The Decade of CRM Stagnation at Sage

My blog this week is prompted by a claim I saw in a private group. The author, Jason Carter, suggested that, effectively, Sage had done nothing to grow the ACT! and SalesLogix businesses since acquiring the products about ten years ago. This sounded incredulous so I thought I would look at the numbers.

Interact Commerce in the Year 2000

Interact had two flagship products: ACT! (a contact management solution) and its big brother SalesLogix (a small to medium-sized CRM solution). The dot-com bubble was about to burst (http://en.wikipedia.org/wiki/Dot-com_bubble) and a review of their annual report at the time confirms things were troubled. For those of you that want to comb through the details, here is the link (http://www.sec.gov/Archives/edgar/data/1027108/000095015301500160/p64748e10-k.htm). Here are some of the highlights:

• Revenues: $108m (2000), $36m (1999), $16m (1998)
• Total Operating Expenses: $126m (2000), $35m (1999), $18m (1998)
• Net Loss: $57m (2000), $8m (1999), $7m (1998)
• Cash used in operating activities: $17m (2000), $3m (1999), $5m (1998)
• Research and Development: $25m (2000), $7m (1999), $4m (1998) (let’s say about 20-25% of revenue)

In 1999 and 1998 Interact had issued stock and borrowed money to keep the cash flowing in. In 2000 they did not do this and burned through $49m in cash.

So while revenues were indeed increasing at an incredible rate (two-fold between 1998 and 1999 and three-fold between 1999 and 2000), operating expenses were in lock-step and profits were nowhere to be seen. Similarly, the business was failing to generate cash from sales and was propping things up through shares and debt.

Sage in the Year 2010

Sage acquired Interact Commerce in 2001. Along with the acquisition of ACCPAC CRM in 2004, ACT! and SalesLogix make up the stable of CRM offerings in the Sage product mix.

Reviewing Sage’s latest annual report we discover that 4% of Sage’s revenue came from their CRM products (http://ar2010.sage.com/whatwedo.asp)

Diving into the numbers (http://ar2010.sage.com/Consolidated-income-statement.asp) we discover that the revenue for 2010 was 1,435.0 million pounds. Taking an exchange rate of 1.6 pounds to one US dollar (the rate around the end of 2010), this translates to around $2,300m in total revenue. 4% of this is about $92m.

So the revenue for the CRM products has gone from around $110m to $90m in ten years i.e. it has not changed significantly and may have actually shrunk. Also note this also includes the, assumed, additional profits of Sage CRM (ACCPAC CRM).

The big difference in the two financial reports is in their health. Although the Sage annual report only talks about the business as a whole, not just the CRM component, Sage is profitable and generating healthy cash flows i.e. they are generating cash from their operations.

Research has also suffered in the name of a healthier bottom line. According to the full annual report, Sage spent a total of 158.9 million pounds on research and development. This is around 11% of revenue, about half what Interact felt they had to invest, as a percentage of revenue, to stay on top.

The Current Popularity of Sage’s CRM products

Back in July of last year, I used Google Trends to see how Dynamics CRM is travelling relative to Salesforce (http://leontribe.blogspot.com/2010/07/using-google-trends-to-predict-crm.html). As an aside, if you want to see an up to date and expanded version of my Salesforce vs Dynamics CRM blog, I will be presenting precisely this at the upcoming Decisions Spring 2011 (http://decisions.msdynamicsworld.com/session/microsoft-dynamics-crm-vs-salesforce-main-event).

We can now use the same technique to review the popularity of the Sage suite of products relative to, say Dynamics CRM.

Using Dynamics CRM as a comparison, it is clear that the Sage CRM products are not generating as much interest as Dynamics CRM. Also, it is amazing how far ACT! has dropped since seven years ago.

Conclusions

Sage has not grown their CRM business and has remained effectively stagnant for the last ten years. Moreover, they have cut back research dollars, relative to revenue. In its time, SalesLogix was at the top of the mid-market CRM players. So much so that when Dynamics CRM was first released, the ROI tools provided to Microsoft partners mentioned only two CRM products: Dynamics CRM and SalesLogix. Back in 2003-2004, SalesLogix was to Dynamics CRM what salesforce.com is today.

What is not clear is whether Sage’s stagnation is due to transforming the financials to health or plain old neglect. Either way, products such as Dynamics CRM have now taken the place in people’s minds when they think of CRM and, given the lack of investment in research it is difficult to see how Sage can recover from this position to regain former glory.

Forrester Trajectories of CRM Solutions

I was watching Hans Rosling the other day do what he does best with his gapminder software. That is, dispelling myths and making volumes of data speak volumes through visualisation. If you don’t know Hans, here is an example of him at work.

Hans Rosling and gapminder

It occurred to me that the little dancing circles were not dissimilar to the Gartner quadrant and Forrester Wave pictures those of us in the IT game are used to. I figured that while I did not have a few hundred years of data, even with a few years of information I may be able to extract some interesting conclusions.

If you are interested in seeing the research, a good place to begin is the Microsoft Analyst Relations Reports. Here you will find a host of white papers and reports. Obviously, Microsoft are unlikely to link to reports which paint their products in a poor light so feel free to use your favourite search engine to supplement.

While Gartner reports were a little light on the ground, I did manage to find a good selection of Forrester Wave reports for CRM suites in the mid-market and enterprise-market on the Microsoft page and supplemented this with another I found online (http://www.ibizinitiatives.com/ForresterCRMStudy.pdf)

Mid-market Velocities

These three graphs are for 2007, 2008 and 2010 respectively. The size of the circle, if I am reading the paper correctly, is a rough measure of market share and the company’s dedicated team size to the space.

The first thing I notice is the migration to the top right corner; the leaders area. Overall, solutions are generally improving.

In terms of individual products, let’s look at some of the more interesting ones.

Solution	Observations
Oracle Siebel CRM Professional	This one appears to be slipping. The product to be envied in 2007-2008, they are now truly out of the Leader section, falling back to Strong Performers. Strangely, they appear to have a stronger market presence now than in the past.
salesforce.com	The ‘cloud Siebel’ continues to improve their product and appears to have increased their market presence in recent years
Microsoft Dynamics CRM	Like salesforce.com, Dynamics CRM continues to advance towards the top right corner, it has increased its market presence and is now the leader on the chart.
Netsuite	Although the movement is not huge, it does appear to be moving in the wrong direction.
Sage Saleslogix	Appears to be advancing through the Strong Performers but is yet to make a Leaders position
CDC Software’s Pivotal	Despite not featuring in the 2008 chart, they have rocketed from a Contender position through to Leader.
SugarCRM	Another little battler. The have moved through to a Leader position and have improved their market presence
Sage CRM	Also increasing market presence and is just in the Leader position
FrontRange’s Goldmine	Their market presence has gone from one of the two dominant players to one of the smallest in a span on three years.
Maximizer	Goldmine’s fortunes are contrasted against the other ‘big player’ in 2007, Maximizer. Maximizer has maintained its market presence and is also now in a Leader position

 

Enterprise Velocities

For the Forrester Wave reports, I could only find reports for 2008 and 2010

However, there are still things to observe. For example, it appears that a lot more of the, traditionally, smaller market players are now stretching into the enterprise.

As for individual products, there are also some things of note.

Solution	Observations
Oracle Siebel CRM	The traditional ‘900-pound gorilla’ in the market, their strategy appears to be slipping and other players stretch up from the mid-market. They have lost their dominant position but remain a Leader.
SAP CRM	Suffering a similar fate to Oracle Siebel CRM, SAP also has the indignity of reducing its market presence.
Microsoft	Creeping up, they have now taken the dominant Leader position in the market
salesforce.com	Similar to Dynamics CRM, salesforce.com appears to also be sliding in front of Oracle Siebel CRM and SAP CRM
Oracle Peoplesoft CRM	Loss of market presence and also appears to be moving in the wrong direction, albeit slowly.
Oracle E-Business Suite CRM	Also losing presence and moving in the wrong direction.

 

Conclusions

For those of us that remember Mosaic, MySpace and WordPerfect, we know that today’s darling is tomorrow’s forgotten software. There are some clear trends here:

• Oracle cannot seem to do anything right. Their products, which they have many, are either stagnating or going backwards, relative to their competitors
• salesforce.com and Microsoft Dynamics CRM are edging out the competition in both the mid-market and enterprise
• Players such as CDC Software’s Pivotal, SugarCRM and Sage CRM should be watched, given their trajectory

As other Wave reports come out I will update the research.

Disclaimer: As well as working extensively with Dynamics CRM, the company I work for, Praxa, is owned by the same company as CDC software.

The Merry War for IT Control: IT Strategy, Office Functionality and the Cloud

There is a war raging in every organisation. This war is described in popular culture in television programs such as “The IT Crowd” and in comic strips such as Dilbert. If there had been computers in Shakespeare’s time, he would also speak of the ‘tussle betwixt the guardians of IT and the gentlefolk of the office’.

The Winter of Our Discontent

The battle I speak of is the tension between controlling the systems which an office uses and providing enough functionality such that the job required can get done. There are many fronts on which this war is being raged. IT have long held the territory of ‘network access’, and rightly so, but the lines on the map are constantly moving. The new trend of bringing your own laptop will inevitably cause IT departments to lose some ground and the lands of ‘social networking’ are still very much in dispute.

Misery Acquaints a Man With Strange Bedfellows

Often the tools provided by IT are simply insufficient for office workers to do the job required of them. Whether it is an enterprise system which is designed such that one size fits all but does not, or it is simply the case that IT do not have a clear picture of the needs of the business, often users look elsewhere. Historically this has meant a proliferation of what Matt Johnson calls micro-IT. This ‘jury rigging’ often involves readily available, yet powerful, tools such as Excel and Access.

For Sweetest Things Turn Sourest By Their Deeds; Lilies That Fester Smell Far Worse Than Weeds

For those of us in consulting, we have all heard of large, household name organisations who literally run with thousands of bespoke Excel spread sheets, decentralised, unmanaged and whose inner workings are unfathomable. While it seems like a good idea at the time, as requirements and technology moves on, these barrier-removers become barriers in themselves. Inevitably they have to be deconstructed, rebuilt and often centralised so the pattern does not repeat again. However, the underlying problem remains. The same evolution that reveals the sin, opens up the possibility for further transgressions.

The Undiscovered Country From Whose Bourn No Traveler Returns

A new weapon has now entered the field of combat; the cloud. The ability to run significant parts of a business’ IT function with little more than a web browser is a revolution and the ultimate equaliser on the battlefield. The ability to go to the web, provide a credit card number and access, for example, an enterprise-ready CRM system means the traditional gatekeepers of technology are completely bypassed. In terms of what percentage of users will bypass the IT department in the future and go direct to the cloud, the jury is still out. Industry analysts say up to 50% and that it will increase over time. Brad Wilson, GM of Microsoft Dynamics CRM, is more conservative suggesting 10%. I agree with Brad on this one, assuming IT arm themselves with the same weapons and get a better appreciation of their role in business.

Every Subject's Duty is the King's; But Every Subject's Soul is His Own

Every employee in an organization has one master; the strategic direction guiding the business. This is true for both the office workers and the IT department. How well this strategy is articulated and how well it is translated into action determines everything else. The IT department, on a tactical level, is there to ensure the smooth running of the technology in the business. Often this manifests itself as keeping a tight control on the systems provided to the office workers. While a little less control could allow users to do their job more efficiently or effectively, it also opens the systems up to more risk of failure. When an IT department has scarce resources and is punished when systems go down, a policy of tight control is a logical one.

The office workers are there to do their job as effectively as possible. If the worker is in sales, traditionally they will be motivated financially to bring in sales to maximise revenue. This is where I often see the weapon of the cloud employed first. If a CRM system will allow a salesperson to handle ten times as many leads and bring in ten times as much revenue, it soon becomes a numbers game as to whether they should pull out their own credit card and go to the cloud.

While, historically, flanking the enemy and establishing your own IT systems required an Excel or Access guru in the office, this is no longer the case. Cloud applications, such as Dynamics CRM, are very easy to use (given they work like Outlook) and can be configured with no code. In terms of support, online forums also reduce the relevance of IT as the internet has an answer for everything and, when it does not, you ask and a friendly MVP or product evangelist steps up and gives you everything you need. In my experience on the online forums, if I do not get to a question within 24 hours, someone else will have already provided an answer. In terms of the internal equivalent, in one case, one of my customer’s (also a household name) IT department literally took six weeks to provision and set up a new laptop for one of its workers. When considering this level of internal service, it makes sense to go elsewhere.

All Things Are Ready, If Our Minds Be So

The fundamental problem is that, in many organisations, IT is not managed as a vital, strategic component to a business but simply seen as administration. While tactically, the IT department may be there to ensure the smooth day-to-day running of the business’ technology, strategically they must ensure the systems in place allow the workers to do the job the business needs them to do. If the users are building Excel spread sheets or employing SaaS systems to control vital aspects of the business, IT needs to know about it and, rather than accept it, they should see it as a direct criticism that they are not doing their job effectively and act immediately. If staff needed to bring their own chairs and desks to work, this would be seen as a failing of Human Resources and addressed immediately. The same it true for IT.

From a business perspective, just as the sales and marketing departments are given incentives to align them to the needs of the business, so too should the IT department be given incentives beyond ‘make sure stuff does not break’. What the incentives are will depend on the business and their needs. However, if the workers are bypassing IT and obtaining significant technological functionality without them, this clearly indicates that IT is strategically irrelevant; a matter that needs to be addressed for the overall health of the business.

Conclusions

It is understandable that IT fear giving their users too much control and it is also understandable that IT departments fear becoming irrelevant at the hands of cloud SaaS offerings. However, if all IT is there for is to provision Active Directory and Exchange accounts, configure laptops and maintain servers, they have already lost the battle. The resolution of this war, as is often the case, is through diplomacy. Both sides need to understand each other through communication and IT need to gain a better understanding of their role within the larger business context.

The best case I have seen of this kind of strategy is with the IT services group for a large government body. In this case they use Dynamics CRM on-premise. However, the implementation is irrelevant, it is how the system is used that is important. The group has recognised that each government department has very different needs and, even within a department, different systems are needed to handle different processes.

Each time a new process is discovered, which is inefficient and relying on paper processes or bespoke systems, a new organization (for those not in the Dynamics CRM world, think of this as a new CRM database) is provisioned in CRM and the system configured to meet the needs of the business. This is the best of all worlds. The users get the system they need to do their job effectively, IT maintain control but, more importantly, they have the opportunity to see the bigger picture. If another area of the business has similar needs to an existing CRM system in place, lessons learned can guide the new system and the design and code can be reused, rather than reinvented.

The cloud is an excellent weapon but it, and all applications in general, should be wielded by IT for the benefit of the users and the business as a whole. Only if all the tools of technology provision are managed centrally can they be aligned with each other and to the goals of the business; true strategic IT.