As part of our summer cloud reality check, Richard Sergeant looks at rapidly rising cloud subscription numbers and considers what they're telling us.
The big cloud accounting developers have been going back to the tables in recent months to up the ante on the number of subscribers using their systems.
But how useful are these numbers? And why are the big developers putting so much effort into telling us about them? For the suppliers, the numbers are a game of scale: the bigger you are in cloud software, the greater the “network effect” that will accelerate the take-up of your product. But perhaps there are other indicators they could be publishing that would be of more use to customers and prospective users.
For a start, trying to piece together a clear picture of cloud accounting adoption isn’t straightforward.
Global subscriber figures are relatively easy to get hold of from the listed companies like Xero and Intuit that include them make in their annual disclosures. But we have only been able to dig back to 2014 for regular comparative figures (see below).
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The international players - Xero, QuickBooks, Exact and Sage - are stronger in different regions, making it harder to separate global and UK figures. And to be frank, some users on the ground in this country are sceptical about the numbers being put in front of them. Looking at early feedback from AccountingWEB's Software Excellence survey, for example, UK cloud user growth rates are strong, but have not quadrupled since 2013.
Exact CEO Erik van der Meijden told AccountingWEB, “Subscriber numbers are a good indication in terms of market reach of a vendor, although one should be aware of the way the shared total number is built up. To make a direct comparison one needs to know what it portrays. The number mentioned for Exact consists of the number of paying companies whose administration is processed with Exact Online.”
Based on vendor disclosures, here’s what the current global picture looks like:
Overall, the data presents a pretty convincing picture of accelerating growth. But how solid are those figures? What are they counting as a subscription license?
Sage, for example, cites the number of paying subscriptions for Sage One products, so its impressive growth curve may include the figures for SageOne Payroll.
Intuit specifies the number of QuickBooks Online subscribers but does not state if these are paying customers or not.
AIM-listed FreeAgent, meanwhile, divides its total number between direct and accountant channel figures, but omits those acquired through the long-standing relationship with Barclays.
To make things more complicated, the suppliers frequently offer bulk subscriptions. The deals on offer can involve 50, 100 or even 200 licenses for less than £2 per user per month for a fixed period.
The accountants taking up these offers get good value, even if the numbers passed on to clients number maybe only 10% or 20% of the package total. These users may remain largely unallocated and inactive, but they have been paid for and are included in the global figures.
Why do vendors care so much?
In spite of the underlying semantics, user numbers are easily available, digestible and distributable and follow a well-trodden path. They help the suppliers tell an upbeat story and allow them to cite rapid adoption as an indicator of success. Communicating it is about showing that more and more people are joining the cloud accounting club.
More significantly, the figures provide an important and reassuring message to investors. In the cloud world, being able to scale is an important metric to demonstrate sustainability.
So why should accountants care?
Accountants are fond of reliable measures too. Cloud adoption figures illustrate the direction of travel in the market and can be a useful point of reference to substantiate the growing adoption of cloud-based services. Whatever the nuances lurking beneath the surface, it is clear that more and more businesses are doing their financial administration online, and the trend is increasing and accelerating over time.
For those adopting or recommending new accounting systems, aligning themselves to growing brands and services is a source of comfort. After all, who wants to partner with a supplier that appears to be going nowhere or into a steady decline?
This stance harks directly back to the mindset of previous computing generations who used to intone the wisdom, “Nobody ever got fired for choosing…”
Given the lifecycles of modern technology, does size really confer stability? If a vendor really does conquer all before it, will that protect it from disruption or failure into the long-term future?
What other metrics could they share?
According to FreeAgent business development director Kevin McCallum, “Healthy growth in subscriber numbers is important as an indicator, but it's not in itself the most useful metric. Client satisfaction is a great example of where the users of your service can pass on their experience to others - Net Promoter Score (NPS) is a great example of this".
We put this theory to the test with a few quick calls to friendly accountants, who came up with a list of alternative measures that would interest them:
- Company profitability - Are we with the right people for the long term?
- Average revenue per user (ARPU) - Are we getting the right deal?
- Client satisfaction - How well will we be treated?
- Profile of companies served - Which software is being adopted by what kinds of businesses?
The accountants’ list suggests there is a split between hard financial metrics and customer insight measures. While it may not take us too much closer in comparing apples with apples, broadening out the key figures could be useful in advising clients on which system to adopt.
AccountingWEB is continuing to research these issues as part of our Software Excellence survey, which will feed into a set of awards later this autumn, and continuing research into market and customer satisfaction trends. What metrics or information would you like to know from and about your cloud accounting software vendors?
About Richard Sergeant
Specialist insight and business development support for accountants and their vendors. Cloud advocate with a pragmatist eye.