Making the SaaS accounting market scale

The SaaS market is at a point where mega growth is not a matter of when but how. The SaaS vendors have to find ways of managing growth. However, to date, they’ve mostly been poor at understanding what needs to be done in order to grab the prize. It’s well understood that the ‘build it and they will come‘ approach isn’t going to cut it but what measures should they be taking?

Sage believes the key is to own the professional relationship. There is truth in that but when you run the numbers, members of the Sage Accountants Club don’t exactly bring large numbers back to Sage except in a few cases. Sage is a popular choice with professionals because it fits with the traditional view of the accountant’s application. The fact I’ve been able to identify close to 50 applications that suggest otherwise indicates how far away from reality that view has become. What does it take to get an accountant to recommend an online provider? This post provides one reason. This video provides another. There are other ways by which professionals can benefit from online applications but they have yet to be explored in any depth by the vendors.

A good number of the applications I’ve found are aligned to project based businesses, freelancers and contractors. Is there room for them all? That depends on the size of the addressable market which in turn depends on the segment in which you are interested. Some vendors I’ve spoken with believe the UK IT freelance market represents some 150K persons. One starting point to working it out is this 2008 study. (PDF download) which covers the broad freelance market.(see below and click for better view.) It claims the number of those engaged as ICT professionals totals 66,587. This is augmented by 68,007 design professionals.

Regardless of the true number, we increasingly live in a flat world where customers can come from anywhere. That’s especially true in IT related services. Check the 1 million signups Freshbooks claims. Or how about what my colleague Brian Sommer says?

Numbers alone don’t help too much. You need to know about the market dynamics. This report, (cost $19) which was compiled in 2007 from 3,700 respondents across 6 continents and 10 industries provides valuable insights into what the IT freelance world looks like.

However you want to parse the results of such reports, it’s reasonable to assume there is a large enough domestic market for more than one large vendor. The fact Freshbooks has done as well as it has in 6 years speaks volumes for its model. Freshbooks has the luxury of being early to market and able to take advantage of the early interest in blogs among tech types, bar camps and other tech led events to build a viral model of customer acquisition. Is it a model that’s easily replicated? I don’t think so. Freshbooks’ momentum has carried it too far, that despite it is not as feature rich as other solutions. Even so, check its achievements in 2009 for a glimpse of how it uses the market to get its message across.

Where Freshbooks bootstrapped, Xero took a different approach, raising a stack of cash with which to hire a top rate team and feed its marketing effort. That has paid off as has its smart use of the company’s blog as a primary communications tool. Its latest announcement to incorporate Yodlee as a way of extending its automated bank feeds is a long overdue but smart move that will make Xero more appealing to end users and professionals alike.

I’ve always believed that customer success speaks far louder than anything a vendor or analyst can provide. It is no coincidence that SAP is making 2010 the year when ‘voice of the customer’ figures heavily in its marketing. Check this as one example that can be taken further. If a company like SAP, with 92,000 customers deems it appropriate then what about the current crop of vendors? There are several ways to make this kind of activity scale at modest cost. To date, I’ve seen no sign the smaller vendors are taking advantage of technology that would allow this.

Saas/cloud economics make it relatively easy to build an application that can be offered at low cost while holding the ability to reach cash flow break even at modest user numbers. That’s never going to be enough. The difference between those vendors that make the ‘big time’ and those that don’t rests almost entirely on the ability to out market the competition. SaaS vendors have every reason to be hopeful, especially since much of the competition consists of spreadsheets and shoebox accounting. The question is which will take advantage of the many ways to market in order to truly ramp the numbers? At the most basic level, where is evidence of the marketing strategies that will drive mega growth? I’m not seeing them.

Tagged as: freeagent central, freelance accounting, FreshBooks, new tag, SAP, Software as a service, xero