You and your clients are about to be part of an enormous wave of change in the next few years.
That's because, if they're like most small and midsized businesses, they're likely using an on-premise accounting application. And most likely that on-premise solution is QuickBooks. QuickBooks is by far the most popular accounting application for SMBs, and deservedly so - it's full-featured, easy to use and well-supported by Intuit. My company is an Intuit partner. We sell QuickBooks. But this year we're going to look into selling other products as well. Why? Because as good as QuickBooks is, I believe that many of my clients are going to dump it starting this year and over the next few years. Yours too.
That's because the cloud has caught up to the accounting world. And there are many competitors to QuickBooks standing by ready to pounce.
My consulting firm serves about 600 active companies. More than 90 percent of them currently use an on-premise accounting (or financial management or enterprise resource planning/ERP) application. Isn't it ridiculously obvious that within the next few years, just about all of those companies will be using a cloud-based application instead? Of course it is.
I've watched the enormous growth of Software-as-a-Service applications for customer relationship management, human resources and payroll. I've noticed the faster performance. I've witnessed their ease of access from tablets and mini-laptops and even smartphones. I've watched companies move more and more of their in-house systems to hosted ones, eliminating their servers and IT infrastructure. And I've seen my own clients, small-business owners who look at any new relationship or technology with a wary eye, grow more comfortable letting other companies handle their data on managed servers over the past few years. We admit that though no one's infallible, the security that they provide is better than our own. The environment is perfect for cloud-based accounting applications.
And it's a perfect environment for software developers too. "Most of the large software companies aren't putting many resources into on-premise solutions any more," Brian Jacobs, a partner at the venture capital firm Emergence Capital, told me recently. "They are basically pushing their customers into a Software-as-a-Service environment." This is true. Emergence Capital invests in cloud-based business applications, and Jacobs believes the market is in its infancy. Ask anyone at Microsoft, Sage, Oracle or SAP, and they'll tell you what the guys at Salesforce.com have been saying for years: The cloud is the future for them. It's a more profitable and a more productive business model for a software company to distribute their products.
"There are so many advantages of a cloud solution that I personally don't see how these on-premise systems can move into the future," said Rob Reid, CEO of Intacct, an online financial management application. "VCs are not investing in premise software companies anymore."
Which brings me back to QuickBooks. Intuit itself is aware of the change that's coming. “We anticipated the customer shift from desktop to online solutions years ago, and planned accordingly by creating online solutions that would wow our customers," said communications director Chris Repetto. "We’ve seen a steady transition take place with our QuickBooks desktop customers, and this year, more than twice as many desktop customers have migrated to QuickBooks Online compared to two years ago. ... In fact, last quarter alone, more than 13,500 desktop customers started using the new QuickBooks Online.”
In the next few years, it's inevitable that your clients are going to replace their on-premise QuickBooks system with something cloud-based. They won't have much of a choice. And while they can move directly to QBO, they may also take that opportunity to look around. And they're going to discover that there are some interesting alternatives.
There's Xero, which just raised $150 million in October. And Intacct, which has received multiple rounds of financing over the past few years. There's FreshBooks. There's NetSuite -- and of course there's QuickBooks Online. There are others, but these, in my opinion, are the big players right now in the cloud accounting/ERP market. To oversimplify, Xero, FreshBooks and QuickBooks Online are arguably geared to the basic bookkeeping/invoicing/bill-paying customer -- the startup, the very small micro-business, the mom-and-pop. Intacct and NetSuite target the next level -- those companies that employ controllers or chief financial officers, are growing, have multiple users and need advanced tools like sales order processing, purchase order, inventory and warehouse management, workflows, automation, and more complex reporting for cash flow and consolidations.
These applications have been built from the ground up and support a better, more flexible Web-based architecture. Smelling the opportunity, resellers and partners for these products (like me) are popping up everywhere. Migration tools to move away from on-premise QuickBooks are available. Deals have been struck to integrate these products with other popular online services and collaboration tools like Dropbox, Zoho, PayPal and Bill.com.
So what will happen? Many current QuickBooks customers who are frustrated with the software's older architecture but have suffered with it because they did not feel the need (or were just too lazy) to change will now be forced to change in the next few years. And they will be looking at other alternatives. And, for the first time in a long time, there are other great options to consider. "50 percent of the customers we are getting are coming from QuickBooks," Intacct's Reid told me. "And we're expecting a tidal wave of activity in the next few years." The company has experienced a 150 percent growth in bookings over the past year alone.
So be prepared: Maybe this year, but certainly during the next few years, your clients will be part of this enormous trend. That's a certainty.
Besides Accounting Today, Gene Marks writes for The New York Times and Inc.com.
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