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Opinion: Natural selection drives IT, not revolution

24th Nov 2009
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Microsoft’s withdrawal of Office Accounting is part of a long-term shift rather than a sudden change in the industry's underlying dynamics, argues Aqilla's Hugh Scantlebury.

People have suggested Microsoft’s withdrawal of its Office Accounting marks an epoch in the development of software and will bring to an end the use of desktop applications – but this simply isn’t true.

In reality, relatively few people actually used the software compared to those running products from market leaders Sage and Intuit. Furthermore, Microsoft’s attempts at delivering an SME accounting application appeared flawed from the start – it was developed by the Office team as an extension of the suite in an attempt to be innovative and ape the relative success of Microsoft CRM. However, in doing so, it ignored many of the skills and experiences of its own Business Software Division. Its withdrawal, if anything, simply marks a realisation of the importance of being serious about the market before developing and deploying a product that is critical for businesses.

What it has done, however, is to bring the question of the future of accounting software into the mainstream – a debate that’s been ongoing in the industry for a number of years. It is now critical for the vendors to understand what’s going on, as well as for end-users to see how products will change and the benefits this different approach will bring.

No matter what anyone says, there is a gradual move to web-based or Software-as-a-Service (SaaS) accounting, and that’s set to change the industry. Some traditional on-premises vendors are looking at ways to take advantage of this by developing their applications for deployment over the internet, but others are taking the “ostrich approach” by sticking with their licence-based standard models and hoping for the best. We saw a similar situation with customer relationship management (CRM) software and the arrival of on-demand players like around ten years ago.

At the time, the traditional vendors decried it as a flash-in-the-pan and cited similar arguments to those that are circulating in the current market. However, the less expensive on-demand applications that provided the same level of functionality, without the hassle of a long implementation or a large up-front investment, were attractive to businesses of all sizes and led to the demise of a number of significant players – most notably Siebel. The same is set to happen with accounting software vendors, and for some it may already be too late.

In addition to changes with traditional vendors, we’re also set to see changes amongst the new web-based players. There will be a degree of consolidation, with acquisitions made within the SaaS market by players looking to grow their businesses and increase customer numbers. I think it’s reasonably unlikely that any of the traditional vendors will make any SaaS acquisitions in the short term, as it might lead to a rapid cannibalisation of their core business.

We will also see a shakeout in the number of SaaS vendors in this space, particularly at the lower end – where the products are very often functionally limited and not as robust as a business user demands.

Those that survive will be the ones that have rich functionality and capabilities, as well as proven reliability and business maturity – in both the management team and the business plan and product roadmap.

There have only been a few moments in the IT world that have proven as revolutionary – most of the change has been incremental, with gradual shifts in how people use and interact with software in particular. I view this move by Microsoft as part of the IT natural selection process that will see the widespread adoption of web-based accounting applications across the industry over the coming years.

About the author

Hugh Scantlebury is the managing director of Aqilla, a provider of web-based accountancy software. Scantlebury has worked within the accountancy software industry for more than 20 years and has observed its development from senior positions with Kewill Systems, Systems Union (Infor), Sage and Foundation Systems.


Replies (7)

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By daveforbes
25th Nov 2009 13:06

Good thing ?

It will put a stop to people using laptops on aeroplanes and in underground tunnels !

When my software carries on working even when I lose my connection and then synchronises data and programs on reconnection, then its time has come.


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By elansea
25th Nov 2009 13:21

Web based accountancy software

This article is less about cloud computing and more about having your head in the clouds. Microsoft Accounts failed because it was a dinosaur born in a modern age. It seemed to mimic Sage (at least a dinosaur from the computer Stone Age) with a nod towards Microsoft Office. It simply was too heavy to respond to the market at which it was aimed. Cloud computing won't really take off until we see reliable minimum internet speeds nearer 20mbps; good insured service from the software suppliers; guaranteed portability of data from one supplier to the other in the event of service failures and cost efficiencies that they can only dream about at present.

Microsoft failed because it missed the point - not because it was office based (in both senses of the word).

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By philipdc
25th Nov 2009 14:52

There is not a march to SAAS

No matter what anyone says, there is a gradual move to web-based or Software-as-a-Service (SaaS) accounting, and that’s set to change the industry.

Hugh this is a competely biased statement. It is simply not true that there is a move towards using Web based systems. There has been a flood of vendor entrants, simply because it is a whole lot easier to put up a server than it is to go out and grab 1% market share, but the numbers don't stack up. While the providors of web based systems are really cagey about their user bases it is a simple matter to check it out on Alexa. The traffic on all of them is abysmal.

The market leaders SAGE and INTUIT have 6 Million and  5 Million users each and are effectively static in the growth of their user bases. MYOB has 700 000 and TurboCASH has 100 000. Everyone else is reluctant to reveal their numbers, so you can assume that they are all smaller.

Microsoft's failure is an indication of a bigger picture. Noone has got into this market in the last 10 years. Effectively Inuit has a US monopoly and Sage has bought all competition outside the US. With the exception of a few niche country markets and the Open Source market (In which I play with TurboCASH), SME Accounting  is a closed shop. The failure of one of the world biggest players must make it even more daunting for an new entrant.

The web based packages have seen their peak. The increasing bandwidth is now bringing on the age of the hybrid packages in which users can keep their data locally AND in the Cloud and synch between them. Their server is not a web server, but is a fully fledged Virtual PC placed in a Grid and universally accessible. The alliance between and TurboCASH brings the first true cloud app to the SME accounting market, but not even we see this as a replacement, but rather as a complement to the desktop offering.


-- "No one possesses the less because everyone possesses the whole of it. He who receives an idea from me receives it without lessening me, as he who lights his candle at mine receives light without darkening me" - Thomas Jefferson

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
25th Nov 2009 18:52

Thanks for the responses

Hugh's view is one of two or three Cloud controversies taking place on the site this week.

Over in our new Cloud accounting discussion group, there's also a bit of argy-bargy going on around confusing Cloud terminology as well as the pros and cons.

Come and join us if you'd like to continue the arguments!
John Stokdyk, Technology editor

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Dennis Howlett
By dahowlett
26th Nov 2009 12:16

This is what you get when... invite vendors to pitch. It doesn't help the buyer trying to find objective material. It confuses the reader at best and misinforms at worst.

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By RodDrury
27th Nov 2009 23:03

Why MS Accounting failed

 MS Accounting failed for a few reasons.

1. It is incredibly hard to swap out the incumbents with the same generation of technology.  With Windows installed software we've seen this all over the world.  For example MYOB failed to make in roads in the UK and Sage has low market share in some of their other markets. This is because the barriers to changing accounting software are too high, and a if the products 'sort of do the same thing' there is no reason to change.  That is a reason why SaaS is significant now as it potentially allows unencumbered new vendors to grab market share (though we all agree that is currently still a small number).

2. Microsoft's view of the world is that small businesses live in Outlook and so the accounting software should be there too. They got that wrong.

3. They didn't build the maintenance model which the desktop industry requires for ongoing investment.  Without the maintenance revenue streams the assets of MS Accounting were likely unattractive to a purchaser.

4. They saw the move to the cloud and realized they were on the wrong horse with little chance of the business becoming a star. 

The shift to the cloud has 'some' impact but more importantly was wrong product, wrong model, wrong time.  They made the right decision to quit the business.


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By benkepes
28th Nov 2009 01:07

A rose by any other name....

 Much of the disagreement with the post comes from some definitional issues - people equating "cloud" with "SaaS".

A couple of commenters mentioned, either directly or indirectly, hybrid approaches akin to the software + services approach Microsoft touts.. a school of thought would be relaxed enough to include this in the general cloud category or even (at a stretch) as SaaS (regardless of whether or not it passes Duane Jackson's "Touring Test" for SaaS)

It's early days and we're still experiencing a shake down - no one knows what this stuff will look like going forwards and what potential it will unlock for SMEs - maybe we're better off not to argue semantics and spend more time thinking about the bigger picture....

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