Last year, Sage - the accountancy software vendor that dominates the market among SMEs - hit the headlines. But not because its turnover had increased by 29% to more than £687 million, pushing pre-tax profits up 20% to £181 million. Nor was it because strategic acquisitions during the year secured Sage a presence in Spain, South Africa, Australia and Asia (it already leads in Europe and North America). Neither was it because it welcomed 1.2 million new businesses on board, bringing its global customer base to 4.4 million.
Rather, it was because Norman Foster's spectacular silver music venue, The Sage Gateshead - named after the company (secured with a £6 million donation) - opened in once-desolate post-industrial Gateshead. Across the river, one wonders how many people in Newcastle-upon-Tyne, where Sage is based in a modest business park, know of their homegrown software behemoth. It is possible that they might have spotted the HQ on a trip to the nearby Asda.
When small to medium-sized businesses first began to think that IT might help them with their accounts - back in 1984 with the launch of Amstrad's first cut-price PCW computer - Sage was there already. It had been formed in 1981, its first package written by co-founder Graham Wylie, then a poor student in search of cash, for an accountancy firm. And, in part, this explains the company's original and subsequent success: being first to market with an application focused on client needs. Indeed, Paul Stobart, Wylie's successor as MD of Sage UK, is to this day remunerated according to levels of customer satisfaction.
The company's range of products, catering for the sole trader (Instant Accounting) through to medium-size companies with its Line 500 package, commands a 40% share of the financial software market, according to research from the Institute of Chartered Accountants in England and Wales (ICAEW) - and that is across all businesses: small, medium and large. It is also the package of choice for accountants: it suits old-fashioned bookkeepers and satisfies the IT-savvy. Accountants are encouraged by Sage with generous support and incentives; they, in turn, encourage their clients to use it, who themselves recommend it to colleagues and peers. 'Forty-five per cent of new business comes from existing customers,' says Stobart.
But although the early bird caught the worm at the dawn of the IT revolution, more must be said to understand Sage's persistent, pervasive presence. A number of factors come into play. 'Buyers generally want well-supported software from a vendor that is a major player in the market. They need to know support is easily available and that the software is going to be around in the future,' explains Tapas Maiti, an accountancy expert at PA Consulting. 'This security far outweighs functionality for most buyers in this market.'
And simply by virtue of its size, no other vendor can offer as high a level of guarantee as Sage. It should also be added that, until recently at least, there were few other options for SMEs in the market: financial applications from the likes of SAP and Oracle are built by large companies and tend to be used only by large companies. To this 'winner takes all' wisdom can be added what is sometimes known as the network effect, or 'the more the merrier'.
Continues Maiti: 'Inter-operability with customers is important in the cost-conscious SME market. If those accountancy firms that use Sage recommend it to their customers, then the work that they need to do at year-end in preparing the accounts is reduced considerably. Many firms do indeed take this route.'
Coupled to this is the fact that replacing an IT application represents a significant cost for SMEs, which may have to upgrade PCs and retrain staff; smaller outfits are much more likely to stick with what they already have and know.
Another reason why businesses like Sage is because it has grown with them. 'As your business grows and your needs change, you can add on relevant packages,' says Michaela John, a director of Tenon Outsourcing, accountant and business adviser to SMEs.
Sage also makes it easy to buy: it has an extensive reseller base, which ensures that sales, implementation and support services are available locally. 'The power of its brand is such that Sage benefits from its developers too,' says James Brewis, managing director of Signifo Expenses. 'We paid Sage over £10,000 last year for the privilege of calling ourselves a Sage Developer. We consider this money well spent. We sign several Sage users as customers each month, and Sage users now form almost half our customer base.'
The latest half-year results reflect the firm's continued success - profits up 16% to £100.6 million and customers up to just over 4.5 million. But despite dominating the market, Sage senses the pressure of increasing competition. Worldwide, it faces hundreds of rivals, and although many of them are niche players with a small market share, a handful can claim multinational status and have money in the bank.
Moreover, there is plenty of evidence that SMEs find IT a burden, for all the automation it brings. And this means, in turn, that they may be open to alternatives that promise to lighten their technology load. Thus, the ICAEW's research showed that nearly one in eight SMEs have experienced what they called a business-critical failure in their IT systems in the past two years. That may be due to companies lacking in-house skills rather than because the software is loaded with bugs. But applications need to be easy to use for SMEs to like them: unnecessary complexity, especially when it causes crashes, is unwanted and even resented.
Chartered accountant Alan Ogston, a sometime Sage user, moved over to key competitor Intuit's QuickBooks. 'I suspect that many people are dissatisfied with it, but they go on using it because they are used to it,' he says.
His complaint was that Sage made it hard to correct mistakes when reviewing his clients' accounts at the end of the month. Not only did he have to take the application off the client's network before working on it, but sometimes had to delete entries and re-enter them.
At the client end, Sage is similarly open to the accusation of being over-wrought, particularly when it is now so easy to compare it with other offerings. 'I need something easy and Sage looked too complicated,' confirms Simon Moss, who runs a small business, WHB, selling parts for horse boxes. 'I recently went with the option recommended by my accountant because I wanted to automate my accounts, but I would have gone with Sage a couple of years ago if I had liked it.'
It is not hard to find larger SMEs that share similar sentiments. 'Our previous Sage Line 100 system no longer met our business needs without significant bespoke configuration,' says David Millard, a director at Dudley Tool and Engineering. 'We recognised that to drive our business forward, we needed to revamp the way our IT systems integrated financial data with stock and production management, which just wasn't possible with the old system.' The company moved to Microsoft Navision.
The accusations against Sage are threefold: the first is that it lacks depth of functionality. 'SMEs choose Sage because it is cheap and easy to instal, easy to train users on and doesn't require much IT knowledge,' says David Turner, group marketing manager of Coda, one of Sage's competitors. 'It is suitable for companies with relatively basic requirements.'
Second, Sage is more of a brand than a product. 'In the UK, Sage acquired MultiSoft and Tetra, which bought it a dominant market share. It has made similar acquisitions in the US and Europe,' explains Nigel Geary, CEO of Analysoft, a company that targets mid-sized businesses. 'It now has a very large set of products that share only the name.'
This means, so the case against Sage continues, that the products are not well integrated - which leads to a third challenge. 'Sage and some of the other packages were written before the era of e-business, and although they have addressed this to some extent with bolt-ons, they still hark back to an earlier era,' says Julian Jackson, business development director of Reidmark, a new player in the field.
Stobart responds confidently to all three points. 'We give our customers what they want in each market segment, and at the top end we give them loads of functionality.
'In an ideal world, of course we would like to have one code base,' he adds. 'But because we have grown so fast by acquisitions, we have had to become adept at integrating different code bases. The point is that we always look after our customers. We embrace the fact that we have lots of different products because customers will buy different products for different reasons.'
And in relation to e-business, Stobart points to the irony that in the early days of software engineering, the wisdom was to keep the user interface, the business rules and databases separate. 'Sage products lend themselves to being deployed over the web. It is simply not true to say they are not architected for the internet,' he insists.
Stobart accepts that the world of SME accountancy software is aggressive. 'As market leader, you have to accept that competitors are going to level all kinds of stuff at you.'
But he has a strong hand, pointing out that Sage's market share has increased every year for the past 25 years. 'Customers are not mugs,' he concludes. 'They would vote with their feet. We must be doing something right.'
ANDERSON BAILLIE - CAMPAIGN REPORTS FROM THE FRONT LINE
Marketing company Anderson Baillie is one of the UK's top 10 agencies in the business-to-business and technology space, employing 20 staff in its headquarters in Warrington, Cheshire, and a satellite office in Oxfordshire.
These days, marketing is itself a highly technological discipline - which, when you are an agency, means not only communicating with customers but also clients.
'They expect a high level of technology support, and we want them to feel they are an extension of the marketing programme,' explains Andrew Ball, a consultant at Anderson Baillie. To achieve this, you need CRM (customer relationship management).
The agency - already a user of Sage's Line 100 accounts package - built a CRM system around Sage SalesLogix. 'It is very much in line with our business approach to integrated marketing,' says Ball. 'It gives us and our clients live online reporting facilities.'
Julie Mallam, the company's information system manager, recalls: 'When we first installed SalesLogix, we concentrated on internal use. We wanted some way of forecasting and started running campaign monitoring.'
Then some clients saw it and wanted access too. 'They wanted online progress reports, so they could, for example, monitor the effects of a telemarketing campaign.' The agency now provides links for clients to access varying levels of data about their campaign. Clients pay for the service through the standard agency fees.
Mallam says one of the main challenges was to anglicise the software: 'When we implemented it, we thought it was very American in its approach. We have altered this to fit in with what we want. Now it sells itself.'
Indeed, the flexibility of the package is its main strength: 80% of clients are operating it within three days. 'It's really a whole marketing campaign in a box,' concludes Ball.
GEDDES GROUP - TRACKING A PROJECT'S PROFITABILITY
Digging in the earth is second nature to Geddes Group, a family business based in Arbroath, Scotland. Originally engaged in agriculture, it has expanded to encompass quarrying and landscaping, skip hire and waste disposal. But digging in financial data does not come naturally. So when support for its Unix-based accounting system was withdrawn, Dorothy Smyth, a director at Geddes, decided to invest in something a little more up to date.
An order was placed with Castle Computer Services, a reseller of Exchequer Software's Enterprise product. Exchequer has recently been acquired by Iris Software and is now called Iris Enterprise Software, but the accountancy package retains the Exchequer name.
'The functionality within the package means that we will be able to track the profitability of a project by accessing information, such as the invoices that are being accrued, far more easily, providing us with a very effective method for monitoring and controlling project costs,' says Smyth.
The package will also automate the employment and tax deductions of sub-contract labour.
The reporting facility will be useful too. It can drill down into financial management data and provides seamless links with Microsoft Excel. 'Previously, the completion of reports was a very cumbersome task,' explains Smyth. 'Now I'll be able to analyse all ongoing projects at any given time and provide managers with up-to-date reports directly to their desktops.'
Geddes Group looked at a number of accounting and business solutions on the market, but trusted its relationship with Castle Computer Services.
'To date, we have received excellent support from Castle, which gives us confidence that the implementation will be completed on time and within budget,' says Smyth.