State of the profession report: Technology
AccountingWEB editor John Stokdyk reviews the main changes that have affected accounting during the past five years.
There have been some huge changes among the companies that supply the profession, and in the products they provide. Technology has a quicksilver nature, making it hard to grasp hold of as it moves so quickly. The big question for accountants is whether they are keeping up with those changes.
The UK’s leading accountancy software houses grew up with the PC and enjoyed their boom years in 1990s. By the 21st century, the original founders of these companies cashed out or seen their businesses swallowed into larger groups. Most organisations of any appreciable size have now computerised their accounts, so the opportunities that remain are for upgrades and infill sales.
The enterprise end of the market has become a battleground between SAP and Oracle, which along with IBM annexed the biggest players in the performance management and business intelligence marketplace (Business Objects – now part of SAP; Hyperion-Oracle and IBM Cognos).
In the UK, the mid-market is contested by a collection of expanding empires including IRIS Group, Infor, COA Solutions and UNIT4, with Access holding out as the only serious independent UK contender. Internationally Sage and Intuit hold sway among smaller businesses.
But the path to conglomeration is not always smooth. Microsoft, a company that likes to dominate any market it enters, botched almost everything it touched in the financial software sector and last year completed one of the most spectacular crash and burns in years when it abandoned its attempt to take on Sage Intuit and Sage with its own Office Accounting product.
The Windows giant has an extremely lucrative hold on the market for Office and PC software tools, and has within its portfolio an suite of technologies from databases and analytical tools to communications protocols that have produced impressive results at some of its customer sites. But Microsoft doesn’t have enough of a frontline presence to compete with more focused specialist financial software houses and has signularly failed to make the most of the business software assets it controls. More than anyone in this industry, Microsoft should understand that real life doesn’t always run as smoothly as the demo.
Here comes the Cloud
Any time you see wholesale consolidation, it’s worth looking around for the root cause. Something was obviously not right in business software and the more acquisitive the giants became, the more it raised the question of why they needed to annexe new, high-growth areas such as BI. That was because their core markets were stagnating just as a new threat was coming their direction from the Cloud, where the business application is hosted on a remote internet server.
With consolidation taking such a hold in the enterprise and mid-market tiers, the only opening for new entrants was at the low end, where there are still hundreds of thousands of microbusinesses that have not yet computerised their accounts. This is where new Cloud accounting suppliers such as Arithmo, Kashflow, FreeAgent, Liberty and e-conomic are targeting their efforts.
Judging by the responses to our Software Satisfaction Awards survey during the past four years, it seems the new wave is beginning to make a nuisance of itself for more established suppliers. In 2006, just two out of 1,800 respondents said they used a Cloud accounting application, but the numbers have climbed impressively since. A year later, 7.8% of our sample used an online accounting application, rising to 16.5% in 2008 and 37.3% in 2009.
Following the example set by Sage in the 1990s, the SaaS pioneers marketed their hosted via accountancy practices, with mixed results. Although the take-up curve is assuming the 100% annual growth curve of a truly disruptive technology, the Cloud accounting developers are finding it harder than expected to break down Sage’s hold over the UK accounting profession. Some developers such as Xero and FreeAgent are shifting to a more direct approach and as our Software Satisfaction survey numbers indicate, they are finding new markets away from accountancy’s recruitment pool for new software customers.
The huge impact of Cloud accounting software suppliers in our Software Satisfaction Awards shows how the new breed has built strong customer relationships through online technology. The same could also be said about HMRC’s drive towards online filing. As businesses large and small buy into the new utility computing model, it would be sad to see accountants left by the wayside as they cling to software they are more comfortable with.