Of all the top ten suppliers of business applications software, Sage Group Plc is the odd-one out. First the Newcastle-UK based accountancy software vendor only sells financial software. Second, it is targeted at the low-end of the market, offering products on personal computer and low-end Unix systems, not the traditional high-end Unix/legacy platforms favored by the sector- leading vendors. And third, while most business application vendors sell a single product line globally, Sage’s modus operandi is to offer separate, specialized products in each local market. It is an unconventional strategy, but one that seems to be working. Since it first began its international expansion in 1991, ten years after the company’s inception, Sage has been steadily acquiring companies across Europe and in the US.
Religiously cut costs
But while Sage has religiously cut costs at the companies, it has essentially left the product sets unchanged, with little attempt to ‘internationalize’ and standardize functions. According to Paul Walker, chief executive officer of Sage, as a result of this strategy, Sage has become the chief supplier of accountancy software to small businesses in the UK as well as in France, following its acquisitions of Ciel SA, Saari SA and Sybel Informatique SA, while it is also building up a strong presence in Germany following its recent purchase of German counterpart KHK Software GmbH last November – one its biggest acquisitions to date at $110m. Through the earlier purchase of the DacEasy line, it is also a force in the US. Sage’s largest market, however, is still the UK. For its 1996 fiscal year, ending 30 September, the company posted revenues up 33% to 136.2m pounds or $220.6m, 54.2m pounds ($87.8m) of which came from the UK, 61.3m pounds ($99.3m) from the rest of Europe and 20.7m pounds ($33.5m) from the US. Net income was 19.8m pounds ($32m), up from 14.6m pounds ($23.6m). In a bid to expand the US business further, Sage is now looking to make new acquisitions and to push out from its direct channel base into retail stores as it has done in Europe. Walker says he expects to see significant growth in the fragmented US market. But despite its obvious success to date, the seeds of change are blowing at Sage. Many analysts are beginning to criticize the fact that the company has never really done much to cross pollinate the software it has acquired, spending less than 7% of revenues on research and development. In response, Sage has recently started to embark on internationalization of a sort. It has now relegated the French product to sub-brand status, positioning its own name in front of the local product, and has the same plans for its German subsidiary KHK’s accountancy software. According to several analysts this ‘globalization’ of its product is the first step towards creating a ‘single accountancy engine’. Walker concedes that the company is currently having an internal debate over the possibility of developing a generic product but points out Sage is not an SAP AG or PeopleSoft Inc and an international product is irrelevant: We are selling to small and medium enterprises and all they want is quality software, he says.
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