Xero
Blogger
Share this content
Tags:

The state of the cloud UK, Part II - A new world, bravery required

2nd May 2014
Xero
Blogger
Share this content
In my previous post, I talked about the growth trends in online accounting and how usage among UK businesses has grown quickly from a very small base of early adopters five years ago to well over 100,000 today.
But what's behind this apparently very healthy adoption?
The universal benefits of cloud software are now pretty well understood by most people.
  • Costs are spread monthly and you can typically cancel at any time.
  • You're always on the latest, greatest version with a greatly reduced requirement for users to manage their own updates and data security locally.
  • Accessibility; access to your accounts wherever you can access the internet, including on mobile devices

​Beyond those core benefits, though, there's a much bigger shift at play here than healthy adoption of just a different way of purchasing, using and managing business software. Upon closer inspection we can see that it's a shift that's driving what is likely to be the fastest adoption curve of business software we've ever seen in forty-odd years of business technology.

Actually, it should be no surprise that cloud accounting adoption is ramping faster than any prior business software category - in today's virtually friction-free, web-connected world, new things are able to travel and grow much more quickly than in the 80's or 90's. Combine frictionless distribution with the biggest connected audience of users we've ever seen (in 1999 there were 220 million users on the internet globally, today that number exceeds 2.5 billion), and it's therefore clear to see cloud software adoption ramps are bound to be much steeper than we ever saw with desktop software. 

But even the dynamics of internet era distribution and communication don't completely explain the ramp. 

The final ingredient behind what's driving growth in adoption of cloud accounting among small businesses is that small businesses have been chronically underserved by PC era technology for decades, and for many small businesses today's cloud based software finally ticks an empty box.

The UK's Department for Business Innovation & Skills reports just over 5 million businesses in the UK, a sizeable majority of which are micro-businesses who never adopted desktop accounting software on account of cost or complexity, and in most cases both. Indeed, well worn industry anecdotes say at least 60% of all UK businesses don't use a recognisable system of record for accounting, unless you count Microsoft Excel as accounting software.

As a twenty-five-year veteran of the UK accounting software industry I must say that I find it actually quite depressing that the majority of UK business owners still rely on spreadsheets and Moleskin notebooks to keep track of their everyday financial affairs. But actually, my sense is that this long term market failure is a big part of what's driving, if belatedly, the rapid adoption of cloud accounting tools and why modern cloud technology is now finally reaching the parts of the economy that its PC predecessors failed to reach.

Combine this voluminous and aching market need with the dynamics of cloud distribution and project forward five or so years and I suspect we'll see something that we've never seen before in business tech...

  • User communities gathering around individual accounting software products that will number in the millions (anecdotally the biggest Sage desktop product user communities numbered a couple of hundred thousand)
  • All on the same version, therefore all getting the same new features and functions on the same day
  • All risking service discontinuity on the same day, too!
How long before we see the macro-economic tell-tale signature of cloud accounting impacts (good and bad) on national economic prosperity and GDP? The implications here are clearly considerable, both for customers and vendors.

I'll explore these in the next part...

PS. I'm giving a talk at Accountex in London on 15/16 of May, rather bombastically entitled Everything you know about technology is wrong where I'll touch on some of these issues.

Tags:

You might also be interested in

Replies (6)

Please login or register to join the discussion.

avatar
By carnmores
02nd May 2014 13:07

bombastic indeed
Can you sing it as well !

Thanks (0)
Teignmouth
By Paul Scholes
03rd May 2014 00:32

Exactly matches my experience

As Gary says "small businesses have been chronically underserved by PC era technology for decades".

For decades our profession has colluded with the accounting software providers to keep bookkeeping a mystery.  Taking Sage as an example, 30 years ago it revolutionised bookkeeping and I can still remember the days & weeks of training to get to grips with how it did things and then the days and weeks training up clients, but that was all there was and it was a cost worth paying to learn the new technology and it was far more accurate and efficient than paper recording.

The years passed and the Sage monopoly grew with more bells and whistles being added to an already over crowded screen in an effort to differentiate the latest New version and drag in even more people, this was the point at which it became stale and when I became unable to justify the time it took to get a client interested and supported.

Then Quick Books hit the UK like a breath of fresh air, it was in a different league to Sage with icons & menus that made sense to lay people and so our ability to sign up more clients took off again, but then 10 years on, all we had was two monopolies milking users not only for the costs of enhancements, most didn't need, but also charging extortionate sums for support.  

This is what I have always hated about Sage in particular, they produce systems that do not flow and are not intuitive to non-accountants and then charge the stupid users for the support they are bound to need.  If Ford had a monopoly like that it could make cars with controls that were so complex that, unless they were driven every day (or people employed a chauffeur), drivers would have to call the premium rate help-line every week to find out how to change gear or park.

As with any monopoly, unless they innovate it's only a matter of time until fresh entrants do it for them and make them look their (S)age.  Cloud accounting has revolutionised how this all works for me and my clients in that the systems are what the deskbound ones should have become ie  "just bloody bookkeeping" with very little training and hand holding needed making support (in the Sage sense) an anachronism.

The other plus, so different to the previous revolutions, is that there are, in the UK, probably two dozen providers and so with the added benefit of the new technology, enabling changes on a daily basis, AND tens of thousands of businesses using it without an accountant conning them into thinking it's too difficult, we have reached where we should have reached 20 years ago.

 

 

Thanks (0)
avatar
By JC
03rd May 2014 08:30

Question ...

@garyturner

How do providers cater for db restores to a point in time - scenario:

Sometimes things go badly wrong and data needs to be rolled back to a specific point

If there has been a new release of the software in the interim and that software includes field upgrades / changes in one of the underlying db tables

How do Cloud apps handle this - a new application trying to retrieve data from an old database where the new fields may not be available and therefore there is a mismatch between app & data

Alternatively is every db flagged against the last version of the app that used it

@Paul Scholes - agreed but the real issue with Sage is their absolute refusal to innovate which for an organisation in their position is an absolute disgrace - especially as these tactics (inabilities) have held back the entire market for their own purposes and only gained market share by buying others. A marketing company and NOT an IT one

 

Thanks (0)
Replying to Sheepy306:
By garyturner
06th May 2014 11:12

Answer ...

JC wrote:

@garyturner

How do providers cater for db restores to a point in time - scenario:

Sometimes things go badly wrong and data needs to be rolled back to a specific point

If there has been a new release of the software in the interim and that software includes field upgrades / changes in one of the underlying db tables

How do Cloud apps handle this - a new application trying to retrieve data from an old database where the new fields may not be available and therefore there is a mismatch between app & data

Generally speaking, they don't!

While it is technically possible to isolate a specific customer's database and carry out a targeted restore or roll-back, from a design perspective it's typically not an area that vendors will have invested in building toolsets in order to carry it out in a systemised way themselves, never mind a capability for clients to use.

So, it can be done but because it's time consuming for the vendor and often soaks up lots of expensive software engineering resources, most vendors have a policy of not offering it as a service. 

Therefore when a cloud vendor talks about protecting and backing up your data, in reality they're almost always coming from a standpoint of protecting your data should there be some kind of catastrophic event on the vendor side in which case every customer dataset in a shared database or shard would be simultaneously compromised and can all therefore be simultaneously restored, assuming they're all on the same version which is often likely.

This is markedly different to the traditional sense of a customer carrying out a selective local restore of a single database on a locally stored server based accounting package.

I suspect that it's something that will eventually be common with all multi-tenant cloud apps, but not certainly not today as far as I can see.

Gary Turner
Managing Director, Xero
@garyturner 

Thanks (0)
Replying to Sheepy306:
avatar
By Hugh Scantlebury
06th May 2014 11:44

We can (and have done) this

@JC  We (at Aqilla) can restore a single instance (company) for a customer to a certain date independent of others. It takes a little while but it has been done. 

@garyturner Great article. Will stop by at Accountex on Thursday and say 'Hello'.

Thanks (0)
avatar
By 19kings
06th May 2014 13:29

Ed Henry

Hi Gary,

Thanks for another well written article.

This broad overview of future trends and the way to drive them forward is (in my opinion) what has thrust Xero to the forefront of the global push to the cloud in allowing small business (and, increasingly, larger businesses) to be able to obtain RTI from their business systems.

I use the words business system as opposed to accounting system because I believe this is where Xero has the edge on other providers. The core Xero infrastructure has been created as a platform for business systems to be based around rather than trying to corner the whole market for themselves and be all things to all people.

This has created an ecosystem of niche specialist providers each concentrating on a particular area of business and so, instead of the market being "throttled" as outlined by Paul Scholes above, the market is being allowed to develop exponentially by multiple teams from around the world each with a direct incentive to produce best of breed in their own area.

Kudos to Xero and the the visionary approach by Rod Drury and his teams around the world.

Thanks (0)