Should accountants fear the great software consolidation?by
This year has seen the accounting software market march to the steady drumbeat of acquisition, as small developers are snapped up by larger rivals. As their customers, should accountants be worried about this increasing trend of consolidation?
Over the years, accounting tech watchers have seen the software pendulum swing back and forth between two extremes: on the one side an everything-in-one-place suite that offers all services under one roof, and on the other, core accounting software with an Apple Store-esque ecosystem plugged into a number of best-of-breed solutions – with most accounting firms occupying the space somewhere in-between.
Factors such as lockdown-driven innovation driving cloud adoption, cheap funding for startups and lowering software development costs gave rise to a fintech boom in recent years, with 2020 marking the crest of a wave for independent developers in the accounting industry.
From then on, we’ve seen a steady contraction in the market, with AccountingWEB's own Insights research pointing towards a swing back towards integrated tax and practice software suppliers as the transition to MTD for income tax self assessment (ITSA) nears. As interest rates rise and the cost-of-living crisis kicks in, larger developers have made hay by snapping up their smaller competitors like Pac-Man and the Ghost Gang.
Bright Group has led the way, thanks in part to an injection of funding from accountancy-focused PE house Hg Capital. Formed in September 2021 following a merger between payroll provider BrightPay and Irish compliance tool Relate software, Bright has grown significantly over the past 12 months, acquiring practice management tool AccountancyManager and recently following it up with the purchase of compliance tool BTCSoftware.
Accounting community reaction
So are accountants worried about their software world contracting? Or excited about the opportunities presented by a new breed of cloud suite, and the efficiencies this could bring?
Take the temperature of AccountingWEB reader comments on articles about any of the above acquisitions, and you’ll find the majority in the “concerned” camp. Members flagged past experiences of their beloved products selling out to “the man”, which led to price rises, support tailing off, account managers leaving, a lack of development and the eventual sunsetting of the product – or at best being rolled into a larger product set.
Worries flagged by the AccountingWEB community include good products being killed off by a buyer simply wanting to expand its market share, and on the customer side, small firms are not keen to incur the additional costs of retraining staff and clients on new software. One major issue highlighted numerous times is access to past data, and whether this is maintained once a product heads off to the great software elephant graveyard in the sky.
These are all legitimate concerns, but surely also represent an opportunity for vendors to reassure their new customers that they have their best interests at heart – or at the very least make sure their price structure and future plans are transparent and available on the website.
And the door is also open for accounting suite vendors to meld their acquisitions together to boost practice efficiency, particularly in the run-up to the government’s (current) mandation date for Making Tax Digital for income tax self assessment (MTD ITSA). In its recent announcement about a new MTD ITSA sole trader tool, serial acquirer Sage was keen to emphasise the efficiencies firms can gain from the ability to sign-up a client, extract and manipulate their data and file their returns, all through the same product.
What happens next?
With the current economic uncertainty likely to continue into 2023, there may well be more consolidation yet to come. But all is not lost for new tech enthusiasts, with several new trends appearing on the horizon.
Coconut CEO and chartered accountant Sam O’Connor has talked about a post-cloud-accounting world, where browser-based systems such as Xero or QBO are superseded by demand from younger users for mobile-friendly tools – although as the boss of a mobile-friendly accounting tool, it could be argued that he would say that.
Another trend to mark the seasoned tech watcher’s card is the rise of accountants themselves as fintech founders. Frustrated with the lack of flexibility provided by the major players, a growing number of accountants are picking up their ledgers and dealing with developers direct, or in some cases building the tools themselves.
The majority of the acquisitions mentioned in this piece also form part of an effort to consolidate a set of best-of-breed tools into a comprehensive cloud offering. With the major vendors now operating with a complete set of cloud tools, this may serve to slow down the rate of acquisitions.
As is the case with many things in accountancy, from Big Four bookkeeping failures to big firm consolidations, the pendulum always swings back the other way. Although sometimes not quite in the way one might expect.
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