Cloud-based accounting is no longer a phenomenon, but an established fact. While in-house on-premises and hosted or software-as-a-service applications show no sign of disappearing, computing in the cloud, especially when it comes to financial accounting, is taking over more of the market day by day.

The reasons for this are fairly obvious and have been discussed at length elsewhere, but the effect that the proliferation of cloud-based accounting has had on the application market remains to be determined, as well as what customers have been asking for, and where vendors see the market going and the applications developing in the future. To help answer our questions, we surveyed nine vendors in this burgeoning field.

EXTENDING THE STATE OF THE ART

One of the real benefits in the cloud accounting market is gained by the vendors. Because all their users are working on the same version of the application, support costs are generally a bit less than when the vendor needs to support multiple versions and revisions of the software. This leaves some additional money for R&D, and results in vendors being able to implement new features and capabilities fairly rapidly, as well as address any bugs in real-time. Cloud accounting has become more sophisticated and capable in what has been a very short time compared to applications developed in the past. We asked our virtual panel what technologies they felt were on the immediate horizon.

Some of the responses were targeted at being able to do more with, and get more out of, the data stored and produced by the application. Amy Vetter, global vice president of education and head of accounting at Xero US, felt that machine learning and artificial intelligence are going to be the next major transformation for accountants and their small businesses: “Machine learning changes the relationship so we can take our heads out of the general ledger, freeing up accountants so they can get back to advising clients on what they need for their business to succeed.”

Doing more with the data is something that Reshma Roy, head of marketing at Zoho Corp., also believes is coming. “We believe the financial information of a business holds the key to some of the very important decisions that business owners need to make on a day-to-day basis. By unlocking and sharing that information contextually with other departments, business owners will have a 360-degree view of their business. And that will help them make smarter and better decisions faster.” Roy also feels that this will lead to increasing automation in the back-office work: “Data entry will soon become a thing of the past. Preset workflows no longer cut it with small businesses, and businesses will look for cloud solutions, which can be customized for their specific business needs.”

Louie Calvin, product manager for accounting and payroll at Thomson Reuters Tax & Accounting, is also convinced of the advancements this area will bring: “One of the key areas that we see cloud accounting systems leveraging is ‘Big Data,’ which allows software providers to innovate. And, as a result, professional accounting firms will be positioned to work with clients in ways that were previously unimaginable. Data analysis tools, client benchmarking and real-time reporting will continue to develop intelligence and will have improved notifications and alerts. Firms will have the tools to give their business clients instant access to key performance indicators, top priority action items and ‘to-do’ items.”

Security is another area where our panel thought cloud accounting will benefit its users. Cloud technologies are evolving rapidly, particularly in terms of adding more robust security, power and speed to the cloud platform, according to Div Bhansali, vice president of marketing at AccountantsWorld.

Michael Silver, a CPA in partner enablement at Microsoft Corp., looks at collaboration as a major benefit that will result from working in the cloud: “While there are many core features in a cloud-based financial system, the ‘feature’ that we believe will enhance cloud accounting systems with the greatest impact is encompassed by the addition of integrated, cloud-based productivity and collaboration tools.”

This increasingly capable collaboration ability should also make itself felt in better workflows, according to Jim McGinnis, vice president of product development for the ProConnect Group at Intuit Inc.: “Firms will also benefit from client management improvements as we continue to consolidate user roles and permissions across the platform. Additionally, a more in-depth and detailed client profile will give accountants a more holistic view of their client in terms of the work they do for them, the documents related to that work, and the people in the office who do that work. And with that new functionality, workflow management will help accounting and tax professionals manage work between their clients, work within their office and work across their staff.”

And integration is an important area for Nicole Hardin, director of product management for Sage Live at Sage. She believes that much of the development and focus in the near future will be tying together disparate cash management systems, money movement systems, banking, taxes, reporting and filing into a cohesive picture.

ASK AND YOU SHALL RECEIVE

When asked what features their customers most requested, the replies were all targeted on improvements in functionality. “Some of the common features that our customers have been asking us for are payroll functionality and enhanced project profitability reports,” said Zoho’s Roy.

And Vijay Ramakrishnan, senior director of product marketing at Intacct, told us that customers are consistently looking to make workflows more efficient and accomplish more with fewer clicks. That was echoed by AccountantsWorld’s Bhansali: “Simply put, process improvements. The cloud provides the opportunity to dramatically streamline the steps involved because of the accessibility, power and information it can provide.”

Another area where customers are asking for increased capability is high-level reporting or dashboards that contain the most important client data and KPIs, according to Thomson Reuters’ Calvin.

Integration with other applications is yet another area that our panel said customers desire. Intacct’s Ramakrishnan thinks that the next wave of integration will come from cloud applications being able to exchange large data sets with each other to facilitate traditional business intelligence, as well as newer models of analytics like machine learning. Sage’s Hardin agreed: “This is the key to the future and the biggest desire of customers.”

“Increasingly, businesses will be looking for the services that go along with the software, such as credit card processing, payroll and lending,” said Rob Maurin, vice president of communications at Wave. “However, underlying almost all requests is the ability to do more in one system, rather than cobbling together functionality from multiple different pieces of software.”

Specific features aren’t always what customers request. As pointed out by Xero’s Vetter: “It’s not necessarily about features, it’s about training and developing the skill set to become cloud advisors. Our partners are looking for more education on cloud accounting and how to best use software to better their business and help their clients grow.”

We received a similar reply from Sage’s Hardin: “Customers are less focused on individual features and more focused on understanding the easiest/best way to manage their finances that give them a competitive advantage in a rapidly changing landscape.”

SOMETHING ESPECIALLY FOR YOU

One area that’s starting to experience cloud influence is applications for vertical markets. In response to our question on whether the vendors see cloud-based verticals becoming more prevalent, our respondents were sure that they would.

“We are seeing significant efforts by software developers building vertical and industry-specific solutions in the cloud. As the cloud becomes more accepted and adopted by the end user community, the market will naturally move to address the demand. Today, we have seen many cloud-based, industry-specific solutions with examples in real estate management, association membership management, automobile dealership management, nonprofit and faith-based organizations and retail solutions,” Microsoft’s Silver told us.

Intacct’s Ramakrishnan added, “Intacct has been pursuing vertical-specific innovations for several years for industries including professional services, SaaS and nonprofits. We only see this trend continuing.”

A DOLLAR A WEEK

It’s taken as a given that one of the factors in the popularity of cloud accounting is the lack of the need for large capital outlays. We wondered if the subscription model was also a great motivator for the move to the cloud.

We got answers both positive and negative. Microsoft’s Silver feels it is a motivator: “The subscription model offers clients a different approach to their information systems compared to license purchases and on-premise system deployments. Particularly, the financial impact of an operating expenditure versus a capital expenditure is a pertinent consideration. Also, the flexibility to add, substitute and manage applications becomes simpler under the subscription model and we can ‘turn on’ and ‘turn off’ the applications and tools we need or don’t need on demand,” he said.

On the negative side, Wave’s Maurin said that for small businesses, it’s not subscription pricing driving the decision, it’s simply where small-business owners and freelancers are. “We don’t necessarily see price driving people to the cloud,” said Xero’s Vetter. “Instead, it’s the quality of life the cloud offers. It allows for a more efficient workflow, where working anywhere at any time is the new norm.”

Thomson Reuters’ Calvin added, “While it may be helpful for start-up firms who have less up-front capital to invest in their business, the impact of a subscription model isn’t a major driving benefit leading firms to the cloud. For well-established firms, we see a budget in place for their software, regardless of whether they pay for it monthly or annually. One benefit that we do hear is that as pricing moves to an industry-wide subscription model, many firms are discovering the ease to match their costs to deliver services with the related revenues in this more budgetable and predictable format.”

Several other vendors feel that subscription pricing, while a factor, is not the sole motivator. “The subscription model certainly impacts the decision to move to the cloud; however, the primary reason people are adopting the cloud are the benefits it gives them and their clients,” Intuit’s McGinnis told us.

And Sage’s Hardin sees the cloud as simplifying infrastructure and optimizing staffing: “It is not only more cost-effective, but most businesses see this as a way for them to optimize staffing, especially in markets like North America.”

Zoho’s Roy added another factor in the cloud’s popularity: “We’ve seen hundreds of seasonal businesses using our invoicing platform for a few months in a year. The subscription model gives them the flexibility to pay only for what they use.”

GAZING INTO THE CRYSTAL BALL

Our final query to our panel of experts was where and how they foresee cloud accounting developing over the next several years. Unsurprisingly, many of the answers we received echoed the features customers asked for and those under development. The emphasis was in two areas — technology simplifying the use of the application, and data mining and advanced analytic capabilities allowing the client to gain better insights into their business, resulting in enhanced insights, more productivity and, hopefully, more profits.

Zoho’s Roy believes that with the rise of more intelligent software, the system might eliminate data entry and reduce manual intervention: “What it really creates isn’t a future with zero human dependency, but a place where people can grow their businesses using data-driven insights.”

Microsoft’s Silver added, “Technology will continue to evolve and advance, making the connecting of applications increasingly seamless and simpler. We will see greater availability of industry-specific and line-of-business applications in the cloud, which will help drive the adoption of the back-end accounting systems.”

And Thomson Reuters’ Calvin sees data being made more available and usable. “The amount of big data collected is staggering, and is so complex that past systems could not mine the data to give it meaning or practical application,” Calvin said. “Going forward, systems will perform analytics to decipher and find new correlations that provide value. Data analytics will be a key part of helping firms move from compliance work to more value-added advisory services.”

Intuit’s McGinnis agreed: “In the future, we’re going to be able to use data to do a lot of work. Data will be converted to insights that tax and accounting professionals can share with their clients. And by leveraging the data to identify trends, accounting and tax professionals will be able to help their small-business clients be more successful.”

While machine intelligence and data mining were repeated themes in our panel’s look into the future, Wave’s Murin reminded us that, “‘It’s a mobile world’ isn’t being revolutionary any more. Nonetheless, the question of how you do ‘accounting’ on a three-inch screen is a nut that hasn’t been cracked yet. Again, this is probably a greater need at the small- and micro-business end of the spectrum than for the mid-market and enterprise levels, where a multi-tasking business owner will want to get some productive minutes in while waiting in line at Starbucks.”

Looking at all the insights that our panel provided, two things are glaringly obvious. The first is that accounting in the cloud is fast becoming a preferred way to go, especially in the small-to-midsized segment of the business market. Applications developed for and in the cloud are designed from the start to be user-friendly, and this is helping drive rapid growth and adoption. The other trend that’s obvious is that it’s more than likely that cloud accounting applications several years from now are going to be very different and far more advanced than those available today, in addition to being even easier to use.

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Ted Needleman

Ted Needleman

Ted Needleman has been covering technology for more than 30 years, writing frequently on software, hardware, and related subjects. He was previously editor-in-chief of Accounting Technology.