cloud-first. The acquisition of Intacct gives Sage a cloud-first path. "HCM is much more cloud in adoption," said Harris.
What innovation is differentiated? "We're investing in the native cloud portfolio and round out Intacct with internationalization. We're also investing in verticals such as real estate and construction. We're also investing in Sage Business Cloud from an overall platform standpoint," said Harris.
Harris said that Sage Business Cloud will have a unified set of APIs for migration and integration. The capabilities are under construction. Sage has APIs for each product line, but by creating an API layer can be more of a cloud platform. AI and machine learning will also be an investment area for Sage Intacct.
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