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By Tim Ferguson, 28 April 2009 17:34

COMMENT

...it's going to be a three- to five-year journey as you move up that curve of more and more people demanding cloud computing. It's going to happen - particularly from that group of people who've lived through the online world with Facebook and what the internet can do for them. We don't think it's a revolution, we think it's going to evolve and there'll still be many customers in three years time who still want desktop solutions but we'll have seen a bigger shift to software as a service over that period.

Will this hurt Sage's desktop business?
We have a number of products we're already selling - we will continue to invest in those and expand those over the next 18 months but you will see more from Sage over that period. Having said that, we can't take our eye off the ball - we've still have 5.7 million customers today on desktop solutions so we have to satisfy both of those markets and that's very important for our business.

Now with broadband as it is, a lot of younger people coming into business who are used to software-as-a-service applications and using the web to run their lives, you'll start seeing more traction over the next two to three years. [But] in two or three years time I'd be very surprised if 50 to 60 per cent of our customers were on [cloud-based applications] but it could be more like 15 or 20 per cent which is why we use the word 'evolve'.

Who would you say is your biggest competitor?
Well, given that North America is nearly half our business we have to look to Intuit and their products from the QuickBooks portfolio as I would say our most serious competitor and indeed our biggest competitor in terms of customer size. So I think we look to what Intuit are doing and the way they're running their business and the way they've developed their business. People like to talk about SAP and Microsoft but for me, certainly in North America, Intuit are our biggest competitor.

What are big areas where your customers are asking for more from Sage?
I think we're seeing our customers starting to realise that using the web can start to simplify some of their business processes and allow them to communicate with customers and suppliers in a more efficient way. So we've certainly seen our customers say: "How you deliver - whether it's desktop or cloud computing - is interesting but actually how we can use your products and adjacent products to access information on the web - whether it's suppliers, for our own customers, whether it's for employees - is something we want more of."

For example we recognise that the whole world around legislation has become more complex for SMEs, particularly around employees. Even for small and medium-sized business they're suddenly faced with more HR problems. So we now have simple, easy-to-use, web-designed, online HR products, particularly in the UK, that can help SMEs over the web access solutions and understand what they need to do on certain situations. So I think HR is a good example where we've provided some online solutions to help our customers interface with issues they have with their employees.

It's really just using the web to access information and to have support over the web. And indeed that's another area we think newer customers coming into Sage will always want - to have the opportunity to speak to a support person where they really need to deal with an issue but [companies will] also want to use online support. One of our objectives is to make sure we're providing both of those - we will make sure we've got high-quality online support services for them to use if they don't wish to have direct contact with a support operative.

We think that just as corporates use business intelligence to manage their businesses more effectively, we think dashboards, or whatever you want to call them, accessing that data and presenting it in different ways for non-financial people in an SME is a great part of the market. The manager of the business just wants to look at that data, probably through a web browser, so he can look at what customers are doing, looking at the financial state of the business but without actually getting into the accounting software.

If you map out how SMEs have used technology over the last 20 years where at first it was all around transaction processing, getting the VAT return done electronically, etcetera, etcetera - of course they expect that to happen by default today. I think that [SMEs] want solutions that are more applicable to the industries that they work in. So whereas at one time vanilla solutions [were enough] I think increasingly SMEs, to be competitive in their own marketplace, want business software that is highly relevant to the industry that they work in. If you're an SME in a distribution industry, the software can be tweaked and changed so it's very relevant to the market that you operate in.

What is Sage's strategy around emerging markets?
We're very small in Asia today… but as that SME sector emerges in some of the big Asian markets, particularly India and China, we've got to work out how we participate in that growth area. Today we're selling mainly mid-market products to European and American businesses that are residing in those markets - so one of our big market solutions called X3, we're selling quite successfully in China - but we don't have that entry-level position that we think is very important to build from in those markets.

We're not strong in any of the South American markets today so obviously looking ahead three to five years we would expect our footprint to increase in these emerging markets. And it's partly about technology but it's also about understanding what SMEs require in these marketplaces, which is where we think our domain skill is.

The online solutions in those markets are probably the way we'll try and enter because in a way you can imagine a lot of new businesses starting off in that area are much more likely to want cloud computing than going the traditional desktop route which has been embedded into the European and North American markets because we've been there for such a long time. A lot of new companies starting out in the Asian world you would think would want to go down that software-as-a-service route.