What do the new Sage pricing options mean for you?
Plus ça change, plus c'est la même chose
First off, let’s get this out in the open: any pricing options discussed in this post are purely speculative at this point. Sage has announced that there will be new options introduced over the next 12 – 18 months but the details have not been released yet.
So as long as we know we are playing the speculation game, let’s begin…
The prevailing speculation is that pricing will be aligned with subscription models and represent a monthly or annual fee model that allows the user to have access to their desired Sage software solution as long as the fees are kept up. This pricing model is in line with the majority of (maybe that should read “all”?) new internet-based software publishers these days – you pay an “as you go” price.
As a software publisher, this makes a ton of sense as it provides an even, smooth, predictable revenue stream that allows the organization to maintain consistent operations and budget activities such as marketing, sales, research and development, operations, capital expenditures, etc. This model is far preferred to the current model of a large initial expenditure by a customer and then they may or may not stay current on the annual support (which entitles customers to current software versions and some level of support).
From the customer perspective, this makes a ton of sense too and it’s one of the reasons that SaaS (Software as a Service) is becoming more popular. Just as this model provides the predictable financial model for the software publishers, the customers also has the same benefit of smooth expenditures vs a large initial implementation cost of services and software.
Ultimately, customers will typically pay more for the software with this model over their total usage as it works much like renting vs owning property.
The interesting thing is that this model works whether the software is in “the cloud” or installed at the customer’s website. Sage is making a push to providing off premise options (I’m not getting into the “what is the cloud” debate here) to give customers the freedom of choice and the theoretical pricing model will work for all options with, of course, some variation in pricing depending on the selection.
For Sage and their customers and prospective customers, the new model is a very good thing. Sage wants to provide options that customers are asking for these days and give the customers the flexibility to do business the way they want. It makes a lot of sense from this angle.
Customers are spending a lot more time on their own these days researching options and making their choices without the assistance of VARs (Value Added Resellers / Sage partners). When they are ready to buy, should Sage say “Whoa … hold up there, chief. You need to talk to one of our partners.” before committing the sale?
For their sake, I hope they wouldn’t do that. Customers have choices and are going to want to do business with vendors that make it easy to do business. Every last one of us follows this rule in life.
So for Sage resellers … what does that mean? Well – Sage historically has a great track record as a partner-centric organization. This might change but I don’t think it will in the near-term.
On the Accpac side of the business, there is a good track record of customers signing up with Accpac Online, the Sage-hosted version of Accpac and being assigned to local resellers to assist them with configuration, training and ongoing assistance. With the current launch of the MAS Online, from what I’ve heard the same model is being used. It’s a rare customer that can configure and setup their accounting or CRM system without some expert guidance.
For the short-term anyway, it seems that margins and end-user relationships are still safe with the channel.
That being said … I think if resellers keep doing business as usual they are going to find themselves in the soup in the coming decade. I encourage every partner in the channel to sharpen their saws and shake things up. Attend the Firm of the Future sessions. Think through how to take your services to the next level. Figure out a niche. Do something – anything – because the status quo is gone for good.
I occasionally hear partners speak as if Sage is somehow unique in facing these dilemmas and decisions and maybe the grass is greener with other publishers. This is not the case at all.
It’s every last publisher. Think about it: all new software companies are starting off going direct as internet based, cloud, subscription models. Sage, Microsoft, SAP are actually operating at a disadvantage with decades of inertia keeping them from changing course overnight. But it’s coming.
Again – the above is 100% speculation but if I look into my crystal ball, it sure seems like a winning play for Sage and Sage customers.
Robert Wood
Wayne Schulz
Peter Wolf
I also think you may see an offer where Sage provides software at a deep discount – or perhaps in certain cases free – provided the customer is also an active Sage Payments user meeting a certain threshold of annual charges.
This was hinted at two years ago at Summit in one of the executive keynotes.
I recently ran into a situation where this model would have worked well for a relatively small company with basic accounting needs looking to change from an obsolete accounting system.
There was a very small budget for software – however the company processed a fair amount of credit card charges.
I could see where an offer that the ERP is free/discounted – provided the customer is on SPS (Sage Payment Services) – would attract some customers.
That’s an interesting perspective. It definitely falls into line with the desire to get smoother, consistent revenue streams.
It would be extremely difficult to pull off though because the different divisions at Sage still operate fairly independently and what you are looking at with the give x away free if they buy y is one division is “up” while the other is “down”.
With the current management, led by Pascal Houillon, I see signs that the boundaries between divisions being taken down but I’m not sure how fast that will happen.
Peter you identified what I believe has been Sage’s core weakness and I agree that unless these “silos” are truly removed (not just spoken about as they have been in the past) the results will continue to lag.
The devil is in the transition from big up front payments to small monthly payments. It takes 2-3 years to get the same revenue, so you have to “hold on” until the monthly is big enough. It takes awhile. If you plot revenue (vertical axis) verses time with two lines – the first being the current model – it is a declining line over time. The second is the monthly and is increasing. The gap between (in the shape of a triangle) is called the “triangle of death” if it is too deep or too long.
Thanks for the perspective Doug.
For those of you who don’t know Doug, Doug has been developing software applications and has been a mainstay in the Accpac community for decades. He originally ran UniDevCo before Sage acquired the product sets and incorporated them into the Accpac product line. These days, he can be found at http://www.smarthotelsoftware.com/index.html.
This proposed pricing model is something he probably has a lot of insights into and has spent significant time thinking about these topics.
Doug I do not believe this should be a huge issue on the software publisher side – at least with respect to cash flows.
My buddy who left the software world to go into home alarm installation/sales works exclusively on payment plans and in that industry they essentially turn around and sell those payments for a lump sum cash outlay.
If needed I think that the software publishers would be able to do the same.
Now the trickier question is how do you compensate a sales team? In most cases I’d expect you are going to need to change the metric from cash collected to some other measure – most likely number of new customers added, etc.
The problem is the transition from big up front payments to small monthyl payments. It takes 203 years to make the same revenue. If you plot revenue (vertical axis) verses time with 2 liones. THe first is the current model which will decline over time and the second is the new model which will increase. The gap between the two (has a triangle shape) is called the “triangle of death” if it is too deep or too long.
I think Peter is exactly right on the model of the future for several product lines. Sage 100 formerly known as MAS90 and 200 and MAS90 on-line will likely be included in that batch of pay as you go products. What Sage may do differently than other cloud vendors is offer the same model for on-premises. I would expect the version 4.5 “Sage Adviser” technology will be the connection to turn off the software if monthly payments are not made. I would expect this new model when the Sage 100 name completely takes over, which coincides I believe with the 12 -18 month window of time for price changes.
While the triangle of death is scary, we do need to adapt to the change. My father ran a television business and the evolution was very similar to software now. Your shop was a dealer for one or two product lines, you serviced what you sold, usually at their home and you played the role of a trusted adviser. Many consumers didn’t know anything about how to buy a TV set. He spent hours with the customers to make sure he recommended just the right model. Sounds familiar! Now the prices and margins are low and you buy electronics like a pair of shoes. There are no more small shops really knowing their customer base. Big retailer vs. small trusted dealer, neither is really better or worse, just different.
I would expect a similar situation for us. Master Vars (the Best Buy types) will pop up and smaller dealers will focus on specialty markets or other services like installation, training and consulting. I think ERP software however is still too complex for the mid market to purchase with out some advice. The person or firm that can bridge the technology gap and be the conduit between IT, accounting and the warehouse will be the person whose value stays in tact. Value pricing will become critical and the norm.
I also think outsourcing will become part of the formula. Having someone that can work at the customer site that knows the software to lead the project from the customer side. A major source of failure is the lack of customer capable project managers. That won’t change with the software evolution but may be the gap that consultants fill instead of training on how to key in AP.
Outsourcing can be everything from sales and processing orders to maintaining the E-Commerce store or typing documents. If someone could do most of that, it really wouldn’t matter where the software resided or even what product it was.
A couple other thoughts.
Remember the days when the “Big Red Box” of Novell software was sold by VARS who completed for all sorts of authorization levels. I remember meeting with those folks and I’m quite certain they made a significant fee re-selling the software and implementing.
Now that reselling of networking software is all but gone. The typical VAR makes their money on service.
I also believe that the typical small consulting arena that we play in is going to look more like:
contractors
subcontractors
And customers will grow to accept that in many instances the services will not be provided by the same company though that company will oversee the project management.
Software publishers seem to live in this dream world that VARS will morph to be 100 person firms with 80 different people specializing in 80 different integrations. Personally I don’t see that happening as I think the contractor/subcontractor makes more financial sense unless a VAR is doing repeatable business in one of the specialty areas.
I agree Wayne. If anything, I think the thinking behind the Master VARs / super-store models are faulty from the ground up.
Bigger is not better.
It might just be personal preferences but I don’t think a person can serve multiple masters very well. I encourage everyone in the channel to read: Positioning for Professionals by Tim Williams.
Positioning for Professionals: How Professional Knowledge Firms Can Differentiate Their Way to Success (Wiley Professional Advisory Services)
Doug’s Triangle of Death holds true for the traditional Sage reseller as well as Sage. Dealer s that are used to the big payments for installation and upgrades will find that model disappearing — and in the pure SaaS model, gone for good.
A shift away from tying revenue to margins or commissions based implementations will be needed to bridge the gap. Those consultants who are already on a retainer or subscription basis for their livelihood have (IMHO) made the right decision.
Margins that are paid could be only for the first year of the subscription (Netsuite) or decreasing over time and disappearing by year 4 or 5. The game for Sage consultants has moved to LV and Sage is the house.
A related article I saw this weekend on Forbes talks about the need for ‘cloud middlemen’… http://www.forbes.com/sites/ciocentral/2011/08/14/next-generation-it-why-we-need-a-cloud-middleman/
Great thoughts and that article is a must read.
ADP is one of only four companies in the US earning a AAA rating from S&P. They are the ultimate pay-as-you-go company and always have been.
http://money.cnn.com/2011/08/08/news/companies/aaa_companies/index.htm?fb_ref=fbLike&fb_source=profile_oneline
The same 50% of companies off plan at Sage are pretty much idle as far as consulting projects go too.
Sage should make the shift as quickly as they can. Sage, partners and customers will all win.
Great conversation. For more about the Firm of the Future Symposiums visit sageu.com or http://edkless.com/2011/10/sage-firm-of-the-future-symposiumnew-dates-announced/