Cloud accounting pitches for the mid-market
During the past few years AccountingWEB focused closely on web-based bookkeeping applications for small businesses. There’s no shame in this, as this sector is where all the action has been for most of our members. As the cloud computing revolution took off, KashFlow, FreeAgent and Xero attracting tens of thousands of UK users into online accounting.
The market for mid-range and enterprise accounting applications was slower to react, mainly because sales cycles are longer; organisations with big investments in existing programs are more reluctant to rip out and replace their accounting systems.
Mid-market cloud contenders
David Carter, who has tested many accounts packages for us in the past, recently turned his attention to mid-range cloud accounting with a review of Aqilla. In his view, cloud accounting won’t take hold in the middle market until it can match the functionality of existing client/server programs.
“We badly need some serious, industrial-strength, cloud-based accounts packages that match the established vendors feature for feature. The established vendors are themselves obviously giving out cloud-based versions, but software written in a previous generation rarely works well in a new one it wasn’t designed for,” he concluded.
According to Carter, the applications that have the best chance of success will come from previously unknown companies that write their packages for the cloud from scratch. But they will need some pedigree in accounting to be successful in such a specialist sector.
The three main cloud players courting mid-size organisations in the UK all fit Carter’s profile: Aqilla and FinancialForce.com both have links back to established UK accounting applications (SunSystems and CODA respectively), while NetSuite was part-funded by Oracle founder Larry Ellison and has been pioneering web-based ERP for more than a decade.
SAP Business ByDesign deserves a mention too. While it draws on the heritage of its bigger on-premise sibling MySAP, it also struggles to shake off an association with the expense and disruption of protracted business process re-engineering projects.
Sage cannot be discounted either. As well as the rudimentary Sage One system for small businesses, the country’s accounting software market leader is adapting Sage 200 for Microsoft’s Azure cloud platform.
By common consensus, companies outgrowing Sage and QuickBooks remain the main sales pipeline for mid-market developers as a whole, with additional opportunities for cloud developers coming from “in-fill” applications to sit alongside and plug gaps in existing finance systems.
Most developers would add that the UK mid-market has lagged behind other countries in embracing cloud accounting, but this is changing.
Jeremy Roche, CEO at CODA/Salesforce.com joint venture FinancialForce.com commented: “I had a theory the UK was three years behind the US, but I would revise that now to 12-18 months.”
Faster growing businesses serving new markets have led the way, he added, “But we’re certainly starting to see traditional ones coming through. SMEs started first, but now mid-size and enterprise companies are starting to take advantage of it.”
Aqilla’s Hugh Scantlebury agrees: “Virtually every shortlist has at least one Cloud offering and in some cases, exclusively so. There's a fair way to go, especially given the longer replacement cycles of the mid-market… but things are beginning to really change - for the better!”
If you are considering options for sophisticated cloud accounting tools, here is a brief overview of what you can expect from the leading vendors.
Functionality: Unified nominal ledger, with built in budgeting & forecasting, project costing, timesheets & expenses; and purchase-to-pay facilities.
Target market: Mid-market, service-based organisations, with partners specialising in industries such as hospitality, technology, financial services, social housing and not-for-profit
UK users: c200 companies (1,000 users)
Pricing: Subscription-based licence - £50/month for “Pro” users; £10/month/user for occasional users, plus £100 set-up fee per company, and a number of consultancy days will be required for initial configuration.
True to the mid-market cloud insurgency model suggested by Jeremy Roche, Aqilla describes itself as an accounting “platform” that can grow with users’ needs by linking into customer management, business intelligence and other back-end systems. One of the system’s latest enhancements is an Excel add-in to provide more flexible end-user analysis and reporting.
Aqilla is typically overseen by a dedicated finance director or controller in a service-based organisation turning over £5m-£250m, and competes mainly against NetSuite and FinancailForce.com, plus established client/server products such as SunSystems, Microsoft Dynamics, Access and even Sage Line 50.
In his software lab test Carter noted that Aqilla is a unified ledger system, combining sales and purchase ledgers within the overall nominal ledger, which also supports automated order-to-payment processes for both sales and purchasing, plus project costing, budgeting/forecasting, timesheets, expenses and cash.
The system offers what Carter calls the “multis” that mid-range and international organisations demand: multi-currency; multi-company, multi-language, multiple budgets, multiple tax regimes and so on.
While many of Aqilla’s 200 or so early adopters were specifically attracted by the cloud concept, the company, like FinancialForce.com, has started receiving enquiries from more mainstream organisations such as the Ministry of Justice.
Carter judged Aqilla to be an “industrial-strength” set of financials that matches the products of the established mid-range vendors. “While Aqilla may be relatively unknown now, in 10 years it will be one of the major players in the mid-range marketplace,” he wrote.
Functionality: A single ledger system (like its forerunner, CODA) that handles all the nominal, sales order and billing ledgers, plus as many additional project and product ledgers as you like.
Target markets: Salesforce.com users and other sales-led service-based organisations, particularly for professional services automation (PSA) encompassing project management and accounting, including resources and expenses. Also sophisticated media billing applications.
UK users: Undisclosed; two-thirds of customers are US-based
Pricing: On application - depends on size of installation.
Formed in 2009 as a joint venture between CODA and SalesForce.com, FinancialForce.com draws a lot of business from the Salesforce.com community, “but not to the exclusion of other systems”, said CEO Jeremy Roche. Salesforce.com users have already got a foot in the cloud and have derived enough benefits to continue in that direction, he continues.
Good billing tools have been a hook for many sales, as it produces a great return on investment. “Everyone has to bill,” says Roche. “If you can get accounts receivable smartened up, everything benefits.”
Plugging into the Salesforce.com platform and development tools also speeded up the application’s evolution. The forms and objects defining contacts, sales and invoices are already there, so FinancialForce.com programmers can simply call them in to use elsewhere in the program. This has proved to be particularly important in developing FinancialForce.com’s PSA suite.
“The services market is booming - with growth doubling each year,” says Roche. “PSA solutions are quite old, so it’s an exciting market that’s ripe for disruption. Professional services is about automating and collaborating between remote teams. We’ve designed an application with that right at the heart of it.” Cloud technology allows the developer to extend FinancialForce.com internally and externally, for example with a Facebook-like Project Wall where users can share information and collaborate with their customers and subcontractors on a project.
Functionality: Full ERP suite, including stock/distribution, ecommerce, CRM, human capital management, and financial reporting & analytics.
Target market: “Two-tier” strategy, with Unified ERP suite catering for 200-500-employee mid-market organisations; and OneWorld version designed for subsidiaries of larger global groups; key markets include high-tech sector, PSA, retail and specialist industries served by implementation partners.
UK users: 16,000 companies worldwide; UK figures not disclosed separately
Pricing: On application
Now in its 15th year, NetSuite is a grown-up cloud enterprise resource planning (ERP) system catering for a wide range of vertical sectors including retail and stock/distribution industries, professional services and e-commerce. Craig Sullivan, NetSuite vice president of international products, commented that the cloud system is now begin taken seriously by “some of the largest enterprises in the world”, who wouldn’t have done so 3-4 years ago.
“When a business looks at run entirety of its systems, a cloud solution becomes even more relevant because it instantly connects people in multiple locations and addresses workflows across departments,” he said.
Though it has been partially discredited by the grand projects that have swallowed up vast sums in software licences and consultancy during the past 20 years, the ERP model does allow users to manage transactions, processes, customers and suppliers on a common platform that can deliver new levels of efficiency and service. For example, after implementing NetSuite, a Leeds-based nail care distributor Sweet Squared said its sales people could see whether they had stock in the warehouse when a customer placed a phone.
While sensing an opportunity to recruit UK companies growing out of Sage 50 Accounts, NetSuite CEO Zach Nelson claimed the company was enjoying success at the upper end, where it frequently takes on the giants of integrated ERP, Oracle and SAP.
Functionality: A comprehensive menu to choose of 50 or so business processes, including: financials; order processing; procurement; CRM; manufacturing; service support; project management; HR; eLearning; workflow; and reporting/analytics. All the “multis” are supported: companies, currencies, languages and GAAP. Support is available to access data on most mobile operating systems for no extra cost.
Target markets: Services-based industries, along with discrete manufacturing, where UK organisations have outsourced production to foreign suppliers. Also UK subsidiaries of existing multinational SAP users; Business ByDesign shares common data structures with MySAP making consolidations and system upgrades easier.
Pricing: From £7 a month per user for “self service” data entry licences, £16/user/month for basic project module; up to £97/user/month for enterprise-level financials. Fifteen users are the minimum installation requirement, but five of those users are covered by the base fee of €1000 a month.
The German ERP pioneer has not sat back idly as cloud challengers like NetSuite started targeting its core markets. It jumped aboard the cloud bandwagon in 2007 and has been enjoying some success with its Business ByDesign (BYD) suite. Strong 2013 Q1 results were driven significantly by organisations switching to the cloud, according to SAP co-CEO Bill McDermott.
“It is clear that many application categories are increasingly transitioning to the cloud, and SAP is in the forefront of this transition,” he said. “We see continued very strong growth in the Cloud, with a 385% year-over-year increase in cloud subscription and support revenue and a 95% increase in deferred Cloud subscription and support revenue.”
Business ByDesign benefits greatly from the parent group’s mature functionality and has a readymade market as a business management platform for medium-size organisations and national subsidiaries of larger international groups.
The underlying reporting and analysis framework in Business ByDesign is very strong, allowing users to add custom fields and report against them in real time. Excel integration allows users to create spreadsheet reports and save them to BYD, so every time they open their Excel view, the data is refreshed by the BYD server.
The CRM/Opportunities module stores all contact information and activity and can track them against marketing campaigns. The contacts database and appointment diary also synch with Outlook via a plug-in, and emails from clients can be attached to their record within the system.
While some of SAP’s rivals talk about gaining footholds within their customers from departmental and “line of business” sales, SAP claimed a number of successes in early 2013 on the back of finance-driven sales.
Sage’s great strength is the huge pool of businesses and accountants who picked up their grounding with Sage 50 Accounts and its predecessors. The company has an upgrade path available for users who outgrow the desktop application, but these are the valuable, fast-growing customers who are being targeted by the mid-market cloud developers discussed here.
How is Sage fighting back?
In May 2012, Sage announced that it would use Microsoft’s Windows Azure cloud platform to develop certain small to medium business ERP solutions, starting in the UK with Sage 200. This is a mid-range accounting and ERP package suitable for up to 50 users that can call on a network of specialist resellers serving specific industries. Modules include: financials; CRM; manufacturing with bill of materials; supply chain; analysis and reporting; wholesale/retail; project accounting; and web timesheets & expenses.
As one AccountingWEB member reported, the system was undergoing testing with pilot users in April 2013. Sage 200 is not commercially available in the cloud yet, but an announcement is expected very soon.
However Angela Eager of TechMarketView told BusinessCloud9.com at the time of the Azure announcement: “Sage’s commitment to the cloud still looks half-hearted and it lacks a coherent strategy. If it developed its international ERP X3 suite for Azure, that would be a statement of intent and drive more competition against the like of NetSuite.”
If you’re a user (or supplier) who has a cloud financials/ERP program you think should be listed here, let us know by commenting below. But the five products mentioned here were the ones that cropped up repeatedly as the ones to watch. This demonstrates that the mid-market is more rarified than the small business sector, where there are scores of accounting programs to choose from.
Cloud purists spend a lot of time emphasising the superiority of browser-driven applications over hosted solutions, where a traditional client-server program is delivered via a web-browser.
In spite of the insults, most of the existing mid-market suppliers, including Sage, are in a position to offer hosted versions of the products, often through specialist service providers.
Business may not get the technological convenience of a true cloud application, but they can benefit from the subscription-based payment model, and avoid the need to retrain all their staff members. For many business, how a program is engineered doesn’t really matter if it delivers the functionality they want within their budget.
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