Software upgrades find favour with frugal firms

Companies are resisting splashing out on new software solutions and are making do with service upgrades to their existing packages, Sage has told the City

Few companies are prepared to replace their enterprise software and most are relying on less costly enhancements instead, due to the tough economic climate, Sage said on Tuesday.

The accounting and business management software maker told investors that small and medium enterprises (SMEs) are still exercising caution in their spending on software products. While newly formed small businesses may still need to buy full accounting, human resources or customer relationship management platforms, established firms are sticking with what they've got.

"Larger SMEs, who might in a better economic climate replace their solutions, are increasingly focusing on extracting greater value from their existing solutions. Consequently they have invested in upgrades and complementary products," said Sage, announcing its full-year financial results.

"SMEs generally have continued to spend strongly on services related to their software, which are often critical to efficient accounting and business processes," Sage added, emphasising that software enhancements rather than completely new products are in vogue.

Sage's sales figures support this assessment. A total of 373,000 existing customers bought an upgrade to their Sage applications in the 12 months to 30 September, 2003, while 49,000 firms migrated from one Sage platform to another. A further 182,000 new customers were acquired during the year.

Sage also saw an 8 percent increase in revenue from services contracts, with 250,000 customers signing up. "Ninety-five percent of our customers have fewer than 100 employees, and as a consequence very few of them have in-house IT expertise. Instead they look to Sage to provide support," the company explained. Overall turnover at Sage grew 4 percent to £560m, with pre-tax profits rising 12 percent to £151m.

Company chairman Michael Jackson said that performance in the new financial year since 1 October has been encouraging, and that Sage's board is viewing 2004 with confidence.