Outlook: Sage knows onions

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The Independent Online
ANOTHER DAY, another record high for the Nasdaq. The UK technology stocks followed like sheep, with Sage Group, the software company that was catapulted into the Footsie in September, making the biggest gains. Sage is such a wiseguy's stock now that any morsel of news is enough to drive the price ever higher.

But Sage is not a good argument for remortgaging and putting the proceeds into just any technology stock. Indeed, in many ways, Sage is as far removed from the froth that makes up much of the sector as you can get. For one thing, it makes profits, for another its technology is comparatively simple and for a third, it relies on old-fashioned manpower.

Sage does not produce gee-whiz programmes for the sort of corporate mainframes that occupy entire office floors. Rather, its software is designed for the personal computers of bookkeepers in small businesses - companies with perhaps just three employees. Assuming the bookkeepers are shunning fancy accounting tricks, the processing capacity involved here is outgunned by the best pocket calculators.

And since you don't need to be a rocket scientist to produce such software, Sage isn't the only player in the market - although the acquisition of Pegasus would eliminate a major competitor.

The reason why Sage actually makes money, and expected to make very much more, is because it brought its skills in selling and customer service to bear in a software market growing like Topsy on the back of the boom in PC ownership. Sage targeted predominantly computer illiterate bookkeepers, and kept all customer support in-house while incentivising salesman with fat commission. Before long, Sage had a got itself a reputation, which became the basis for a strong brand.

The key requirement here was that rather unfashionable commodity in the world of e-commerce, salesmen and staff ready to answer `phone calls. Internet companies concerned to build their brands principally through heavy investment in advertising should take note.

Of course, Sage has an Internet strategy too. It will rent its software online, eliminating distribution costs and all the other junk of good old-fashioned business. But not even Sage's bosses are bullish about the prospects for this e-commerce opportunity.

Many a great mine was ruined by sinking the first shaft and history is littered with brilliant technologies that never found a market niche. British Satellite Broadcasting had the by far the best technology in satellite, but fell to Sky, whose strategy is unashamedly market-driven. JVC's VHS was an inferior technology to Sony's Betamax but it recognised the real market was home video. If there's one truth that will outlive the technology bubble, it's that the customer is king as Sage recognises.