Sage accused of ‘strong arm’ tactics over move to software subscriptions

British businesses have complained about the tactics used by Sage, the UK’s largest listed tech company, to push them into accepting more expensive subscription services or have access to their existing accounting software packages switched off.

Small companies across the UK rely on the FTSE 100 company’s Sage50 software for book-keeping, sending invoices, processing orders and helping with tax payments.

But in recent months, Sage has pushed customers who had been sold single-payment, long-term licences to the software on to monthly subscriptions that work out to be more expensive over the long run, by saying they would turn off their licences on security grounds, despite having no specific grounds to do so in their terms and conditions.

“It’s a pitload of crap,” said Kate Barton, owner of model train company Reeves 2000, who last upgraded her so-called perpetual package in January 2019 for a licence she expected to last 15 years.

Barton now faces monthly payments of £155 on a subscription model. “This is a bigger picture of the way things are going, where we’re forced on to a subscription for everything,” she said. “It’s quite frightening.”

Under the direction of chief executive Steve Hare, Sage’s focus on subscription software forms part of a plan to achieve more regular recurring revenues, which would make it less vulnerable to the income shocks that can occur from an overreliance on new customers making one-off purchases.

The business’s cloud revenues rose 24 per cent over 2022, from £1.02bn to £1.26bn, making up the majority of the company’s annual revenue of almost £2bn.

Small businesses that have come to rely on Sage’s software complained to the FT that the switch to monthly subscription seemed merely a means to increase the cost of its packages ⁠ — a claim Sage denies.

Perpetual licences last for 15 years, as stipulated by Sage’s terms and conditions. But when Sage said it would switch off access to software by 30 September, many customers upgraded to monthly subscriptions to avoid the risk of losing access to their data.

Sage said there is “nothing specifically in the T&Cs” that allow it to disable the software of customers with many years left of their licence period. But the company said it was doing so on security grounds to “protect consumer data”, adding “a small number of customers will be impacted unless they move to a subscription product as we don’t sell perpetual plans any more”.

Billy Davies, who runs Birmingham Mailing Cases, a manufacturer of cardboard tubes, paid £815 for a perpetual licence to Sage50 in 2014, upgrading with another £460 payment in January 2017.

But in April, Sage informed him it would turn off his software by 30 September, because the security protocols through which Sage checks users’ licences are out-of-date.

Davies said he felt forced to accept £90 monthly payments on a recurring subscription model, though he did receive six months on a discounted rate of £40 after he “made . . . a fuss about it”. With his company’s energy prices already up from £5000 to £50,000 in a year, “these extra expenses are ones we could have done without”, he said.

Monthly subscriptions provide additional benefits, such as maintenance and training webinars, Sage said. But the eight businesses who spoke to the FT said they did not require these cloud features. “Double entry book-keeping hasn’t changed much in a few hundred years,” said one client.

Some are seeking ways to avoid upgrading, such as by disconnecting their desktops from the internet, while others are exploring other providers. But the challenges of transferring historic accounting data to another system means many business owners feel they have little option but to stick with Sage.

“I feel I’ve been bullied to upgrade to cloud,” said Ian Nelson, owner of accounting business VFM direct2U, which manages the accounts for several businesses that have upgraded.

Sage said it “communicated with its customers about this across a range of channels, months ahead of the deadline. We also advised on the action they needed to take and how we could support them.”

Cloud-based, subscription software provides smoother revenue and reduces the support businesses need to provide customers using older desktop products. The model brings Sage in line with other competitors like Xero and QuickBooks that provide subscription-only options to customers.

“Five to six years ago, lots of companies were going through this situation,” said Dan Ridsdale, head of technology at Edison Investment Research. “Analysts were prepared to forgive the more volatile perpetual model and lack of predictability. Now the City is expecting it.”

In a sign of Sage’s determination to boost cloud user numbers, it offered large discounts of up to a year’s free subscription to holdouts. Barton has been offered a refund of her 2019 package and a year’s free subscription. One customer said Sage’s customer services team sent a bottle of wine when they agreed to a six-month discount.

“Every time they called, there was a slightly better offer,” said Dave Clarke, managing director of Wokingham business ATM Machine Tools, who eventually accepted a six-month free period after his Sage50 software was cut off in October.

Sage did not acknowledge that increasing recurring revenues was the purpose of phasing out the software, which they said was “not material” to the business, but shareholders have been buoyed by an 8 per cent share price boost since 30 September.

One affected customer and a retail investor in Sage said that despite its “strong-arm, “my way or the highway” tactics . . . I’ve chosen them. I’m even a shareholder and, funnily enough, their shares have gone up since they’ve done this. It doesn’t change the fact that I don’t believe this is good business practice”.