The software as a service debate: Sage responds

Audit requirements are the same regardless of the kind of system - 2 steps:

1. audit the system
2. sample the entries

Simple.

William,
I'd be interested in hearing examples of the companies you mention, where their outsourcing partner has been involved in additional work. That sounds strange, and I'd like to know the background. My understanding is that the auditor needs access to the company data, and to have the ability to ask questions, but this is no different to a traditional system. The company owning and using the data will have all of the necessary access in any case, and a decent SaaS solution will have an easy route to export all of the data in to an external format for further investigation if needed.
David Terrar
mail: dt@d2c.org.uk
web: http://www.d2c.org.uk and http://www.twinfield.co.uk
blog: http://www.businesstwozero.com

William could you please expand on this theme and explain how the requirements would differ between SaaS & desktop applications

- in both cases the data is available to anyone with appropriate access rights

On the subject of people answering audit questions
- in the course of an audit does the auditor approach the current desktop software supplier (i.e. in your capacity as an auditor, when was the last time you contacted any of the major software houses about their accounts software and what questions did you ask)

How would any future SaaS procedure compare with an existing desktop process - and why should there be any difference

Don't forget that employees belonging to the audited company are the people who enter the data; the SaaS or desktop aspect is purely the medium/software for recording the data

SaaS appears to be becoming the ‘in’ thing. It clearly has advantages for some customers of accounting package suppliers.

But there is a potential difficulty in that the Companies (Audit, Investigation and Community Enterprises) Act 2004 gives the auditors a legal right of access to the records and requires people to answer audit questions. If the records of an organisation are audited and it uses SaaS, then it would appear that the SaaS supplier will need to ensure they have processes in place to deal with all customers auditors' and all their questions.

This may prove onerous to the supplier as it does today with many outsourcing providers.

Our experience as a SaaS provider has taught us that Stobart is right when he says “customers will choose some software locally and some as a hosted service”.

A customer chooses a hosted solution not due to pricing, licensing, delivery or platform considerations per se; instead the appeal of the hosted solution lies in benefits that are largely determined by the size and distributed nature of the user base.

For example, a hosted version of Sage Line 50 (or one of the other hosted accounting software offerings) will deliver certain benefits in allowing an accountant and clients to access a single set of books.

The benefits of a hosted CRM product are arguably even greater, given the larger number of users involved and their distributed nature.

Other products, such as web-based travel and entertainment expenses solutions, can only feasibly be delivered as a hosted solution as the user base typically comprises most (if not all) of a company’s employees. For such a product, the hosted option is usually the only practical alternative.

The issue then becomes one of data integration, which can be the kicker so far as adoption is concerned. When we developed robust and complete interfaces between Sage and our web-based expenses solutions, Sage users took notice and as a result, scores of Sage users are now using our hosted expenses solutions which allow consolidated data to be posted at the click of a button to their non-hosted Sage accounting software.

More interesting comments from Paul Stobbart for us "to pounce on". Actually the Software as a Service idea was around long before 1999. In 1961 the respected Computer Scientist John McCarthy was the first to publicly suggest (in a speech given to celebrate MIT's centennial) that computer time-sharing technology might lead to a future in which computing power and even specific applications could be sold through the utility business model (like water or electricity).  It's just that technology has caught up to implement a great idea properly.

But I still think Paul's missing the point in suggesting SaaS is a red herring, and there is no great complexity in delivering it. With the likes of the SIIA calling it a paradigm shift,
IDC research papers calling it a disruptive technology, and with Microsoft's latest announcement heralding their shift in approach, there is more to this than just hosting your existing client/server application and offering some extra pricing options.

One element is the software. It may still be just debits and credits and VAT returns at the application level, but the SaaS vendors have designed their applications from the ground up to get the real performance, scalabilty and usability benefits of the one to many, web services approach. 

But that's just the software. There is a growing ecosystem of vendors like OpSource, Jamcracker, ServePath, and Sandhill making money helping traditional vendors make the business model transition, so it can't be that easy! When IBM announced, earlier this year, some special programs to support ISVs in making the switch Dave Mitchell, director of SaaS at IBM, said:

"From a business perspective, a company needs to think about revenue recognition, compensation for your sales force, routes to market, and distribution channels. From a technical side, companies have to consider service delivery, billing, and user support."

Paul's in the comfortable position of being a major brand in the market. However, I remember when IBM was the dominant hardware platform in the 70s and 80s. They were slow to react to change, and look where they are now - a shadow of their former position and influence.

Whether it is a company the size of Microsoft, or a smaller mid-range vendor, many of the current players won't manage the transition.  They would do better to start a new subsidiary with a different brand identity and the SaaS mentality embedded in the "DNA" of that company from day one.  I'd suggest there's a storm coming!
David Terrar
mail: dt@d2c.org.uk
web: http://www.d2c.org.uk and http://www.twinfield.co.uk
blog: http://www.businesstwozero.com

Some responses to earlier posts. Alastair's point on data portability is important. Although there is no standard accounting schema, a good solution would provide the XML or Excel formats required to import all p&L items, balance sheet items, invoices, journals, assets, statements, cash books, etc. so you could easily transfer data from the other system. Ours does that, and since accountants can always manipulate data with Excel, that provides a solution.

Dennis made the point that SaaS was unlikely to be of interest for the larger organisation. I'm not so sure. One of the Twinfield customers is a 450 person, Euronext listed consultancy called DPA Financial People. They have just converted from Oracle Financials, and the move has triggered them to change all of their other in house systems to a SaaS alternative.

And I agree with John. Reporting is key. A good system would provide a comprehensive range of standard reports, provide easy export of that data to Excel or some other tool for further formatting or manipulation, and have the ability drill in to the database with Excel using analysis cubes. But all of this without having to buy some sort of BI add-on.
David Terrar
mail: dt@d2c.org.uk
web: http://www.d2c.org.uk and http://www.twinfield.co.uk
blog: http://www.businesstwozero.com

I agree wholeheartedly with Dennis, and I want to amplify one of his his key points. Paul was right to point our that at the application level the software is still handling debits and credits and producing VAT returns. However, one of the key differences is that the SaaS technology approach allows a practitioner to work with their client in a different way, to match the business and accounting processes to the way they want to work with their client. A flexible SaaS product will handle the accountant to client communication properly. It will cater for all of the options that the practice needs, from collecting the data in a shoe box and presenting back management reports and enquiries online, to the other end of the spectrum where you are letting the client run their books themselves, but are always able to monitor progress and correct any mistakes as they arise. That way the bookkeeping and compliance work is done more efficiently, with less hassle and mistakes which gives more time for the accountant to provide value added services.
David Terrar
mail: dt@d2c.org.uk
web: http://www.d2c.org.uk and http://www.twinfield.co.uk
blog: http://www.businesstwozero.com

Having just got back from hearing Paul speak at Sage's presentation to accountants today, and expecting to see something new, I come away disappointed.
Paul states that Sage will survive on best service, best brand, best channel to market, and best customer base.
Forgive me if I am missing something here, but what happened to "best product"?
Paul tried to put together a case for accountants being able to sell more added value services, which I totally agree is the way to go. But if you can't get the data out of the product, except in the form that Sage dictates, rather than the users choice, where do these added value services come from. We are promised £15m of extra R & D, £12m already being spent, but we still cant write the reports that we want!

the point about accountants as resellers is well made, and for them the ability to work with clients data is key - some come on accountants, where are you?

But not all plain sailing - typically OMBs have purchased and implemented Sage or something similar, and the accountants have picked up the pieces - this is something I have being doing for years. For sure the trick is to get in first, but for many the question is still how.

If someone can come up with data portability between apps then that is another holy grail found - but surely that is light years away at this level. There is no open standard for accounting app data models, and there is no standard xml schema or similar yet. Yes you can afford to develop tools to port Sage data, but whilst they are large there are lots of other Apps out there - you can't dl all of them.

If there is to be a revolution then something more is required to make SaaS truly different. For example opening up additional services usually associated with larger organisations to OMBs in a buy as you use model may well provide differentiation - but how do you hook them in the first place? Not obvious what is going to make customers start knocking at the door.

Sage has consistently under invested in R&D, placing its major bets on acquiring market share and then killing off acquired product. That's OK as long as there is no fundamental market shift. SaaS has introduced a fresh market dynamic to which Sage has yet to produce a coherent response.

SaaS doesn't just provide a new pricing model. It represents the next step in how computing solutions are delivered. This is especially pertinent because SaaS reflects the commodity status of SMB accounting software.

Repackaging doesn't do it. It's as much about service delivered on an open platform - anathema to Sage and other proprietary applications. For instance, wouldn't it be great if clients could simply transfer their records direct into any professional accounts prep programme? What about instant access by professionals to iron out errors or queries on an as you go basis? These facilities allow both clients and their advisors to concentrate on what matters - the business - and not the accounts. It should mean the overall annual professional fee is more a reflection of being an advisor and not book-keeper.

There is one important caveat. SaaS isn't for everyone in every situation. It is for instance, unlikely to be of interest(at least in the medium term) to larger organisations where an in-house solution makes more sense. But that doesn't avoid the long run problem for Sage. Its major market is the millions of SMBs and not the mid-range where it consistently loses out to competition.

My sense is that Sage is in defensive mode, just as it was when connections between accounting apps allowed the reduction of paperwork between organisations and which directly threatened its print business. It will come to the party - but it isn't kidding anyone with the current approach.

Alastair,
You think there is nothing revolutionary on offer. You only have to look at the commentary from the SIIA, IDC, Gartner or type SaaS in to a Google news search to see that something is going on. Have you read Ray Ozzie's leaked memo "The Internet Services Disruption" to his Microsoft Executive Staff and direct reports? Bill Gates and Microsoft appear to be taking it seriously.

I was at IBM for 9 years in the 70s and 80s. There were people in the company who understood what was going on, but not enough of them in the top positions, where the mainframe mentality was entrenched in the company politics. Maybe a better comparison would be Saleforce.com vs. Siebel. Salesforce.com are thriving nicely, and Siebel has just been swallowed up by Oracle.

If you want to see the supplier who has more than just a hosted application and a new price list, then please contact me and I'll show you a proper SaaS accounting product. Or don't listen to me but take a serious look at players like Salesforce.com, SugarCRM with their combined commercial open source and on-demand model, or maybe Webex with their acquisition of Intranets.com and you'll see that SaaS is going to be more of a factor than you think.
David Terrar
mail: dt@d2c.org.uk
web: http://www.d2c.org.uk and http://www.twinfield.co.uk
blog: http://www.businesstwozero.com

"Paul's in the comfortable position of being a major brand in the market. However, I remember when IBM was the dominant hardware platform in the 70s and 80s. They were slow to react to change, and look where they are now - a shadow of their former position and influence. "

David's comments on IBM are iteresting but misstated. It was not that they were slow to react, but rather that they did not understand what was happening. The distinction between mainframes and PCs is interesting but not the best vision for SaaS.

Taking stock of where it appears to be now, Paul Stobbart is not far of the mark. There is nothing revolutionary on offer - what the customer sees practically is a different pricing model and a repackaging of the product lifecycle. Show me the supplier who has something more than this?

Pauls comment about traditional software houses embracing change as opposed to SaaS is a 'non sequitur'. A few 'bells & whistles' don't change the legacy status or the refusal to 'embrace' real change

SaaS concepts have been around for sometime and technologically it is not that difficult BUT ONLY FROM THE RIGHT STARTING POINT. If this does not exist then the only way forward is a complete re-design from scratch - very costly.

Anyway, without a common thread of 'joined up' thinking the right starting point does not exist

I don’t doubt Sage has addressed the implications - just they have come to the wrong conclusion. At a guess the decision has been influenced by a wish to preserve their continued revenue stream and perhaps not made in the best interests of the market, customers or available technology

There is nothing wrong with this approach but 'tell it like it is' and don't cloud the issue with spurious arguments; trying unsuccessfully to discredit a SaaS approach that Paul himself intimated is an alien concept

Basically it is going to hurt Paul to change from the existing model so they are not going to do it. How long this approach can be sustained in the face of the competition is anyone’s guess as highlighted by the get out clause of a 'changing business model'

The real question for Paul is 'given a clean sheet without existing baggage what approach would Sage adopt'; the answer would probably completely be at odds with his current stance

Delivery is part of the debate; but the aspects core to customer requirements are properly integrated systems designed to fit together by design and not as an afterthought

Paul has an envious marketing machine and the comment '..It's still the same old imperatives, just the technology has changed..' only goes to reinforce this; who cares about the product achieve market share

Essentially Paul is trusting on his marketing machine to over-ride forthcoming market forces; difficult call & I wish him luck with the King Canute approach