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Solutions 14 venue Caesars Palace, Las Vegas

Cloud players stake their global claims

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19th Nov 2014
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The Solutions 14 conference in Las Vegas last week provided a suitable setting last week to assess the form of the three big global cloud accounting players. John Stokdyk assesses how their rivalry will play out in the UK.

In the UK cloud accounting market was carved out during the past 5-6 years by independent software houses such as Free Agent, KashFlow (now part of IRIS), Liberty and Clear Books. But analysts have been predicting a market “shakeout” for years, with the smart money shifting towards three big, international players: the North American giant Intuit, which has been marketing QuickBooks Online for more than a decade; the New Zealand-owned, publicly listed challenger Xero; and the UK’s very own Sage.

From the UK perspective, it may come as a surprise to see Sage in third-place in the global race, but apart from outposts in Europe and Commonwealth, its cloud expansion remains patchy.

AccountingWEB first started tracking the international cloud accounting movement a year ago. After returning to the US a couple of times this autumn, we look at how the race is developing - and how it will affect users in the UK.

Many of the people AccountingWEB encountered in the past few weeks have played down the global conflict. They insist this is just a case of cheap, sports-style journalism. But there is a reason for taking this angle. In so many other technology areas, the dominant player has gone from a certain tipping point to a near-monopoly stranglehold. IBM once enjoyed this status, then lost it to Microsoft, which has since been supplanted by Apple.

The global struggle remains a talking point within the industry. For the time being though, let’s assume that the current status quo will persist for the medium term: Sage and IRIS will hold out against smaller UK competitors, while Xero will continue to expand from its stronghold in Australia in New Zealand. In spite of these companies’ international ambitions, Intuit is likely to remain the biggest cloud player in the massive American market.

Differing accounting regimes and reporting standards will continue to reinforce national divisions in the cloud market - but internationalisation is still taking place in the thriving software undergrowth that has sprung up around the international cloud accounting engines.

Management reporting, project accounting, KPI dashboards, expenses management, stock control and distribution all conform to more international norms, and there are more than 400 applications that can work in tandem with QuickBooks Online and Xero.

If you look more closely, many of these programs are expanding into the international market from Australia, taking over from Scandinavia as the new hotbed of financial management solutions. Companies like Fathom, Vend and Spotlight Reporting sprang to life around Xero as it swept from New Zealand through Australia and into the UK in recent years.

Now these developers are boarding airliners and setting up camp in Silicon Valley, where QuickBooks Online is keen to offer a warm welcome. At the Solutions 14 conference in Las Vegas, surrounded by scores of such companies, Sage North America vice president Jennifer Warawa said the company was poised to unveil its own third party developer initiative for Sage One in the next few weeks.

Figures from Intuit confirm the Australian lead. Dan Wernikoff, who is in charge of the company’s small business product strategy put Australia ahead with 8% cloud penetration of the small business market, while UK country manager Rich Preece estimated that in the UK, only 4-5% of small businesses are using the cloud effectively. The US is even further behind.

“We’re still early in the journey. That’s similar everywhere in the world - not one of them has 10% online penetration,” noted Wernikoff.

According to Intuit, there are roughly 60m small businesses in the six main markets it is prioritising, where cloud accounting currently averages less than 5%. It’s a small proportion - but still represents up to 3m users.

The numbers game is tricky in this nebulous market, but Intuit currently claims to have 700,000 QuickBooks Online users - with more than 105,000 accountants having at least one client online.

“Fifty-five per cent of our new business is online, and our goal is to reach 2m QBO users in the next three years. That’s adding about 100,000 per quarter - and the pace is accelerating,” said Wernikoff. Payroll and other third party applications are likely to add another 25-50% to online accounting software subscriptions, he added.

Xero is credited with leading the cloud accounting marketing charge around the world, but in an analysis on the eve of the Solutions 14 conference in Las Vegas, DigitalFirst.com's Sholto Macpherson explained why Xero won't take the US in a hurry. With US customer acquisition halving to 4,000 a month, Xero's share price fell back from NZ$45 to NZ$18 in October. The scale of the US challenge is immense: Intuit makes around US$850m in profits on a turnover of $4bn each year, while Xero has reserves of US$150m and is burning through about US$15m a quarter in its efforts to crack North America.

"The blitzkrieg 2.0 ain’t going to happen," wrote Macpherson. This is going to be an expensive, long-term siege "with no guarantees that Xero will threaten Intuit’s hold long term".

In North America, Sage is back in third place - but don’t write it off. It pulled off a minor coup in Las Vegas by unveiling a disruptive multi-client KPI dashboard before either Xero or QuickBooks had equivalent tools ready. We have yet to hear if or when Sage View is likely to cross the Atlantic.

So how does the big fight affect us back in the UK?

The Aussies lead the cloud accounting race, but the UK is a logical next step for developers from Down Under. This country has benefited from being a bridgehead into the much larger US market. Xero - followed by its band of third party developers - came here first before it set out to conquer America. Coming from the other direction, Intuit also stopped here first when road-testing its international expansion plans for QuickBooks Online.

In the UK Intuit’s Rich Preece may lament that he’s number four in the local market, but he has the advantage of an increasingly mature application, a portfolio of third party apps - and deeper pockets to fund his efforts.

As we have seen, cloud commentators tend to put UK accountants ahead of their US counterparts. More to the point, the realisation is growing throughout the market that cloud accounting is not an end in itself - rather it provides a platform for accountants to collaborate online with their clients and to start playing a more proactive, advisory role.

AccountingWEB’s figures differ from those quoted by the US-based analysts. Our audience is already online, but with 47% cloud adoption rates form SME accounts from the last Software Satisfaction survey, this community is in the forefront of cloud accounting. Among the 200+ members attending our recent Practice Excellence Conference, the hottest topics were selling new services, advanced cloud accounting and becoming a trusted business adviser.

Xero played a major role in bringing AccountingWEB’s Practice Excellence Conference to fruition, and this is a sign of things to come for UK accountants. The big players are keen to use accountants as a channel to the small business market - and the recurring revenue accountants and their clients can bring - but they are also investing major sums to expand their reach. Bear this fly-trap in mind, but as the fight hots up, the big three global cloud developers are all trying to differentiate themselves through the quality of support and education they offer to help accountants become better business advisers.

“There’s no [world] champion yet,” Xero North America president Jamie Sutherland told me in Las Vegas (see video clip below for more from him on this subject). As long as that remains the case, there will be no better time to learn what each of the contenders has to offer, and to see how they can assist your practice development plans.

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Replies (4)

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By Gail Purvis
20th Nov 2014 14:57

Cloud account

Interesting battle, great read!

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Dermot Hamblin
By Dermot Hamblin
20th Nov 2014 16:31

Thanks John for a really interesting read.

On the global playing field, you could add CCH, with their Twinfield offering.  Noticeable by their absence from the online bookkeeping sector are Thomson Reuters.

In the UK and Ireland, practioners can choose from a wide variety of suppliers to those already mentioned e.g. Nomisma Solutions, Just Accounts, Liquid and Surf Control.  (Nomisma also offer cloud based compliance products for the UK).

Whilst I accept your point on a global player emerging, I think it’s unfair to compare IBM, traditionally dominant in hardware, with Microsoft, software company.  Microsoft won the war for the PC operating systems with Windows, back in the early 90’s. Microsoft then replaced Lotus 123/ WordPerfect and Harvard Graphics with MS Office.  Novell was replaced with Windows server products and this gave Microsoft the cash to move into other sectors e.g. Games, ERP and CRM.

One point that wasn’t covered in the article for me, is the long term position of the add-on partners.  Bill Gates decided not to manufacture PC’s, he wanted a copy of Windows on every PC. Receipt Bank and Fathom have been very successful in partnering with Xero, Intuit and Twinfield – these companies could be the long term winners of the cloud battle.  It’s been frequently stated that accountants can’t just offer an online bookkeeping solution; they need to offer a lot.  The winners at Practice Excellence were those firms that have adopted the cloud early, and are now offering several services above and beyond basic bookkeeping. (WOW Company,  Lamont Pridmore and Tayabali Tomlin).

Congratulations to Xero for disrupting the market, its stirred competitors into action.

Let the battle commence!

Thanks (2)
John Stokdyk, AccountingWEB head of insight
By John Stokdyk
20th Nov 2014 17:01

CCH/Twinfield - Under the radar

@LangdonHamlin - some interesting counter-arguments, though IBM did also supply software along with its hardware (anyone remember OS/2?).

The issue that deserves the closest attention is whether there will be a cloud challenger emerging from the European mainland. Twinfield was one of the industry's pioneers, and there's much to admire in its integration with CCH ProSystem - the first suite I'm aware of to connect cloud accounting to accounts production/CT tax filing.

But for all the technical sophistication, we barely see any Twinfield presence in the AccountingWEB.co.uk univers. Out of 4,853 small business accounting software respondents in last year's Software Satisfaction survey, we only got 14 votes from Twinfield users.

The events I was at in the US were backed by Intuit, Xero and Sage but out of 100+ conversations, I think I only heard the initials "CCH" mentioned once or twice, and not in relation to their cloud accounting capabilities. I know they're out there, but I they're not really making their presence felt.

Thanks for the reminder, though. We have been planning a more detailed look at the UK market for cloud-based SME accounting software and I'll make sure not to overlook Twinfield when we tackle it.

The other European cloud pioneer we shouldn't forget is e-conomic, which was acquired last year by private equity firm Hg Capital. Hg has made noises in the past about wanting to grab a piece of the cloud accounting action, but again we haven't seen a lot of movement from their direction in the past 12 months.

If you're really into this stuff, drop by our Cloud computing for accountants discussion group. In spite of the length of the original article, I've got loads of material on the market. It might be more polite to share this stuff in a place where people are really keen to discuss these trends, and feedback like yours will be a big help when it comes to collating all the data we can pick up on the different contenders.

 

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Steve pipe
By Steve Pipe
24th Nov 2014 10:00

The cloud will change everything… not just accounting

Great article John, thanks so much.

Clearly there are some massive changes ahead. But cloud accounting, which the article understandably focuses on, is really only one tiny fraction of those changes.

I am currently researching my keynote for The Cloud Conference 2015.  The big boys mentioned in John’s article will be there, of course, talking about the very latest in cloud accounting.

But in my keynote I will show how cloud technology, in its broadest sense, can be used to change every single aspect of the way we currently win and serve clients, structure and run our firms, earn and collect our fees.

Cloud technology will make everything quicker, more efficient, more systemised, more client-centric, more valuable and impressive to clients, more profitable and more enjoyable to practitioners, and in many cases more automated/automatic.

I have already identified a huge raft of tools that will help accountants do all of that. But am keen to provide the profession with the most comprehensive blueprint possible.

So what cloud tools do you love?

What cloud tools have already changed your professional life?

And what cloud tools are you most excited about for how they could change things for you in the future?

 

 

 

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