Sage acquires Fairsail: Is this Salesforce-based strategy going to work?

I was critical of Sage’s decision to build a client-side solution on top of the Salesforce platform, but maybe there’s a deeper move going on.

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Martyn Williams

A year or two ago I attended Sage’s global summit in New Orleans when the company announced its new client-side accounting software solution built upon Salesforce’s Force.com platform. Sage’s CEO, Stephen Kelly, was quick to wax poetic about how the Salesforce platform was the ideal tool on which to build a solution -- pointing to the fact that Sage didn’t need to reinvent the wheel and could leverage Salesforce’s investment in its battle-hardened platform.

I was less sure, pointing to the fact that Force.com has, until now, been a platform focused on more enterprise-level use cases. As I saw it, building a small and mid-sized business (SMB) tool, on top of an enterprise platform created some weird dynamics in terms of economics and fit. Kelly disagreed and we were happy to respectfully see this issue from two different sides.

Fast forward a year or so and I recently had the chance to attend Sage’s APAC summit in Melbourne where the company gave a local update on its progress, but also a more global feel for its strategies and future plans. At the event I spent time talking to some Sage global execs and found out that the company was doubling down on the Force.com platform and was in the process of rebuilding its accounting practice solutions on top of Salesforce’s tool set. Could there be something deeper to this Salesforce hook-up that I hadn’t seen?

Only a week past that event, and news broke that Sage was acquiring Fairsail, a human capital management (HCM) solution that is itself built on… you guessed it, Force.com. Admittedly Sage had already taken out a small investment in Fairsail, but the acquisition sees Sage focus squarely at a higher level enterprise customer base that needs HCM and payroll solutions. Adam Hale, CEO of Fairsail, is optimistic about his opportunity, and the opportunity that the Sage hookup brings, reflecting on the two incumbent enterprise HCM vendors, SuccessFactors (and SAP company) and Workday:

In a couple of years’ time there will be three acknowledged global HR players. That’s our goal, that we’re there and acknowledged as one of three globally… We believe this puts us on the path to global leadership and global domination -- that means thousands and tens of thousands of customers -- I don’t see why Sage People shouldn’t become the global leader for mid-market organizations.

Sage and Salesforce

The Fairsail deal arks a significant extension of Sage’s relationship with Salesforce. While Kelly and Salesforce’s CEO, Marc Benioff, have been pals for awhile, the fact that three critical Sage solutions will now sit on Force.com indicates a big strategic relationship between the two. Sage would seem to have determined that its key strategic differentiation against the other global SMB accounting players, Intuit and Xero, is the fact that it offers both SMB and mid-market products.

This renewed focus on the mid-market (Sage has always catered to this market, but is now setting itself as a mid-market cloud vendor) gives its customers a compelling growth path -- something that startups looking to scale will find attractive. It also offers Salesforce another way to generate revenue on the Force.com platform, which itself raises some interesting prospects.

The FinancialForce conflict

FinancialForce is a mid-market ERP solution that is itself built on top of Force.com. FinancialForce was created from the get-go on top of Force.com -- and Salesforce is actually an investor in the company. While it is true that there are other ERP products built on Force.com (Kenandy, for example), Salesforce has been pretty bullish about FinancialForce historically.

With the increasing importance of Sage as a Force.com customer, however, what does this mean for FinancialForce? And will Salesforce, long suggested a potential acquirer of FinancialForce, have another option to look at? Sage is, after all, much bigger than FinancialForce (close to 14,000 employees versus under 1,000) -- now that Sage covers both SMB and mid-market opportunities, as well as people and payroll functions, does FinancialForce’s star wane somewhat in the eyes of its platform provider?

The impact for Sage

I’ve been somewhat dismissive of Sage historically. The company was far too slow to respond to Xero’s ascendency globally and, more specifically, in Sage’s home market of the UK. While all three of the traditional SMB accounting software vendors, Intuit, Sage and MYOB, could rightly be accused of being sloth-like in their move to the cloud, my take is that Sage was the slowest of the lot.

With these recent announcements, however, Sage is clearly accelerating its cloud transitions and its turnaround from died-in-the-wool on-premises vendor to cloud powerhouse would appear to be on track. The Fairsail deal is a good indication that Sage sees its future very much within the context of Salesforce -- time will tell just where that takes both companies.

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