Mid-market shies away from cloud
The market for enterprise financial management suites is stagnant, according to Garnter. John Stokdyk delves into the Software Excellence Awards database to find out why.
“The market for core financial management suites has been static for many years,” declared industry analyst Gartner in its June Magic Quadrant report for the sector.
Having identified this inertia, Gartner has also seen the emergence over the past 12-18 months of “post modern ERP” applications that are supplanting the monolithic, suite-centric on-premise ERP solutions. Instead, looser networks of cloud financials applications are linking to online HR and CRM [customer relationship management] systems to achieve similar functionality.
Over the past year or so, AccountingWEB has reported on promising developments in this part of the software market. But when we examined the results of our 2017 Software Excellence Awards (SEA17) survey, there was solid evidence to support Gartner’s stagnation analysis. The overall proportion of mid-market and enterprise participants in our survey fell from 14% of the accounting software population in 2013 to 5% in 2017.
Unlike Gartner, we have not seen “post modern” developers such as FinancialForce.com, NetSuite or Sage Live stepping in to fill the gaps left by declining mid-market desktop users. These cloud suppliers barely made a dent in our 2017 survey. Instead, the UK mid-range and enterprise accounting software market that AccountingWEB sees is becoming increasingly fragmented between small camps, typically 3-4% of the total, of Sage 50, Pegasus, Access, Exchequer and other client/server products.
A key difference is that in Gartnerworld, “large” equates to companies turning over $50m up to $5bn. The typical organisations in our mid-market and enterprise survey sample turned over just under £3.5m a year (less than $5m).
The evolution of cloud add-on ecosystems around Xero, QuickBooks and Sage could be having an impact. With bundles of add-on applications beginning to challenge integrated ERP suites with comparable functionality at considerably lower fees, the post modern model is becoming a viable alternative at the lower end of the market – even if risk-averse finance managers aren’t quite ready to embrace them.
The recent decision by Exact to retreat from the UK market provides a commentary on the current stagnation. The Dutch developer spent 2-3 years and large sums to establish a market presence in the UK, primarily focusing on industry-specific solutions for manufacturing, distribution/warehousing and professional services.
Exact has been getting good feedback from mid-size accounting firms on the lookout for a “next step up” accounting engine to cater for growing clients with complex needs. Exact did gain some traction in AccountingWEB’s 2017 Software Excellence survey. Along with Sage 50 Accounts (a desktop product), Exact Online was one of the few accounting applications to be represented in both the small company and mid-market/enterprise accounting software categories.
But after putting in all that effort to break into the UK, Exact found big camps of Xero and Sage 50 users acting as barriers to the small business market. Instead of trying to compete with them by appealing directly to practitioners as an SME sales channel, Exact is retreating back to its core region in the Netherlands and northern Europe, and will work with resellers and larger accounting practices to carry forward its strategy to develop the UK mid-market.
Forecasting and analytics growing slowly
The forecasting, planning and analysis market is subject to some of the same forces, but is at least showing signs of life, with steady increases in usage – up from 3.6% of software survey respondents in 2013 to 8.5% in 2017.
The take-up on the business side of the profession has been desultory since 2013, but on the practice side we have tracked a steady rise. Pactitioners accounted for more than half the FP&A user population in our 2017 SEA survey. The proportion of Practice Excellence Award entrants who indicated they use these tools rose from 11% last year to 16% in 2017.
New wave cloud forecasting and analysis products are leading this movement and appear to be prospering at the expense of the grand old names of the enterprise market. The “ecosystem” players – including SEA17 category winner Float, Futrli, Fathom and Spotlight Reporting - all gained higher NPS ratings and shares of the Software Excellence population than Cognos, Business Objects or Hyperion.
To understand the challenges faced by suppliers in this market, it may be worth a short history lesson. Ten years ago, the enterprise software market was going through a period of post-consolidation stagnation after the “business process re-engineering” boom of the 1990s. The millennium bug scare sold a lot of new accounting software in 1998-9, but induced a much higher level of cynicism and suspicion among customers.
With little action in the core accounting market, in 2007 the big developers SAP, IBM and Oracle saw the opportunity for new growth in the analytic applications market and each swooped on a different business intelligence developer: Business Objects (SAP), Hyperion (Oracle) and Cognos (IBM).
Then came the global financial crisis, when most business customers were more interested in day-to-day survival than exploring new frontiers of corporate performance management. And it appears they still haven’t shaken off that mindset.
Are you a business accountant caught in the enterprise software slump? What’s holding you back from investing in new financial processes? Or do you have evidence that contradicts our gloomy analysis for this sector?
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