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As private companies scramble to satisfy the Promotion of Access to Information Act, the fiercely competitive SME accounting software industry is in the spotlight. Who will win the battle for supremacy? THE BIG guns are being trained, on the rooftops and in the trenches.

At the high end of the enterprise applications industry, and Oracle are doing bitter battle to be the only one left standing. And in the SME space, Sage and (Microsoft Business Solutions, or MBS) are waging just as unforgiving a war for supremacy.

Who asked `where will it all end?` Sit down, granny; enjoy the spectacle.

Gobble, gobble

Earlier this century, Microsoft acquired Great Plains and Navision, marking a highly public entry into vertical market applications. Today its ERP products number four in total (also including Solomon and Axapta). Ever since then, MBS has been rounding out these lines of business, which also include accounting and CRM.

And since it`s Microsoft we`re talking about, it was a scary prospect for other players in the low-end to mid-sized

financial applications market. In short, the race was on. Sage Software is the other `800-pound gorilla` in this arena. (Softline, it should be noted, is the South African region of Sage, after being acquired in 2003, and subsequently being delisted from the JSE.)

To match Microsoft`s appetite for consumption, Sage`s list of acquisitions include: Dac Easy (US, 1991), Ciel (France, 1992), Saari (France, 1994), Sybel (France, 1995), KHK (Germany, 1997), Peachtree (US, 1999), Best Software (US, 2000), Interact (US, 2001), Coala (France, 2002), Timberline (US, 2003), Softline (South Africa, 2003) and Accpac (global, 2004).

One can conclude from these spending sprees that life at the bottom end is just as uncertain as at the upper end, where vendors are not above hostile takeovers and reaching down into the SME market segment.

Sage man

, co-founder and CEO of Softline, who became the CEO of Sage Southern Hemisphere in 2003, says Sage gives a good account of itself: "Sage is the volume market leader, with presence in the UK, where it originated, France, Germany, Portugal, Switzerland and Africa.

"It`s the leading player in the US, Australia, Middle East and Asia, with around 70% market share in SA across product lines.

"Worldwide, 4.5 million businesses are our customers, and Sage has 21 000 partners, more than 20 000 affiliated accountants, more than 8 000 employees and a market cap of 2.9 billion pounds."

, business group manager, Microsoft Business Solutions, Microsoft SA, also cites an impressive footprint. "Microsoft acquired businesses that are as old as itself," he begins. "The Great Plains, Axapta and Navision partners we inherited and are now

certified MBS partners number just under 10 000. They - and MBS solutions - are present in 32 countries, serving some 300 000 customers."

Clearly, Microsoft has a way to go before catching up. But there can be no more troubling thing - as Corel, Lotus, Novell, Apple, Netscape, and other greats will attest - than suddenly having Microsoft eating your bread and butter. If Microsoft gets it into its head to get into your space, you had better be looking over your shoulder.

Everyone has their problems

Still, Microsoft MBS has not been without problems.

Some of its four ERP products, criticised for overkill but defended for their market coverage across different segments, will reportedly go into maintenance mode, according to Microsoft six months ago. Meanwhile, Axapta 4.0`s release date has slipped - a perennial Microsoft problem.

Kudsee says this is a misquote, or was at least quoted out of context. "Microsoft has a vision called Project Green - a plan to have a single ERP - which has led to some questions in the market. What we told customers is that even if they buy Great Plains now, we`d still support it in its current form until at least 2013."

But Kudsee admits there are challenges. "The issue is, to give it some context, that locally the position was quite complicated, versus Europe and the US. In North America, Great Plains was dominant in its space (midrange business apps), whereas Navision, including Axapta via acquisition, was dominant in Europe. Back home, there was a mixed market and channel on both sides. We had to, like no other region, integrate and reposition the two almost equally and bring resellers into the fold."

Developers and resellers from Europe that ITWeb spoke to at Microsoft`s 2003 PDF conference in Los Angeles were at the time unsure about the future of their Navision relationship, given Microsoft`s restructuring plans.

In retrospect, Hans Tjolle, manager of R&D at toppower, a Belgian firm with 45 employees and over 4 000 customers, is complimentary about the streamlining: "They [Microsoft] really did their best to inform all ex-Navision Partners of their intentions with the product, but in the end they wanted to reorganise the number of Belgian Navision partners to a minimum of 23. Only the best survived."

Kudsee says he cannot confirm any rationalisation globally, but says local targets for MBS growth, including Navision business, are 35%. "I don`t think you can achieve that through cuts in partnerships. In fact, we`re recruiting. They could be from competitive channels, wherever the case might be, but they have to have vertical market knowledge."

Value angles

Epstein, however, outlines a value proposition that he says Microsoft will find difficult to match. "We strive to be leaders in the markets and regions that Sage is present in. But at the same time, we don`t behave like a dominant player. Given our strength in partnerships and customer numbers, we are able to plough our growth in annuity revenue back into R&D [8-10% of revenue in SA]. Our channels are true value-added resellers, earning substantial margin on licence fees, which indicates a level of competency going beyond fulfilment, which Microsoft will have to develop and learn to support."

Epstein is alluding to Microsoft`s classic distribution channels, which operated on fulfilment only - not consulting or other service-based revenue, and, consequently, on low margins. The difficulty of training up channels and ensuring support for them, as well as finding the value in the product set to compensate for their efforts, would be a hard migration, Epstein is in effect saying.

Kudsee says this view of Microsoft`s channel is true only of its classic licensing businesses. The channels acquired via Navision and Great Plains are well schooled in high-margin implementation services and the like.

"These guys make up to 40% rebate, which they sometimes `give back` to the customer in the form of free services, if they feel the size of the deal justifies it."

But why feel compelled to give up money? The most obvious implication is that MBS resellers are feeling the competitive pressure. "Fair point," says Kudsee, "but the point really is that there is enough value in the margin to do with as they see fit.

As regards product differentiators, Epstein makes the unlikely point that a collection of locally developed products works best for Sage. "All products are developed in the regions that they`re sold in, to cater for local legislation, terms in use and interface. What you find in the end is an umbrella organisation that has local leverage and local best practice."

One can see the value of that. Microsoft, by contrast, punts sameness: "We think of it, on the one hand, as integrated innovation," says Kudsee. "The user interfaces of some of these products have changed, to a common look and feel with Outlook. Why? Familiarity. The adoption rate of high-functionality CRM and ERP products have been a problem for vendors. We want to make it part of the comfort zone. Furthermore, if we can offer customers ERP functions in an integrated environment, with functionality assigned based on the role they fulfil in the organisation, that`s the other part of the value."

Microsoft will yet prove to be a worthy adversary in this space, one is sure. Whether it can overcome its release slippage issues, and graduate to support a high-level channel, is another matter - one that will increasingly play out this year.

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