by Seth Fineberg

Whether it’s an issue of cost, efficiency or security, small and midsized businesses and accountants alike have become more comfortable with online accounting, while much of the software itself has matured since coming on the market only a few years ago.

It may be far from outpacing desktop usage, and there are still only a handful of key players offering online services, most notably Intuit, Best Software, Accpac International, NetSuite, Intacct and — to a degree — AccountantsWorld. But, for many SMBs, particularly those with multiple office locations or a widespread sales staff, the choice to use online accounting software and services over myriad desktop solutions is clear.

Dr. Katherine Jones, managing director at market researcher Aberdeen Group, believes that more SMBs are choosing online accounting for a number of reasons — with cost and improving business functionality leading the pack.

“For the most part, companies are getting over any fear of having their books offsite, and what a company has to look at now is how they can conduct business most expeditiously,” said Jones. “It’s also a basic issue of needing to have someone in-house who knows how to manage all of the business data versus simply getting rid of the task at a certain cost.”

Jones also believes that there are other, unforeseen reasons for choosing some purely online accounting software over desktop solutions. She recalled a recent incident where a midsized company had been using a popular desktop accounting solution for a few years but ultimately outgrew the product. Problems arose as the product gave no indication that it was being overused, and it eventually corrupted 25 percent of the company’s financial data. Jones said that this is, unfortunately, not an uncommon occurrence. More businesses realize that situations such as these can be avoided “by having a solution, like some of the hosted products, that is flexible and can really grow with a business.”

Pure application service providers, such as NetSuite and Intacct, are all too aware of issues such as the one that Jones described, as well as rising security concerns. Subsequently, they are finding that their own businesses grow on the basis of these scenarios.

NetSuite has continued to evolve its product based on specific client needs, and as president and chief executive Zach Nelson says, this has contributed greatly to the company’s overall success. Even Jones said that, as long as a product provides all the functionality that a company needs, especially in one place, it doesn’t matter how it’s delivered.

“Momentum keeps building for online applications and, more often than not, they are chosen based on functionality,” Nelson said. “Our product today does a lot more than it ever has, as we’ve added enterprise-level features and things that you see in SAP, but for a fraction of the cost. Making a product seamless is a big trend, and if you can match others’ functionality and say you don’t ever have to pay for upgrades or maintenance, that’s key.”

Nelson also believes that moving the product up has allowed it to compete with the top accounting and business management products, such as SAP, Microsoft Great Plains, and Best’s MAS 90/200.

NetSuite has rolled out numerous enterprise resource planning, business analytics and customer relationship management features for its product over the past year. It most recently released version 9.5 — its core product.

Highlights of NetSuite 9.5 include advanced billing, ad hoc reporting, customer data mining and segmentation tools, and an advanced expression builder that allows users to create complex search criteria across any combination of fields. The latest version also includes over 250 customer-requested enhancements.

NetSuite also claimed to have approximately 200 resellers that have contributed to 20 percent of the company’s business. They also tout over 7,000 users, at $4,800 for two users per year, and $75 for each additional user per month.

Pure ASPs like Intacct, whose key attribute in the accounting profession has been its ability to host necessary accounting functions on a firm’s Web site, have also enjoyed a fair amount of growth over the past year.

Intacct chief executive David Thomas said that, in February, his company closed on $8 million in funding from major investors, and that between December and January, it saw a 20 percent jump in revenue. He also said that Inacct experienced a year-over-year revenue spike of 400 percent, which he mostly attributes to the company’s increased focus on “bigger, more productive firms,” which has resulted in more clients.

“We are focusing more on quality than quantity these days and have fewer resellers than we did last year, about 335 versus 375, but we got rid of the smaller, lower producing resellers,” Thomas said. “Our relationship with IBM has also helped us tremendously.”

IBM is Intacct’s hosting partner, and it has reaped the benefits of that company’s multi-million-dollar marketing of e-business services and various other promotions. Thomas recalled how IBM chairman Sam Palmisano made specific mention of Intacct in his keynote address during a one-hour Webcast about IBM’s commitment to e-business.

“What’s interesting is, all of a sudden, there is competition coming for on-demand business, and businesses have to change to become very core-focused, so what on-demand does is allows you to outsource non-core functions,” Thomas said. “Also, a lot of businesses have had to go through cutbacks and the on-demand model allows you variable financial costs.”

Intacct is available in four official offerings: eLedger for small businesses, at $50 per user per month; Enterprise, which at $70 per user per month offers more applications like order entry and inventory control; Mega, at $160 per user per month, has more robust ERP-type features such as real-time consolidation, central payables and the ability to run multiple businesses; and ePractice, at $5,000 a year and $2,000 to renew, allows accounting firms to private-label the software, which comes complete with all audit, tax, and time and billing features.

Robert Taylor, a CPA with San Jose, Calif.-based McCahan, Helfrick, Thiercof & Butera Accountancy, has been using Intacct’s ePractice service for nearly three years. At the time he was looking for other products outside of the one write-up application they had been using, Accountants Trial Balance. It was being phased out and he eventually found Intacct, got to know them and gave it a try. The 30-person CPA firm now has 220 clients using it in some capacity.

Intuit’s QuickBooks Online edition has indeed enjoyed a lift in its overall user base since its 2000 launch, most notably since last year. In March, the company boasted 17,000 companies using the online product, more than doubling the 8,000 it had a year ago. The company claims nearly one-third of all QuickBooks online users have come from accountant recommendations and very little marketing.

“It has taken some time to have people let this sink in, that outsourced bookkeeping is still a trend,” said Heidi Jackman, product manager for QuickBooks Online. “When people use online services, they look to expand their business, they look for cost savings, and to make it easier to work with clients with a minimal learning curve.”

Jackman also said that some of the key features added to QuickBooks Online over the past year, such as a “close the books” function and audit trail, have resonated best with its accountant base. And at $19.95 a month for up to three users, with discounted annual costs and a 30-day free trial, the product continues to make financial sense to accountants and small businesses, alike.

“This is no longer a desktop world. We don’t have to wait for annual cycles, so we are able launch new features when they are ready,” Jackman said. “Also, our CPA and small business customers have a relationship with our support and that has been very important to our growth as well.”

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