Almost from the outset of the commercial Internet, in early 1994, technologists and business people used a stylized cloud as a metaphor for the Internet. Diagrams routinely depicted sets of computers connecting through this "cloud" over long distances. as the Internet evolved, so did the concept of this "cloud," eventually settling into a broad set of applications that include Software- as-a-Service, Infrastructure-as-a-Service, Platform-as-a-Service and more.
Like what you see? Click here to sign up for Accounting Today's daily newsletter to get the latest news and behind the scenes commentary you won't find anywhere else.
Part of this evolution was an extension into accounting applications, and by the late 1990s a handful of pioneering companies were moving their operations into the cloud. Other accounting software and service companies began to shift individual products -- particularly services such as bookkeeping and payroll that require close communication and collaboration with clients.
"This has been one of the great transformations in accounting, in the same manner as the introduction of personal computers transformed the industry," said Erik Asgeirsson, chief executive officer of CPA2Biz, which partners with leading vendors to promote cloud solutions to accountants. "The transformation has shifted the industry from an era of data management to an information era in which collaboration becomes more important than computation."
"Collaboration on this scale is driving increased productivity and profitability," said Chandra Bhansali, president and co-founder of AccountantsWorld. "The largest gain is in the area of payroll processing, where over 70 percent of recently surveyed users reported a significant improvement in processing time. And half of those users reported a gain of 10 percent or more."
Jamie Sutherland, president of U.S. operations at Xero, noted that, "The cloud not only provides efficiency gains for a practice, but also provides a way to drive new leads. More and more clients are looking for an accounting partner that understands cloud tools to help their business."
In fact, research firm International Data Corporation calls cloud computing the foundation for the technology industry's next 20 years of growth.
Still, the transition to cloud computing, for all of its benefits, has not been without its problems. In the early years, there were problems with printing from cloud applications, the cost and complexity of accessing cloud services, the security of data, and the additional cost of compliance in order to ensure the privacy and security of data in the cloud.
Other problems arose as early adopters struggled to make an economic justification for the use of cloud services at a time when the investment costs were at their highest. Though early adopters were able to reduce their direct IT costs, those savings were often offset by necessary investments in new software and services. And while cloud computing has been cited as an example of "green computing" for its lower cost of sustaining servers, there is virtually no research to quantify this claim.
But every new technology suffers through similar growing pains, and these problems did not slow the steady expansion of cloud services among early adopters. And today's array of cloud services for accountants has vastly improved over the first generations a decade or two ago.
"As technology evolves, it is natural for the costs to go down," said Kacee Johnson, executive vice president of Cloud Nine Real Time. "But also for it to smooth out some of the more 'clunky' aspects of the delivery of cloud applications. For example, we have been able to eliminate the need for connection managers, reducing costs that increased service provider fees, while at the same time making the cloud experience more seamless, with quicker access to data."
For accountants, concerns about cloud computing in the past decade have focused on four areas:
Security of client data. The first and most critical concern for accountants was the security of their client data. Data integrity, data theft and data loss were the largest of the issues, and revolved around the problems of maintaining security across a distributed network. In addition, there were questions of how to deal with data security in an environment in which cloud servers are located in countries that do not have sufficient safeguards for security.
Privacy of client data. Privacy is a separate but related issue. Privacy includes the ability to keep client data out of the hands of those who are not entitled to see or use it, including law enforcement agencies wishing to peruse the data without a warrant. This issue related to how well the cloud company kept effective walls around the data of each accountant.
Costs of adoption. While the long-term costs of moving operations to the cloud represent a net reduction for most accounting firms, the upfront costs for early adopters were substantial. In addition to the costs of connection managers, research into download and print managers, due diligence of the cloud provider and other startup costs, there were additional issues around the real return on investment during the period in which the firm adopted and "settled in" to a new paradigm in their workflow and operations.
Integration of applications. The ability to use the best accounting and practice management tools has been hampered by the fact that many of the tools were proprietary, while others did not integrate well with applications from other vendors. This was particularly the case with the earliest cloud platform and software vendors, who by nature were focused on delivering an effective suite regardless of how well the applications within that suite were able to integrate with offerings from other vendors.
But cloud proponents believe those concerns have largely been resolved or addressed as the industry has evolved.
"We wish every accounting firm fully understood that the best cloud solutions provide superior security and controls for financial data," said Vishrut Parikh, director of marketing for NetSuite. "We work constantly to maintain stringent, world-class security standards, and the access controls in cloud solutions mean that audit trails are extremely easy to create and trace when necessary. It would be impractical and infeasible for most companies to duplicate the enterprise-grade security and access controls that we maintain as a matter of course for even the smallest customers."
"Too often, accounting firm leaders see investment in the cloud as costly and out of reach," said Scott Fleszar, vice president of strategic marketing for the Tax and Accounting business of Thomson Reuters. "Primarily because they don't know how to factor in the tremendous -- and real -- cost savings of operating their firm in the cloud: fewer hardware expenses, with much-reduced server and workstation replacement costs; less time spent on IT tasks; greater staff productivity; and much more. If firms understood the considerable time savings and productivity gains they'd experience by moving to the cloud, they wouldn't hesitate."
"The issue of integration between applications, and associated problems with data entry and maintenance within different programs, have been a universal problem for accounting firms," said Brian Diffin, vice president and chief technology officer of CCH, a Wolters Kluwer business. "A key to solving this issue for accounting firms is to leverage a cloud platform offering and an administration management application to enter and maintain common data across an application suite, as CCH is offering. The problems of disparate data and redundant data entry are largely solved by operating in the cloud."
NEW BENEFITS FROM THE CLOUD
But if many of the concerns of early adopters proved to be wrong or could be solved through evolution, the cloud has also presented benefits that were not originally envisioned. In particular, cloud computing has helped to respond to trends and events not envisioned in the 1990s.
"Hurricane Sandy has done much to awaken a sense of urgency around business continuity and disaster recovery topics as businesses have faced extinction in its wake," said Roy Keely, director of market strategy for Xcentric. "Cloud companies will continue to produce services and features centered around giving firms peace of mind related to operating amidst disasters. Disasters will happen, and will unfortunately give many the opportunity to learn how to better survive them using cloud-centered strategies."
"I see cloud-to-mobile connectivity as the 'next big thing,' said Thomson Reuter's Fleszar. "The ability to connect to mobile devices like smartphones and tablets - not only for the accounting firm, but for their clients as well -- will create many more ways to be productive, stay connected and serve clients. Increasingly, people are managing everything from their mobile devices -- banking, music, travel reservations, even the books they read. So naturally, they want to do business with companies who reach the devices they carry."
"Another key area is analytics," noted Vijay Ramakrishnan, director of product marketing for Intacct. "The cloud will enable better analytics by mashing up data from multiple cloud applications without users having to do any of the data integration work themselves. And all of that new information will be put to practical use by businesses, since it will be readily accessible."