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The mid-market cloud landscape

25th May 2017
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Early returns from AccountingWEB’s Software Excellence Awards survey suggest that cloud developers are fighting to break into mid-market accounting. Robert Lovell finds out what cloud contenders including NetSuite and FinancialForce are doing to cultivate this sector.

With fewer than 10% of the responses in the Software Excellence Survey so far coming from users of mid-market and enterprise accounting tools, we can confirm that this sector is lagging behind the pace with which small businesses are embracing cloud accounting applications from Xero, QuickBooks Online and FreeAgent.

With just under 9% of the responses collected so far, Xero has established an early lead in the ratings ahead of Sage 50 (7%). Both these suppliers have a smattering of representatives among £5m+ turnover companies, where they compete with client/server systems such as Access Dimensions, Exchequer and Pegasus.

While the UK small business accounting software market is settling into a recognisable Xero versus Sage pattern, with QuickBooks, FreeAgent and Exact on the fringes, competition is livening up in the mid-market. Companies using older desktop systems and those looking to trade up from Sage 50 are now prime targets for suppliers of mid-range cloud accounting systems like NetSuite and FinancialForce.

To hear these two cloud vendors tell it, the mid-market is catching up; it’s now a question of when rather than if mid-size companies are going to move their accounts to the cloud. With sales of traditional desktop products under threat from cloud newcomers - as we have seen in the SME market - some developers are playing on both sides of the fence; both the Access aCloud and Sage X3 products are represented in our survey results so far.

Competition heating up

With just a handful of major cloud vendors targeting this market, competition is fierce. In a move that typifies Silicon Valley rivalries, FinancialForce staged a “NetSuite users, you’ve got options” marketing campaign during NetSuite’s SuiteWorld event in Las Vegas last month.

NetSuite itself demonstrates another factor affecting cloud accounts: consolidation. Last year NetSuite was acquired the database and enterprise applications giant Oracle.

The deal created a behemoth that has shaken up the market. As part of its realignment, NetSuite is aiming to reach further down the customer chain to startups and fast growing small businesses. Oracle chief executive Mark Hurd said NetSuite was now looking to “verticalise” by moving into new micro segments and selling to even smaller companies.

According to David Turner, senior marketing director EMEA at Oracle NetSuite, NetSuite began life as a system designed to run a small business from end to end. Start-ups like the simplicity of a single, real-time system to run their business and show them how they are performing. And now NetSuite has the resource to take this model global, he added.

Tod Nielsen is an old Oracle and SalesForce hand  who joined FinancialForce as CEO at the beginning of the year. He sees the NetSuite acquisition as an opportunity for his new employer.

“We’re expecting 10% of their users to start looking at options elsewhere, so we put that out there,” Nielsen said of his Las Vegas guerrilla marketing stunt.

NetSuite’s David Turner countered that FinancialForce’s new CEO locks his rival more into the Salesforce community. “It’s clearly a significant change of culture to a more US-focused, aggressive and marketing-focused organisation, suggesting you’ll see a lot more noise and spectacle, and less substance, which is not going to help their international users who badly need more localisation and support,” he said.

When it comes to sales NetSuite’s results for Q3 2016 showed 26% growth globally. FinancialForce, meanwhile, is boasting about its 40% uplift in year-on-year revenue for its Financial Management portfolio. But FinancialForce is working from a smaller base. According to the company’s financial management applications manager Raphael Bres global customer numbers are nearing 1,000, with 80% using multiple modules alongside its online general ledger.

“Multiple revenue streams increase the needs and the complexity in billing, revenue reporting and accounting. Companies are looking for cloud solutions to combine or add multiple revenue while scaling up,” Bres said.

Other contenders

But NetSuite and FinancialForce do not have the field to themselves. Dutch developer Exact also has a comprehensive online accounting suite that caters for companies for small and mid-size companies looking for stock, distribution and professional services solutions. And UK independents such as Aqilla and AccountsIQ are staking their claims to be taken seriously as alternatives to the big names.

At the recent Accountex event, Sage’s new UK and Ireland managing director Alan Laing said that his priority was the “scale-up” and enterprise market opportunity for the online Sage Live and Sage X3 product suites.

At this level, it’s not just a question of building a product and delivering it. Software developers also need to work with consultants, accountants and business partners to customise and implement products around a customers’s particular processes.

While Laing is planning a charm offensive to energise Sage business partners, this side of the equation will also be a challenge for Microsoft as it brings its new Dynamics 365 for Financials cloud solution to market.

In keeping with the sector’s competitive edge, NetSuite’s David Turner is ready to take them on: “They and their partners are learning as the go along, so they will take some time to get momentum. NetSuite has been addressing this market for nearly 20 years and understands what SMEs and high growth companies need; Microsoft and others are playing catch-up.”

Are you one of those software customers on the mid-market accounting front line? Where do you stand when it comes to reviewing existing suppliers and the new contenders? Take part in our Software Excellence Awards survey to help us flesh out what’s really happening in this market.


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