Accounting platforms gear up for battle of the five armiesby
New research from AccountingWEB has highlighted that while Xero, Sage, QuickBooks and FreeAgent remain the most commonly used platforms by UK accountants, no vendor has a dominant share of the market.
With UK accountants finally able to pull away from their covid holding patterns, many are now looking to upgrade their systems or extract more value from their existing tools, particularly with MTD for income tax (MTD ITSA) mandation less than two years away.
As the first spring conference season for three years gets underway and with a plethora of new MTD-compatible tools coming to market, a major battle is underway to win the hearts and minds of UK accountants.
AccountingWEB’s latest State of the Nation: Accounting Software report identified five main adversaries at the heart of this maelstrom. As part of our ongoing research programme, the study polled nearly 500 accountants in practice and business this spring on their use of core accounting software packages.
While Xero, Sage, Intuit QuickBooks and FreeAgent remained the most commonly used accounting platforms, no vendor has a dominant share in the market. Signs of shifting allegiances and ambiguity emerged from respondents. Users of all major players reported positive developments, but there was still plenty of room for improvement.
Xero and QuickBooks satisfaction ratings fall
Once the poster child for the rapid rise of cloud accounting tools, with 3.3m global subscribers (850,000 in the UK), Xero has now become the incumbent. That position, however, has been accompanied by criticisms from customers over outages and other functionality issues during the pandemic.
While the report repeatedly highlighted ease of use and easy implementation as positives for Xero users, it also flagged falls in user satisfaction and usage amongst key customers.
“Xero's sweet spots in 2021 were firms who self-classified as small early adopters and change-aware small and medium practices,” explained report author and AccountingWEB’s head of insight Julian Green.
“However, by 2022 usage had fallen by 4% and 6% among both early adopters and small firms. Its usage also fell 8% among larger firms, where it had been challenging Sage for leadership in 2021.”
With the report also raising concerns about innovation and reporting tools, users will be hoping the New Zealand developer will use the first Xerocon event in the UK since 2019 to announce improvements to the platform to sit alongside its MTD ITSA tools.
It was a similar story for Intuit QuickBooks. Although survey respondents praised the tool for its ease of use and the quality of training materials provided, a recent move into tax preparation and filing fuelled pre-existing fears from some users about a drift away from the accountant channel.
“Intuit QuickBooks’ heartlands were firmly among smaller users across the board in 2021,” commented Green, “but usage among these segments fell as well as all others.”
The QuickBooks NPS rating dropped 10%, hovering in positive territory at +4, but users are no longer praising it for good value for money. The most commonly cited cause for concern from QuickBooks users was over functionality.
One small accountancy practice cited the following example: “VAT calc rounds up instead of truncating. Also alters VAT when optical recognition software has read and transmitted the VAT correctly!”
Another practitioner asked the vendor to “make it easier to go back to original entry after viewing the audit log of a transaction”.
Sage claws back ground in race to cloud
For so long the only game in town when it came to UK accounting software, Sage found itself playing catch-up as Xero and QuickBooks forged ahead in the pioneering years of cloud accounting.
However, Sage has made a lot of accountants sit up and take notice with a series of strategic acquisitions timed to bolster its Sage for Accountants cloud platform. With many unknowns still surrounding the government’s MTD ITSA rollout, Sage is betting that many practitioners will fall back on a trusted vendor for help during the transition.
“Sage appears to be maintaining its position amongst users in practice generally, where its main competitors appear to be losing out,” said Green. “It has performed well amongst medium-sized users where it has taken Xero's crown and more widely among general business users, which suggests it is winning the advertising war.
Sage’s only bleak spot is among its larger businesses, its sweet spot in 2021, where usage has fallen by 10%.”
Sage’s NPS score, whilst still in negative territory at -5, has moved in a positive direction by 8% with ease of use and intuitiveness the most commonly cited positive attributes. One small accountancy practice cited full integration to final accounts and corporation tax as a major plus point, while another found it reassuring to know that “everything is done correctly”.
Survey respondents flagged up a need for simplicity, with one small practice owner suggesting the product should be streamlined: “far too many steps in many of its processes”. Another business accountant stated that some online modules “do not speak with downloaded software”.
FreeAgent fights for market share
Since arriving on the scene in the earliest days of cloud accounting, FreeAgent has established itself as a credible alternative to Sage, Xero and Intuit QuickBooks. Many expected its acquisition by the NatWest Group (then RBS) in 2018 to fuel the vendor’s rise to join the ranks of the aforementioned platforms, and although the tool now boasts well over 100,000 subscribers, matching the market shares of its largest competitors has proved tough.
“Compared to 2021’s survey, FreeAgent has suffered small declines in usage across all of the small firm and small business segments,” said Green. “It maintained usage among medium firms and gained users in larger organisations, albeit from a tiny base. There was also a slight increase in FreeAgent users using the platform as their second most-used software (3% in 2022 versus 2% in 2021).”
While the software is distributed free to business customers of NatWest, adoption rates among key userbases don't appear to be rising - a point which Green believes may be down to large-scale advertising campaigns from the likes of Xero, Intuit QuickBooks and Sage luring away new business customers.
Recent government attempts to clamp down on off-payroll working may have also hit FreeAgent, but the Edinburgh software house’s recent launch of a landlord tool to tackle the MTD ITSA challenge may accelerate growth in a slightly different section of the market.
Will a fifth player enter the battle?
Meanwhile, rumours of a fifth major player joining the cloud platform battle have gathered pace, with Hg Capital-backed Bright Group rumoured to be gearing up to bring its Surf Accounts cloud product to the UK. Combining Surf with its recent acquisition AccountancyManager and the anticipated arrival of BrightPay’s cloud payroll product make the new arrival a potential contender as part of an integrated cloud accounting suite. But will Surf and Bright have enough resources to break into such a highly competitive market?
With early adopters among small and medium firms showing potential interest in alternative solutions, Green commented: “What is striking about the early adopter segment in our survey is that no software vendor has a dominant share, but usage is growing for 14 vendors. It is very much a ‘pick and mix’ mentality.
“In the medium segment, a similar number of vendors are experiencing usage growth, but there are more entrenched positions,” he continued.
“Of those, Sage is growing whereas Intuit QuickBooks and Xero usage is falling. So, if Bright Group was to move into the UK accounting platform space, there could well be an appetite among these segments. But don’t discount stiff competition from Microsoft Dynamics in the medium and large segments.”
You can contribute to the findings of the next AccountingWEB State of the Nation: Accounting Software report by taking part in the latest quarterly survey.
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