Sage Partners Split On Channel Program Changes

On the eve of Sage Software's annual customer and partner conference, channel partners are split on significant changes the company made to its channel program tier structure and margins earlier this month.

The new schedule, which took effect July 1, includes "stretch goals," or what Sage North America executives call "accelerated growth components," that reward partners for growing their sales quarter-to-quarter and selling software to new customers.

Some partners, while acknowledging the new goals are a challenge, are taking the changes in stride. But a number of solution providers, including longtime Sage North America partners, aren't happy with the new program and see the move as benefiting Sage more than its partners.

Related: Sage Offers Partners Better Deal For Subscription Application Sales

"This is not how you build -- and build upon -- the health of a channel partner program," said a longtime Sage channel partner, who spoke to CRN on the condition of not being identified out of concern for his relationship with the vendor. "It becomes a great de-motivator."

Other partners, however, are more sanguine about the program changes and their relationship with the company.

"Generally, I want to be a supportive partner," said Jeff Roth, CEO of SWK Technologies, a Livingston, N.J.-based Sage partner, in an interview. "I'm not freaked out and overreacting to what they're doing."

Sage and its channel partners have gone through some rocky times in recent years. In 2012, some partners were upset by the company's effort to rebrand some products from its disparate software line, dropping the names of some acquired products in an effort to promote the Sage name. Partners also were riled that year when Sage announced plans to sell off or discontinue some products, the latter including the Sage MAS 500 line of ERP applications.

More recently, Irvine, Calif.-based Sage angered some partners when it introduced a subscription pricing option for its products. Partners said the move undercut the profit margins they made selling perpetual licenses, and some partners began adding products from Sage competitors like NetSuite, Microsoft, Intacct, Acumatica and SugarCRM as a result. Sage later increased the margins it pays partners for annual subscription renewals to 25 percent from 20 percent.

The latest dust-up is over channel program changes the company first outlined to partners earlier this year and took effect July 1.

The new plan consolidates tier schedules and offers margin incentives for partners who grow their business quarter-to-quarter -- "accelerated growth" incentives in Sage parlance, or "stretch goals," as one partner called them. The program also redefined partner classifications into "Premier" and "Standard."

In a significant move, tier attainment is based on a partner's total product revenue, eliminating a previous, separate threshold for new license sales. The company does pay different margins for sales to existing customers and to new customers.

NEXT: Partners Say New Sales Goals Could Be Tough To Meet

Other aspects of the program have not changed, including service margins and the product tier calculation methodology, which remains a rolling 12 months based upon product tier attainment.

Donald Deshaies, who was named Sage's channel management vice president in February, touted the benefits of the changes to partners. "We've consistently been one of the highest-paying [software] publishers to its channel partners," he said in an interview with CRN.

Sage vetted the proposed changes with partners earlier in the year and generally received positive feedback about the simplified tier structure, Deshaies said. The changes are designed to foster growth by encouraging partners to attract new customers, upgrade existing customers from older Sage applications to newer software, cross-sell more products and sell more software subscriptions.

"It provides a great value proposition for them and provides affirmation for being a Sage partner," Deshaies said. "We're helping partners get paid more. I can't emphasize enough that these are some of the highest margin payouts in the industry," he said.

But not all partners agree.

"They're putting growth goals on the partners that may be hard to achieve," said another partner, who also asked not to be identified. He said that when combined with changes in co-op spending (which are calculated based on a partner's sales volumes) and other items, "Effectively, it's a margin reduction."

The partner, nevertheless, called Sage "a very good partner" and praised the move to base tier attainment on total revenue.

The first partner quoted in this story sees an "unspoken perception" by Sage's top managers that its financial relationship with the channel has been too "lucrative" for partners and there's a need to shift the balance back to the company somewhat to help improve its financial results.

And with the channel accounting for between 20 percent and 30 percent of Sage North America's sales, the partner said such a shift, while boosting company profits in the short term, "at some point becomes a lose-lose" if partners don't have the resources -- or lack the motivation -- to invest in sales growth. "It's very damaging to the spirit of the partnership," he said.

SWK is a diamond-tier Sage partner and, with 95 percent of its business coming from Sage-related products and services, is one of the vendor's biggest resellers. Roth praised many of the channel program changes, including basing tier levels on total product revenue. As for the new sales growth goals, "We have to keep hitting the stretch goals every quarter. And, for me, that's challenging." If SWK has a bad quarter, "Our margins are going to slip, and that's going to cost us a lot of money," he acknowledged.

Shawn Ostheimer, president of The Answer Company, a Sage partner based in White Rock, B.C., is upbeat on the company. "We're firmly in the Sage camp," he said, noting that the solution provider works exclusively with the vendor, reselling and servicing the company's entire product portfolio.

While Ostheimer said there might be quarters where his company won't make its stretch goals -- noting the failure to close one or two big deals could make the difference -- he shrugged off the channel program changes as having "a minimal impact on my business."

As for criticism from other partners, he said Sage is trying to adjust for "the dynamics of a software market that's clearly changing" and that partners "sometimes struggle with change."

Criticism For Sage's Aging Product Line

One of the biggest criticisms partners have had about Sage in recent years is the vendor's aging product line and what some see as a lack of investment in product development. The second partner quoted in this story said that's hurting sales and making it difficult to attract new customers. And the partner sees the channel program changes as pressuring partners to "make up for those things Sage doesn't do very well right now. They are putting growth goals on the partners that may be hard to achieve."

Partners aren't alone in that thinking. A report from Nucleus Research issued in May titled "The Bell Tolls For Sage," painted a bleak picture of the vendor's direction. The report called Sage's product strategy "dated," and noted that the most recent release of Sage ERP X3, one of the company's flagship products, has no cloud capabilities and offers only HTML 5-based web and mobile interfaces.

More tellingly for the channel, the Nucleus report said the vendor's "partner ecosystem is disintegrating" due to "a lack of strategic direction at Sage" and aggressive partner recruitment efforts by competitors like NetSuite and Acumatica. "And those partners are taking their customers with them," the report said.

Another partner, who also asked not to be named, said he has experienced conflict with Sage's direct sales force with Sage ERP X3. And he said the X3 management team has lost some key talent that's making it harder to correct problems. "We're hoping this whole thing gets better soon," he said. The partner, however, praised Sage for how it's managing other products, such as Sage 100 and 300 ERP applications and human resource management apps.

Roth at SWK, who said X3 is "a huge part of our business," sees no sign of channel conflict and said the Sage sales force "is really functioning like a sales support team for SWK."

Ostheimer, likewise, sees no sign of channel conflict and is enthusiastic about Sage ERP X3 Version 7, which debuted in May, and is seeing good demand for the updated product.

Sage Summit, the vendor's annual customer and partner conference, begins Monday in Las Vegas and these topics are likely to be part of the conversation at the event.

Roth is bringing nearly 90 people from 55 SWK customers to the conference, in addition to 27 SWK staffers -- a sign of the importance he attaches to his relationship with the company. He's hoping to hear more about Sage's road map for Sage 100 ERP and Sage 500 ERP, including plans to add mobility capabilities to those application packages. And he said Sage may offer more details about a new ISV partner program that's said to be in the works.

Ostheimer wants to hear more about Sage's demand-generation plans for its applications, given that The Answer Company is particularly focused on selling and providing services to new customers, rather than relying heavily on existing customers as he said some partners are.

Sage executives, meanwhile, said the channel remains a critical component of the company's go-to-market strategy and will work hard at Sage Summit to answer partners' questions.

"We're making a lot of heavy investment in partners," Deshaies said. "We are committed to partners. That is not only our heritage, but our future."

PUBLISHED JULY 25, 2014