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Sage has lost more than 3 Percent on growing competition fears

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Xero presented its strategic plan for the UK and global cloud accounting market, with a cloud offering that appears more developed than Sage's in terms of global coverage, user base, scale of investment to date, integration and ease of use. It is a concern for Sage's ability to maintain dominant share in this fast-growing market. 

Xero provides cloud accounting software for small businesses and has become a world leader in online accounting, with 200,000 customers and expecting 80% revenue growth in 2014 (versus Sage's expectation for 4%). It highlighted that 60% of customer wins come from incumbent accounting platforms (Sage, Intuit, etc.). This figure illustrates the risks incumbent vendors face, in our view, as cloud understanding and adoption increases in the small business customer base. The company highlighted that a total of 1,256 accounting practices have adopted Xero in the UK. This compares to 82 practices that have adopted Sage One. This has driven customers of above 22,000 in the UK for Xero, versus the 12,000 customers Sage has reported on Sage One.

Accounting software is sticky, so Sage has time to respond – in the UK due to its dominance and in Europe where software as a service demand is lower. Sage could use its strong market position, cash flow and balance sheet to become more competitive in this market, reducing scope for new entrants to take share.

Netsuite has commissioned YouGov to survey 531 ERP [Enterprise Resource Planning] users. The key criticism of Sage is that only 13% of Sage customers can access their software online, less than half the average of every other software company mentioned in the survey. The midmarket only accounts for around 15% of Sage revenues and Netsuite has a 'confrontational' marketing style. So these comments likely overstate the risks to Sage. Nevertheless, it is hard to argue with the divergence in growth rates between the two companies, and Netsuite is obviously taking share.

Source: accounting software

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Harsh Shah

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