OPINION
Sage Software's Secret Sauce

Sage Software is having its annual Insights user meeting this week in Orlando, Fla., and I am filing this piece from there. More than 3,000 partner representatives are in attendance, which accounts for a broad array of products that include ACT!, SageCRM, SageCRM.com, and SalesLogix on the front-office side, plus a blizzard of accounting and ERP (enterprise resource planning) products for the back office.

Although Sage is not the only front-office software company to sell through the indirect channel, it is the only one I can think of with such a complete focus on that distribution model, which presents some unique challenges as well as some advantages for the company.

A few years ago, Sage was an oddity that didn't even have rights to its own name in North America and, for awhile, used "Best Software" on this continent. Back then, there was no shortage of pundits who said that Sage's days were numbered -- and that when the likes of Microsoft (Nasdaq: MSFT), Oracle (Nasdaq: ORCL), SAP (NYSE: SAP) and others got into the SMB (small and mid-size business) space, it would be lights out for Sage.

Well, the short story is we're still waiting for that to happen -- and a lot of erstwhile competitors have come to relearn the old truth that the SMB market is a very different game. In some respects, it might be like the difference between chess and checkers -- but a good chess player can still get his or her clock cleaned by a checkers player on a mission.

Into the Blender

Since 2003, Sage has more than tripled its North American revenue to just under US$1 billion dollars, according to CEO Ron Verni's Monday keynote. This year's run rate puts it comfortably past that milestone. Globally, Sage has been a billion dollar company for some time, putting it in elite company with the largest software companies on the planet.

Unlike many other companies in the front- and back-office spaces, Sage has grown by acquisition, and it has sometimes been challenging for the company to present a unified front. The good news, though, is that Sage has been able to blend its product lines and its operations into a cohesive group. Today it looks and operates much more like a company with a lot of products than a company with a lot of business units trying to make sense of its goulash.

The result is that Sage can credibly present itself as a front-to-back office solution provider in multiple and diverse vertical markets, such as construction and real estate, medical office management, and numerous other areas where its partners have established expertise around ERP and CRM.

Sage is by far not a perfect company, and it will always have the challenges of a software company trying to build and sell products -- and with so many products to ride herd on, the challenges will not likely diminish. Sage also has to juggle the requirements of a diverse group of resellers, which is no small task in itself.

What is interesting to me, though, is the forward direction and vision that it is presenting to its partners. In no uncertain terms, the message to the business partners is that delivering traditional systems integration services is no longer enough. Making sure all the green lights are on is not a way to make a living if you are delivering front- and back-office solutions to the SMB market.

Quality and the Customer Experience

One of Insight's keynote speakers was Joe Pine, author of The Experience Economy, who in the late 1990s was perhaps the first author to advocate customizing goods and services into customer experiences. In my mind, there is no better setting for that message to take hold than in a reseller channel where competition from other providers -- sometimes providers selling the same products -- can be fierce.

Appropriately, two of the strongest themes at the conference are integration and customization. A lot of other software companies are striking similar notes on either customization, integration or the ever-popular customer experience these days, but what I hear from them makes me think that these ideas are things that can be added on as a final step in the delivery process.

It reminds me of the old idea of inspecting for quality at the end of the manufacturing process rather than finding ways to build quality into products.

With its army of resellers whose livelihoods are dependent on delivering unique results for SMB companies, Sage can, in some ways, better focus on the customer experience -- and the customization and integration that make it possible.

In the end, the SMB space might be a classic example of the free market in action, where numerous vendors make best-fit solutions at specific low price points. If anything, the partner channel is most likely Sage's secret sauce and a strong barrier to entry for competition, which accounts for why this company that grew by acquisition is such a tough and successful competitor.

Denis Pombriant runs the Beagle Research Group, a CRM market research firm and consultancy. Pombriant's research concentrates on evolving product ideas and emerging companies in the sales , marketing and call center disciplines. His research is freely distributed through a blog and Web site. He is working on a book and can be reached at denis.pombriant@beagleresearch.com.