Cloud-based applications are getting a lot of attention these days. And there are some definite pluses to moving toward applications that were designed and constructed to be solely based in the cloud.

But as good as these applications may be, and there are indeed some excellent applications that are available only in the cloud, there’s a lot to be said about established in-house applications that have been continually improved and updated over the years.

We surveyed several of the major players in the hosting market, as well as a number of consultants in the field, and asked them to point out the pluses and minuses of different approaches. They also were asked to offer their views on trends in the industry.

Participating in our survey were Robert Chandler, president and CEO of Cloud9 Real Time; Roy Keely, vice president of market strategy for Xcentric; James Bourke, partner and technology niche practice leader at Top 100 Firm WithumSmith+Brown; Adam Stern, founder and CEO of Infinitely Virtual; Ann Geisel, director of development and design at Cougar Mountain Software; Ryan Overtoom, partner of hosting and managed services at Top 100 Firm Sikich; and Ed Page, managing director and financial services industry IT consulting practice leader for business consulting firm Protiviti.

This stellar virtual panel agreed on much, but also offered some individual insights into where the bumps in the road might be and where the industry might be heading.

 

LOTS OF APPS, LOTS OF INITIALS

For the most part, the hosting vendors who participated in our survey all provide accounting-oriented applications, though some offer hosting in other areas as well. QuickBooks, Microsoft Dynamics, Bloomberg BNA, Thomson Reuters, Drake and Lacerte were just several of the applications vendors mentioned to us. Cougar Mountain Software hosts its Denali accounting software on an Applianz Technologies’ private cloud, as well as providing it for in-house implementation.

But “hosting” doesn’t necessarily mean the same thing every time the term is used. The most common use of the term is for SaaS, or Software-as-a-Service — but it can also mean Infrastructure-as-a-Service. SaaS is when a hosting vendor provides specific applications for you that are also generally available for on-premises installation. These can be accounting or tax preparation applications, and sometimes include other applications such as an office suite or time and billing. All of these applications and others are available as hosted services.

Infrastructure-as-a-Service is the term used when a hosting vendor provides all of your computing needs other than the client’s PCs and devices used to access their cloud. And that brings up the matter of public and private clouds.

A private cloud is basically a localized data center, either on your premises, or belonging to the hosting vendor. A public cloud is when the hosting vendor uses one of the available major cloud service providers. Two of the best known of these are Amazon Web Services and Microsoft Azure. The vendor’s hosting server that runs the application is a virtualized server located within the public cloud.

Withum’s Bourke sees a shift in where applications are being hosted: “We are starting to see a shift away from the vendor cloud to more of a public cloud approach in the cloud services space.” He believes that the public cloud approach gives the practitioner a comfort level that the vendor will not hold their data captive in the event of a dispute, or the firm will not be subject to technology disruptions that may take place within a vendor.

“An ideal platform would be something like Microsoft’s Azure platform, where the firm is leveraging the power, security and budget of a company like Microsoft to house their practice management system and data,” Bourke told us.

 

A LARGE CONSENSUS

Almost all of the vendors we queried agreed on the benefits of hosting, and unsurprisingly, these tended to mirror the advantages of cloud accounting as well.

Accessibility is one important factor that all of our respondents seem to agree on. Having a client’s accounting data available from any place you have an Internet connection and 24/7 is a major advantage.

Reduced cost and reliance on an IT department is another factor most of the vendors mentioned, along with a reduced need to contend with updates and equipment upgrades. “Businesses no longer have to build, secure, and support IT centers or server areas. This reduces physical space and the utilities — for example, electricity — needed to operate,” according to Cougar Mountain’s Geisel. She also made mention of dependability, noting that many hosting vendors provide service level agreements that guarantee a high level of availability and dependability.

Another point of agreement is scalability. A hosted accounting application can easily and cost-effectively be scaled upward or down according to the immediate needs of your firm and its clients.

 

NOT ALL ROSES

But while there is a large consensus about the benefits of hosting applications in the cloud, our vendor panel did point out some areas to consider as potential stumbling blocks.

“Small businesses should be clear about the differences between hosted solutions and cloud-based accounting. Hosted solutions provide much greater mobility, greater security, and data access assurance. Cloud-based solutions offer lower initial cost but the lack of control, customization and data security may outweigh the savings,” we were told by Cougar Mountain’s Geisel.

A number of vendors pointed out the importance of a reliable and high-availability Internet connection. Xcentric’s Keely noted that when the only way to access the hosted app is via the Internet, it’s not a practical solution where a quality Internet option either does not exist, or is not reliable enough for business use.

Cloud9 Real Time’s Chandler noted that bandwidth is also a concern. These operational concerns apply not only to your practice, but to all parties outside of your facilities that might require access to the application, including clients and mobile employees.

And while we tend to think of Internet access as ubiquitous, there are still plenty of areas where there is spotty DSL, only satellite Internet, or no Internet access at all.

Another area that Keely points out where a hosted solution might be viewed as being vulnerable is when the client (or your firm) is subject to auditing.

With an off-premises hosted accounting solution, the question of internal control, both in the area of accessing the remote application, and the internal control procedures and standards of the hosting vendor, are going to be looked at stringently. Most vendors of hosted solutions are very aware of these concerns and take great pains to implement sufficient controls. But some major benefits of a hosted solution (which is also true of cloud-based applications) are self-service, as well as restricting access to authorized users and specific user roles. A hosting provider can help in this area, but the ultimate responsibility is yours.

That brings up another area of concern for both hosted and cloud-based accounting solutions — compliance. When a client’s accounting is performed entirely on premises, you are responsible for governance and compliance with HIPAA, Sarbanes-Oxley, and other compliance requirements. Moving the application over to a hosting supplier doesn’t free you from these responsibilities. And it does add another layer of responsibility that you need to be aware of and concerned with.

Sikich’s Overtoom expands on this concern: “We see consolidation in the industry, and we believe the larger players (AWS, Azure, etc.) will be the ones left standing. We also see the cloud/hosting industry maturing. The larger players have the financial backing to attain and keep the proper credentialing (PCI, HIPAA, SOC, etc.), which is critically important for those customers that have compliance needs.”

Cougar Mountain’s Geisel noted, “A business may be better off with a non-hosted solution (on-premise, for example) if there are concerns about sensitive customer data being compromised or a government or educational entity wishes to make use of existing IT infrastructure/secure data center. For example, multi-party payment of medical industry invoices may include sensitive information that on-premise implementation would better protect. Or a county department might want to use existing county IT infrastructure and management.”

Infinitely Virtual’s Stern pointed out another area of concern, which he calls “Provider Roulette.” “Of late, there has been a great deal of shifting around among providers. On that front, two somewhat counterintuitive things are happening in the hosting market — new market entries and significant market consolidation — resulting in a bit of chaos. Small providers have emerged, but there’s no assurance that they’ll be around; some could be purchased (and others have been),” he told us. “Accounting firms are wise to select vendors who have demonstrated some staying power, since stability is crucial for both a firm and its clients. On the other end of the spectrum, market consolidation has meant that once again, big fish are being eaten by even bigger fish. And from the point of view of even a fairly large accounting firm, consolidation isn’t likely to mean better/more responsive service. If recent history is any guide, the opposite has been the case.”

And Sikich’s Overtoom pointed out still another situation where a hosted approach might not be the best way to go: “Some legacy applications do not migrate well to the cloud, or the cost to re-write the applications to be ‘cloud-friendly’ is prohibitive. Further, some industries, such as manufacturing, have a significant amount of production network/application activity happening on premise. As a result, transferring all that activity to a cloud solution, where all user and machine input is sent back and forth to the cloud provider, can be challenging and may not be prudent.”

 

SOME LAST THOUGHTS

Xcentric’s Keely cautioned against assuming that every hosting vendor is offering the same benefits: “Hosting continues to be commoditized. The additional features that make end users’ lives simpler and more integrated is a trend that many providers are moving to.” Keely also added that he believes that low-cost providers will continue to focus on costs and not necessarily provide these benefits.

But, as should be expected, given the makeup of our panel, our respondents feel that hosting is an approach that will continue to become more attractive as time goes on, even compared to cloud-based applications. Some see this happening as firms and clients simply transfer the responsibility for existing applications out of house, others see it as a way to reduce IT department expenditures.

That’s not necessarily a good thing, Xcentric’s Keely warned: “People think that going to the cloud means they don’t have to worry about their local network and computers, as far as security and routine maintenance, since it’s all in the cloud. This is not the case, and the hosting provider they pick should be offering solutions to secure and manage their local network.”

Protiviti’s Page agreed: “We also see industry-specific considerations — particularly for those industries with high regulatory oversight — emerging as differentiators in cloud adoption. Industries such as financial services and health care must consider regulatory requirements carefully as they consider cloud hosting options. This should not, however, be viewed as an insurmountable impediment, but rather as an additional set of requirements.”

Still, all of our respondents agree that movement to the cloud, whether using hosted applications or those specifically designed and developed to be cloud-based, is not going to slow down any time in the foreseeable future. As Cloud9 Real Time’s Chandler put it, “Things happen in life and they also happen in technology. It’s not if but when.”

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access