I've attached the ppt from the just-ended Sage subscription plan call. In the call, they reversed their position on some important issues, but not on others:
o Subscription plan pricing is more competitive. (Slide 6)
o They have changed the ROR rules to conform to what we're used to. i.e. New ROR gets all the revenues. (Slide 8)
o They have relaxed the new business measurement period to semesters from quarters, but they still require two per semester. They have also added a $$$ threshold to make it easier to qualify. (Slide 7)
o They have increased the partner margins. (Slide 5)
The margin changes are still not competitive with other publishers, so that's pretty troubling and I'll get into that later. An increase of 1% in margin for every deal you sell in a semester is not satisfactory, IMO. NetSuite's margin structure gives virtually all the partners 30 points on renewals, instead of Sage's 20 points.
Also unsatisfactory is Sage's unwillingness to protect the reseller who sold the deal. We might conceivably spend $3K to $5K in hard costs closing a deal, but if the EU changes their ROR in the first six months, you have likely not even recovered your cost of sales. There are many reasons that an EU would switch ROR's that have nothing to do with support quality. One of the most common is an acquisition or merger.
So, let's do the math. Let's take a 20 user MAS200 distribution system. The per user perpetual license is 20 x $2,245 or $44,900 in purchase costs. The annual maintenance renewal for that system is 21% of that, or $9,429.
If that same EU switched right now to subscription pricing, they would be paying $23,760 per year. I don't understand how Sage could possibly make a case that you could convert an on-plan EU to subscription pricing.
Let's look at our cashflow on a perpetual sale vs. subscription. In the chart below, perpetual margin is assumed to be 55% on product, and 25% on SMP renewals. Subscription margin is assumed to be 35 points on the first year, 20 points thereafter.
Year Perpetual Accumulated Subscription Accumulated Difference
1 $27,052 $27,052 $8,316 $8,316 ($18,736)
2 $2,357 $29,409 $4,752 $13,068 ($16,341)
3 $2,357 $31,766 $4,752 $17,820 ($13,946)
4 $2,357 $34,123 $4,752 $22,572 ($11,551)
5 $2,357 $36,480 $4,752 $27,324 ($9,156)
6 $2,357 $38,837 $4,752 $32,076 ($6,761)
7 $2,357 $41,194 $4,752 $36,828 ($4,366)
8 $2,357 $43,551 $4,752 $41,580 ($1,971)
7 $2,357 $45,908 $4,752 $46,332 ($424)
You can see that there's no breakeven, even after 7 years. Some time in year 8, the analysis swings in favor of the partner, IF the EU is still on subscription, and IF you are still their ROR.
From Sage's standpoint, the analysis is much more palatable. Sage's breakeven analysis:
Year Perpetual Accumulated Subscription Accumulated Difference
1 $27,277 $27,277 $15,444 $15,444 ($11,833)
2 $7,072 $34,349 $15,444 $30,888 ($3,461)
3 $7,072 $41,421 $15,444 $46,332 $4,911
Wow, that's remarkable! Sage breaks even in 2.6 years, and everything after that is gravy. No wonder they are all in favor of this. This is Sage's plan to monetize their business by getting their partners to give back their margins.
This analysis is a little more favorable toward Sage for partners who are getting lower margins than I used in my analysis, but not by much. This is nothing but a big land grab. It is, essentially, Sage using their channel to monetize their transformation to subscription plans. Hopefully, there will be little adoption of these plans by the channel, which will force Sage to increase their margins on renewals.