Sage Software announced its pre-audit results yesterday along with a much anticipated management shakeup following the departure of Paul Walker as CEO. I provided an initial analysis on my personal weblog entitled:Sage scrapes out a flat result, outlook weak, management reshuffle, cloudy looks. In that analysis I said:
As expected and in marked contrast to both other on-premise vendors and the SaaS/cloud players, it recorded an overall flat result. Revenue was £1.435 billion (£1.439 billion) with operating profit up from £280 million to £330 million, all coming from cost reductions...
Sue Swenson’s retirement [as President and CEO North America] will be a blow to the American market. She had done a great job in almost impossible circumstances. I have no clue how the US operations will react to the introduction of an outsider but past history suggests they will give him a shot but be wary.
Since then, Wayne Schultz, who sells support for MAS90 and MAS200 users provided an update on what he thinks is going on:
In substance I’m calling this as a reorganization for North America whether the business unit and executives admit to it or not. It’s worth noting that Sue Swenson is the second high level North America executive to announce her departure. She follows Jodi Uecker-Rust who left unexpectedly in October 2010 and who had led the Small Business Division.
From my vantage point it appears that Sue Swenson was brought in to manage expenses and reorganize business units into standalone pieces (the better to potentially sell them off — if deemed necessary — some might say).
Now it’s on to the next stage where these pieces are tuned to produce revenue growth. Sage North America is the biggest division of Sage. It’s also the division that has been reporting the largest overall revenue declines (including a 4% decline this year).
Wayne believes four things are likely to happen:
#1 This is the best gift that the SaaS vendors could have received for Christmas – at least those vendors looking to
start grow a channel. Top VARS will be reading this news and looking to diversify.
# 2 – The effect on channel and employees of Sage. This potential one year let-me-study-the-landscape grace period also doesn’t consider the very real possibility that the new leadership brings on at least some of his own team — and potentially diversifies troublesome segments — causing potential further unease in the channel and internally with Sage incumbent executives.
# 3 – Potential Product Line
Sales Juggling. How likely is it that all product management teams survive? Don’t know the answer to that but I have to believe, as one VAR pointed out, that most of the un-named products that aren’t driving organic growth (Sage singled out ERP X3 and Payments) are slated for labeling as some variation of “Value” – in other words let the R&D decline begin.
# 4 Back On The Acquisition Trail? I think you may see some SaaS acquisitions. Is it too late for Sage to build their own? My guess is yes. My money in North America would be on purchasing Intacct or Accumatica
The channel aspect is key to understanding what will happen next. Ever since the company acquired Emdeon in 2006 for $565 million Sage North America has been sliding. At the time I thought it was a nutty acquisition. My opinion on that has not changed. Revenue continues to slide though it appears Ms Swenson has stabilized losses. In February 2009 I said in regard to interim results for 2008:
The biggest question mark must be over the Americas. Sue Swenson, the US CEO has almost been invisible since her appointment and I notice the company appointed yet another CTO in January. At the recent US kickoff, channel partners were shown very little of consequence they can offer as ‘new’ to customers. I believe the Emdeon healthcare division remains unstable but is a millstone from which Sage cannot extricate itself. In theory, this should be a relatively solid market even in these turbulent times yet the company has gone backwards almost since day one.
Wayne confirms that since her appointment, Sue Swenson has remained almost invisible to the channel, keeping her head down in an effort to stabilize the US business. This year, the channel seemed a lot happier with what Sage is delivering but this latest reshuffle/re-organization once again throws Sage US into a state of confusion and possible chaos.
Add it all up and it appears Ms Swenson has thrown in the towel. But what of the channel?
Last week I spoke with Taylor MacDonald who is leading Intacct's US channel strategy. He was at one time Sage's channel chief. He knows the problems Sage faces and has a strategy for recruiting distressed Sage partners. He told me that: "We're not providing a Sage style 45 page VAR document, we have a one page guide. Sage has flooded the market with partners so when you're in a deal you just know you're in competition with other Sage partners. We're not going to allow that." He sees Sage's channel in two states. "There's the old guy who doesn't have the energy any more. New business isn't there yet they feel as though they deserve more. We are looking for people who want to be young once again, those who want to deliver value." None of that is surprising to me. But what of Wayne's claim that Sage will try acquire Intacct?
Intacct has a strategic relationship with AICPA which makes it a preferred solution for CPAs. That's a mixed bag relationship. On the one hand, CPAs have a no brainer SaaS/cloud accounting choice. On the other hand exclusivity makes it hard to envision choice for end users. However, it does provide a solid channel for growth that is being enhanced by Intacct picking off national firms willing to invest in SaaS/cloud growth. One example is McGladrey with 100 offices nationwide. But does that make Intacct an acquisition target?
I can't see that in the short term unless Sage is prepared to pay a monumental premium. Even then can it ring fence a business that is competing against itself? To date, Sage has demonstrated no understanding of SaaS/cloud beyond a handful of tiny experiments scattered around the world. What is interesting however is that in the detailed earnings release, Sage said:
…as Sage looks to increase its share of revenues from connected services and online business solutions, there will be a stronger focus on developing web based businesses that extend over multiple countries and are complementary to Sage’s core accountancy and ERP business. These businesses are likely to operate under different business models to Sage’s traditional business. They will therefore be ring-fenced, incubated and supervised centrally as they grow.
That initiative is not under the same leadership as acquisitions. Therefore, Sage could follow two strategies. One where it acquires, another where it builds. If that makes sense. Right now acquisition is something with which Sage might feel more comfortable. Yet rumors persist that Sage has a killer SaaS/cloud project underway. If so then goodness knows what they're doing. They're certainly not talking to any of the cloud experts I know.
Wayne doesn't think Sage can pull off a home grown cloud solution. I agree though it does have something of a shot with its attempts at ring fencing those investments. More worrying, it simply doesn't have the R&D bandwidth with which to do it without having to either cut resources elsewhere or take a profits hit.
In the UK I've lost count the number of failed attempts they've had at cracking the problem. The last one ended in disaster due to security issues. Ever since, Sage has battled against a tidal wave of new entrants who are eating Sage's growth lunch. My estimate is that Sage is not only losing customers to UK SaaS/cloud players but is in a desperate struggle to upsell. This latest news about Ms Swenson's departure cannot be good for Sage US.
What is even more astonishing though is that Sage has not apparently taken the obvious step and brought in her successor, Pascal Houillon, currently CEO Sage France, now, to co-manage the transition. I cannot imagine that Sage will allow one CEO to go out the back door as another comes through the front. But then with Sage, you never know what will happen next.