Financial accounting software: Cloud and other winners

Financial accounting software: Cloud and other winners

Summary: A summer full of interviews with CFOs and controllers reveals that cloud financial accounting software has 'crossed the chasm'. But, this may just be part of a larger adoption story as many financial executives reported using five or more cloud solutions in their firm.

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Cloud technologies are not all alike nor are they all adopted at the same time and pace. For many years, I’ve been tracking the adoption of cloud software by businesses. CRM applications were often the first cloud applications to be embraced, en masse, by businesses. HR/Talent Management and Office Automation solutions have followed in subsequent years. Are financial accounting solutions following suit? Will vertical solutions be next?

I develop ‘long form’ pieces for ZDNet and, let’s be clear, this is a long piece. So, pull up a chair, get comfortable and enjoy this lengthy but, hopefully, valuable piece on cloud financial accounting software.

For those of you with attention problems, let me give you this helpful outline:

  • Part One – Will cloud financial software follow a market acceptance path like CRM, HR and office automation? Where is financial accounting software in crossing the cloud chasm?
  • Part Two – What did CFOs and Controllers tell us? How familiar are they with their organization’s use of cloud software in general? Will they go back to on-premises?
  • Part Three – What are the broader market implications? What are the implications for the software and consulting/integrator industries?

And, let me quickly say thanks to the three dozen or so CFOs, Controllers and CEOs that shared their time and feedback with me.

 

 

Part One

The Adoption of Cloud Financial (and Other Software)

Cloud-based software applications have experienced varied adoption rates in corporate businesses. Marketplace acceptance of new technologies is often measured against the technology adoption lifecycle (TALC)[1]. The TALC concept has been around since the late 1950s[2] but was brought to significant awareness a decade or so ago by Geoffrey Moore in his book “Crossing the Chasm”[3].

In TALC terms, there are five kinds of buyers, each of which becomes more prevalent as a new product moves through the lifecycle. For example, those people or businesses that are likely to first adopt a new innovation are called innovators or early adopters while the last to adopt are called laggards. The two largest market segments, the early majority and late majority, often make up the preponderance of buyers.

TALC Buyer Classifications
Copyright 2013 - TechVentive, Inc. - All Rights Reserved

 

A different psychographic profile exists for each of the five segments depicted on the typical TALC bell curve. For example, innovators and early adopters are fairly risk tolerant and see new technologies as a means of achieving some sort of competitive advantage. The early and late majority buyers wait until the market leaders in a space get sorted out and buy from the biggest, most established and ‘safest’ firms. These buyers are looking to maintain competitive parity with their technology purchases. Laggards love a bargain and will wait and wait until the price point gets to some ridiculous low level. 

Geoffrey Moore[4] believes there is a ‘chasm’ between the early adopters and early majority buyers. We agree. We all know someone who had to be the first to have a new technology (e.g., laserdisc and Betamax) only to realize later that the product didn’t catch on with the larger buying public. This happens with business technology, too.  As a result, we wondered whether new cloud financial software was ready to cross the chasm. 

In 2010, I interviewed executives from a number of large firms to understand whether cloud application software solutions would be relegated simply to the SMB (small to mid-sized business) market or would they also find favor with large enterprises.[5] Those interviews produced a number of observations about the market for cloud application software in 2010.

Now Serving Large Complex Enterprises
Copyright 2013 - TechVentive, Inc. - All Rights Reserved

One of the observations I made in 2010 was that many large and small firms had already made the move to cloud application software via the CRM (customer relationship management) application space, often with salesforce.com. I also noted that a number of cloud-based human resource applications, such as talent management and performance management, were becoming mainstream applications with large and small organizations, too.

In the summer of 2013, I canvassed a number of firms and spoke to a significant number of chief financial officers, controllers, chief executive officers and other executives within a range of companies. My working hypothesis for this research was that cloud CRM applications were now well established in most segments of the TALC and that only some late majority and laggards remained to experiment with this new type of software and deployment method. Further, I hypothesized that cloud human resource applications had also crossed, in Geoffrey Moore’s vernacular, ‘the chasm’ and were now being selected by more early majority, late majority and laggard firms.

How I learned to stop worrying
Copyright 2013 - TechVentive, Inc. - All Rights Reserved

My final hypothesis was that cloud financial software may be ready to cross the chasm, too. I knew that a significant number of companies have already adopted cloud financial software. The market uptake that companies such as FinancialForce.com, Intacct, Workday and Xero have received clearly indicates that cloud financial applications were gaining popularity with businesses today. But was this a short-term fluke, market niche characteristic, or, the harbinger for a material shift in software buying?

Our Hypotheses
Copyright 2013 - TechVentive, Inc. - All Rights Reserved

 

Please continue to Part 2



[3] “Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers”, Geoffrey A.Moore and Regis McKenna, HarperBusiness

[4] “Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers”, Geoffrey A.Moore and Regis McKenna, HarperBusiness

[5]  “SaaS: Now Serving Large, Complex Enterprises”, Vital Analysis, June 11, 2010

Topic: Enterprise Software

About

Brian is currently CEO of TechVentive, a strategy consultancy serving technology providers and other firms. He is also a research analyst with Vital Analysis.

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4 comments
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  • faith

    just before I saw the draft saying $4043, I have faith that...my... brothers friend could really making money in there spare time on-line.. there sisters roommate has done this less than thirteen months and just now cleared the dept on their house and purchased a great new Renault 4. this is where I went......WWW.ℛush64.COℳ
    faithpiper9
  • Legality...

    One big problem with the adoption of cloud services, at least outside of the USA, is the Cloud itself.

    For example, in Germany tax relevant information (i.e. accounting data) cannot be stored on server outside of Germany without getting a special dispensation from the Finanzamt.

    Personal information is a little more lenient, it can be stored anywhere within the EU, but it cannot be handed over to third parties outside the EU without getting the written permission of each affected person - i.e. if you store contacts in a Google business account, Google would theoretically have to approach each contact in your addressbook, before they hand any information over the US Government under PRISM or the Patriot Act. (The same applies to SalesForce, MS Office 365 etc.)

    Of course these companies cannot approach the affected people, because the US Government won't let them. The upshot of that is that the person who stored the data on the cloud service is held liable for the "illegal" activities of the cloud provider - they stored the data outside the EU and they failed to get the permission of those affected, before they handed that information over to a third party.

    This in essence means that a cloud provider with a point of presence in America is automatically illegal to use and if they cannot guarantee to keep the data in the country of origin (financial) or the EU (personal) it is illegal to use.

    And as the Patriot Act refers to a company with a presence in the USA, even if the data wasn't originally within US borders, it pretty much makes a "global" cloud service a non-starter. Either that, or you have to take on board the risk that you could end up being prosecuted and going to gaol for a crime somebody else (your provider) committed.
    wright_is
  • Software Scaling

    From what I've seen this space the early adopters tended to be smaller business with fewer requirements - as the early offerings in this space were light on features and weren't readily able to scale to meet larger enterprises with high volumes.

    But that has certainly changed now - there are plenty of players in the space that can easily offer the sorts of features and scalability that larger enterprises would need in their financial applications to move to the cloud. We have just recently integrated our simPRO Job Management software with a number of the newer offerings in the mid to large tier space including Netsuite (www.netsuite.com) and Gem Accounts (www.gemaccounts.com) and have found that the products in particular offer all of the features usually seen in more complex financial packages with all the scalability required in large enterprises.

    I would guess with software like this now available in the cloud - not just SME offerings - that the move to the cloud by larger business is now easier than ever. After all - larger businesses tend to understand the benefits of keeping data offsite and the reduced maintenance and infrastructure costs this delivers.
    Jonathan Eastgate
  • Best Analysis of Impact on Resellers Yet

    There has been a lot of discussion with respect to the impact of the cloud on the channel. Most of these discussions have centered around subscription vs licenses and the impact on cash flows etc. and how hard it may be to switch from one model to the other.

    This is the first discussion I have seen that goes beyond that limited focus to enumerate in detail the impact on specific services that the reseller offers.

    For example I was having a discussion with a Platinum Sage reseller the other day. Of their almost $2M revenues, close to $200K comes from just upgrades! That is 10%

    This is the real crux of the problem.

    The reseller has staff and well defined processes that are suited to delivering a certain set of services. Retooling to deliver a completely different set of services is no easy task and the burden should not be put entirely on the partner.

    In fact I will go so far as to say the burden of helping the channel re-tool and refocus on defining and delivering a new set of services should be on the publisher.

    This is no different than what publishers have had to do themselves, as they transition from providing on-premise license and M&S based offerings, to subscription supported cloud solutions. A massive rethinking of offerings, re-definition of processes, and re-training of people has had to take place. And for the most part, these legacy companies are still struggling to figure it out today.

    So why will it be easy for a channel partner to figure out? It will not be. Especially without help.

    Collaboratively figuring out what the reseller of the future looks like and then helping them make that transition has to be a key part of any publishers strategy to re-invent themselves. The solutions will involve monetary support as well as consulting, advising, and training

    As a new player in the cloud maid-market ERP space my company VersAccounts www.versaccounts takes this responsibility seriously and have made it a key component of our approach to building a VAR channel. It has been surprising to us how little existing publishers have done to work with their channel partners in helping them prepare for the new era of cloud based solutions and how much they welcome our engagement and interest in working with them.

    Building the channel of tomorrow, is not just about announcing a new subscription based pricing model, and putting your software on a bunch of servers so that it can be accessed over the cloud.
    It is about helping each of your channel partners rethink their business-model, retain and re-train their people, hire new people with new skills if required, and re-build their business over the next few years. It is like an expedition into the unexplored with extensive preparation required before undertaking the journey and steadfast and meaningful support during.

    Think Oregon Trail and Lewis and Clark. Or Antarctica and Shackleton. The fact is that the “right solution” is still not well defined as far as the role of the VAR in the cloud is concerned and it must be discovered together by publisher and partner.

    Most publishers seem to take a hands of "you figure it out" approach to this issue. In businesses where relationships have been established over long periods of time taking this kind of Darwian approach does not make sense. The channel is family. And family matter need to be resolved internally with support and understanding

    It is imperative that large publishers realize that the channel partner, at least in the mid-market business software space, is at the end of the day a small business with limited resources, where a decline in revenues or increase in costs of even a few 10's of thousands of dollars can have severe negative impacts on the lives of multiple people.

    So it is the duty of large publishers to help their partners minimize this impact and make it to the other side with as little bruising as possible.

    I look forward to seeing more articles and posts on this issue and what publishers are doing. Perhaps the ones that are not doing much in this area can learn from those that are.

    Sunil Pande
    VersAccounts Limited
    www.versaccounts.com

    VersAccounts offers a Modern Cloud Accounting & ERP solution for Small and Medium Sized Businesses Worldwide.
    One Price. Unlimited Users. All Modules.
    Sunil Pande