Sage Software was once a one-legged company. Well, that is more or less true in the sense that the overwhelmingly majority of its revenue came from selling product and from the services surrounding them. And however much came from services, product license revenue was still the core.
That is changing and with it, Sage as a company. In many ways, a sweeping reorganization announced this week reflects revenue that increasingly comes from products and services sold on a per-transaction basis.
CEO Ron Verni noted that about three years ago, revenue from business processing outsourcing (a term he said he doesn’t like) was zero. It has now risen to 20 percent of the total with Sage Software revenue for the half ended March 31, just announced as $495.9 million.
It is that change that is reflected in the creation of new divisions of Sage, not the only reason for the move, but certainly a part of it as Sage gets its hands around the acquired operations that boosted revenue by 67 percent while organic growth was up only 4 or 5 percent.
Accounting software, the MAS line and low-end products such as Peachtree, along with CRM products, are now under Nina Smith who is heading the new Business Management Division. Doug Meyer, who led the Peachtree operations for years, moves over to command the new Industry & Specialized Solutions Division, who has construction, fixed asset, payroll, nonprofit and HR applications. Two acquired groups are also part of new divisions. The Verus Financial Management operation is now the Payment Processing Division while Emdeon Practice Solutions has been made into the Healthcare Division. Another important shift was the EVP Jim Foster has become the company’s first chief technology officer to bring executive-level attention to give Sage a technology direction.
These will not be isolated. Sage will ramp up efforts to get its resellers to recruit payment processing customers and it’s hard not to view the healthcare business, underautomated in many ways, as a source of prospects.
Sage will be giving these units more decision-making power. Smith will not be replaced as in her previous job as chief marketing officer. Instead, marketing and other activities will move into the divisions, as the company abandoned its shared services model.
Change will continue. Transaction-based revenue will be an increasingly part of the Sage mix. And so will interest on funds that Sage holds for customers, such as payroll. To judge how this works, examine the financial reports of Paychex, which got about 8 percent of its February quarter from interest on funds held for clients.
Combine payroll, payment processing, and banking and you get what I call integrated funds flow management, a term that both Sage and Intuit seem to like.
Whatever it is, it beats BPO. Whatever it is, it’s a major change.
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