SaaS solutions need to mature. Rapidly

by admin on June 25, 2010

in Cloud Computing/SaaS

A coincidence arose today that got me thinking about the relative maturity of the various SaaS players. A couple of weeks back I wrote that in one selection case, the professional preferred Twinfield over one of the newer players even though the person acknowledged the Twinfield UI could be better. Function needs to lead form. A glitzy user interface cannot hide functional deficiencies. This poses a number of problems for developers. On the one hand the numbers speak for themselves. All the better known players are doing great business, growing at rates others can only drool at with envy albeit from small base line numbers. So there is comfort in the SaaS model as a proven alternative to the on-premise world. But…as developers discover, making the right enhancement choices quickly becomes difficult once you’ve got past the bare bones of a double entry system. It’s problematic for several reasons.

  1. The incumbent players have rich, if bloated offerings they can point to and justifiably argue they offer better bang per buck. The cost case is always a tough one to argue.
  2. The SaaS world moves at a much faster pace than the on-premise world but is still playing catch up in functional areas. Users expect much faster release cycles with quarterly being typical for functional releases. That can get complicated if there is a need to make architectural changes under the covers.
  3. Making functional choices for development impacts the development cycle. BrightPearl for example talked about stock handling. This is not a trivial problem to solve with the potential for many permutations. Once you go down that path then you could be developing for a year and still not get it all right.

So where are the coincidences? I stumbled across Software Shortlist which is offering a free download of their accounting review pack. As someone who left the world of feature/function comparison behind in the late 90′s I tend to find these things to be something of a yawn. On this occasion it makes interesting if lightweight reading and while nothing like as comprehensive as an ICAEW analysis, does provide some interesting insights into 10 solutions.

Note where I have circled the rating: ‘Integrates with other software.’ None of the services scores better than a ’3′ which I take to mean ‘about middling.’ But notice especially Quickbooks. Despite it is the most mature offering in the market it ranks lowest.

Now comes the second part. In primary research I’ve seen which has yet to be parsed and about which I cannot give any real detail, I ran some analysis around problems that exist for Salesforce.com users. Salesforce is a $1.6 billion business but its average customer size is around 23 users – so I am told. Depending on which accompanying software they’re using, integration with financials appears to be a major issue. This is particularly acute among those reporting Quickbooks/Sage as their accounting solution though it figures much less as an issue the further up the food chain you go. Here comes the interesting bit.

If, as seems to be the case, Salesforce.com has taken prime position across the CRM domain and shows no sign of slowing up then what does this mean for the SaaS accounting vendors? Is it conceivable that contrary to all the perceived wisdom that it is in fact CRM that dictates the pace of SaaS adoption? Possibly. Look at NetSuite. They started life as NetLedger but it was only when they added CRM that they were able to grow quickly. CEO Zach Nelson understood early on that for every accounting user there are likely some 10 CRM users. That’s how you make revenue. Adding users. Even with a $100 million public issue funding, NetSuite is still only a $160 million per annum business. That’s modest in software terms. While I have a lot of time for the SaaS accounting players, I honestly do not see any of them achieving those revenue levels without taking the considerable risk of entering the US market, which is where NetSuite makes the bulk of its sales. The current price points don’t allow for it. Fast forward.

In providing his analysis of BrightPearl, Ben Kepes said:

BrightPearl currently has several hundred paying customers but, get this, their average subscription is $450 a month – this, for example, is over ten times the ARPU of another SMB accounting vendor Xero, when your average deal size is that high it stands to reason that you can invest more on each sale and can be more focused on individual customers.

What matters is the average subscription value for a service that includes much more than a bog standard accounting solution. As Chris Tanner, co-founder BrightPearl said on our call: “There are two options – either an integrated suite or APIs to other services.” KashFlow for instance relies on it API to grow an ecosystem of partners that it hopes will generate additional revenue. In most cases that works the other way and even that is not a done deal. Suites always win. Check the history of applications software and you’ll find that to be true. That’s part of why BrightPearl can command $450/month in accounts. If you’re offering an API then this should be fertile ground for the provider to consider acquisitions. That’s what Salesforce.com has done in selected areas.

So where does this leave us? If Salesforce.com continues to grow at its current rate among small businesses then there is a crying need for a vendor to be offering integrated financials direct into that solution. It already exists in the form of FinancialForce.com but there is no reason why the gaggle of other vendors could not do something similar. Well – there is. When using FinancialForce, you’re working directly inside the Salesforce code so the UI is the same for customers regardless of whether they are doing CRM ‘stuff’ or financials ‘stuff.’ That integrated UI is a killer feature because it avoids many of the problems associated with program switching. When BrightPearl showed me their Google Apps integration some months back, I had a similar sense of an application that ‘feels’ about right. Useful processes being implemented with email and other capabilities inside the application. Zoho has done similar things albeit they are taking a different approach to apps development. But these are not insignificant developer investments. Look at what Xero has to say today about its Yodlee integration to enable the automatic pulling of bank data:

It’s a big project that not only involves changes to the bank account features within Xero, but upgrading the banking integration environment behind the Xero application to securely manage the transfer of account data with Yodlee.

Why should any of this matter when all the current research indicates that professionals have little interest in CRM and the accounting SaaS players are moving along happily without worrying about it? This goes to a point I have consistently made over the years: it is not the professional who sets the pace any longer but the customer. In the ‘old’ days, accounting ruled the roost, followed by CRM etc. In the ‘new’ world, CRM has taken the lead. If you believe that to be true then it is only a small step to realizing that development needs to step up. And quickly.

If not then the market for the stand alone accounting SaaS solutions – even where they have an API – will diminish as customers realize they can get what they need from a suite. That’s why, among other things, I believe SAP Business ByDesign, even for the 10-25 user market, will be a hard act to follow. As will NetSuite, BrightPearl and Salesforce/FinancialForce.

There will be many twists and turns along the way but that’s the reality.

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Comments on this entry are closed.

Xavier Russo June 25, 2010 at 6:10 am

I’m glad you found our reviews interesting, Dennis. As you point out, the online accounting space is evolving quickly, which can make it hard for SMBs in particular to identify and evaluate the best options. Perhaps we can chat about you sharing some of your views in our next newsletter?

By the way, our conversations with SMBs support your comments about CRM taking the lead. Whether that will change as things mature and businesses get more comfortable with SaaS, I’m not sure, but it’s no coincidence that CRM reviews are the next report we’ll be producing.

Thanks for a thought-provoking article.

dahowlett June 25, 2010 at 7:38 am

I am based in Spain so best to drop me an email: dahowlett [at] gmail [dot] com

Brightpearl June 25, 2010 at 8:23 am

A great analysis Dennis. The decision to “ship or build” crops up every single development iteration we have, and painful though it sometimes is, it’s usually the decision to “build”. Our ethos here at Brightpearl is very much to make it easy for the customer to buy, which means click-setup-go with just one vendor if possible. We have an app that is broader than it is deep, but following on from the recent investment you’ll rapidly see more depth added across the system.

There are some challenges: functionality where a suite can’t hope to sit on a par with best of breed (building an email client, in our case), and also the challenge of attempting to do “everything” – and the relevant client expectations that are easy to fall short of. We don’t do payroll, and probably won’t for a while, but that’s OK. Clients still get a massive benefit from the suite concept.

I’ve been watching thesmallbusinessweb.com with interest – if anyone is thinking of going down the “plug it all together” route then definitely have a look.

dahowlett June 25, 2010 at 8:30 am

I know…I’m advising on those issues. Surprisingly easy to end up quagmired but solutions are often relatively easy. Plugging stuff together provides so many potential points of failure – I’d want to own it…But take your point re: depth. It’s always a challenge and the BoB v suite argument never quite goes away. Even so, history shows that customers vote for suites more than they do BoB.

Ed Molyneux June 25, 2010 at 9:05 am

Wise words Dennis.

Interesting that there are a number of different approaches being taken, from Brightpearls ‘wide but (currently) shallow) to Kashflow’s ‘narrow and shallow but building ecosystem’ to our own ‘fairly narrow but deep’ strategy that includes UK tax forecasting and, in the future, filing.

I write more about my view on ‘api vs integrated’ here: http://nthderivative.com/2010/06/15/freshoutboxed/ explaining why, along the accounting axis of functionality at least, integration seems like the better bet.

dahowlett June 25, 2010 at 1:13 pm

Very good piece that Ed, nicely done. Yeah – the deep bit is interesting in niches where you guys are positioned. There’s revenue ops there that are unlikely to work in the more generic offerings.

Jason Holden June 25, 2010 at 9:26 am

Fantastic article, totally relevant, especially for the SME market who really do need to start using CRM, incidentally it also follows on nicely from my trip to London this week to see the winweb team, and yes CRM is in the new release, version 6.

In fact, what worries me now, most of what you talk about we discussed in our meeting, so where did you hide the ‘bug’ Dennis? :-)

After seeing version 6 of winweb I think quite a few of the SaaS players are going to be in for a surprise, and as for the SME market the pricing is spot on for something that will be so very powerful, when you look at the pricing of the solution of some the providers to which you refer they are too pricy for the majority of the SME market, in fact other than ‘bolt-on’ solutions I am not aware of anyone who is tacking the SME market in the way winweb are?

Over the last few years there has been such an influx of SaaS players, and this has been good as it is getting the message out there, that SaaS is here and works, but I think now we are starting to approach the point where ‘rationalisation’ will start to happen, sorting out the ‘wheat from the chaff’.

I consider myself a bit more switched on than the average accountant, but when the importance of CRM was explained and demonstrated to me this week, and seeing how such a powerful CRM system can work I ‘got it’.

WinWeb like BrightPearl ‘build’ rather than ‘ship’, personally I think if done well this is the only way to go, but there is a massive cost in both R&D and time and this is I guess why many other smaller players buy in rather than develop.

It’s a brave new world and you’re either part of it or …………..

dahowlett June 25, 2010 at 1:14 pm

@jason – nope – working these things out based on market observations, development issues with which I am being consulted etc

Xavier Russo June 25, 2010 at 6:10 am

I'm glad you found our reviews interesting, Dennis. As you point out, the online accounting space is evolving quickly, which can make it hard for SMBs in particular to identify and evaluate the best options. Perhaps we can chat about you sharing some of your views in our next newsletter?

By the way, our conversations with SMBs support your comments about CRM taking the lead. Whether that will change as things mature and businesses get more comfortable with SaaS, I'm not sure, but it's no coincidence that CRM reviews are the next report we'll be producing.

Thanks for a thought-provoking article.

dahowlett June 25, 2010 at 7:38 am

I am based in Spain so best to drop me an email: dahowlett [at] gmail [dot] com

Brightpearl June 25, 2010 at 8:23 am

A great analysis Dennis. The decision to “ship or build” crops up every single development iteration we have, and painful though it sometimes is, it's usually the decision to “build”. Our ethos here at Brightpearl is very much to make it easy for the customer to buy, which means click-setup-go with just one vendor if possible. We have an app that is broader than it is deep, but following on from the recent investment you'll rapidly see more depth added across the system.

There are some challenges: functionality where a suite can't hope to sit on a par with best of breed (building an email client, in our case), and also the challenge of attempting to do “everything” – and the relevant client expectations that are easy to fall short of. We don't do payroll, and probably won't for a while, but that's OK. Clients still get a massive benefit from the suite concept.

I've been watching thesmallbusinessweb.com with interest – if anyone is thinking of going down the “plug it all together” route then definitely have a look.

dahowlett June 25, 2010 at 8:30 am

I know…I'm advising on those issues. Surprisingly easy to end up quagmired but solutions are often relatively easy. Plugging stuff together provides so many potential points of failure – I'd want to own it…But take your point re: depth. It's always a challenge and the BoB v suite argument never quite goes away. Even so, history shows that customers vote for suites more than they do BoB.

Ed Molyneux June 25, 2010 at 9:05 am

Wise words Dennis.

Interesting that there are a number of different approaches being taken, from Brightpearls 'wide but (currently) shallow) to Kashflow's 'narrow and shallow but building ecosystem' to our own 'fairly narrow but deep' strategy that includes UK tax forecasting and, in the future, filing.

I write more about my view on 'api vs integrated' here: http://nthderivative.com/2010/06/15/freshoutboxed/ explaining why, along the accounting axis of functionality at least, integration seems like the better bet.

dahowlett June 25, 2010 at 1:13 pm

Very good piece that Ed, nicely done. Yeah – the deep bit is interesting in niches where you guys are positioned. There's revenue ops there that are unlikely to work in the more generic offerings.

Jason Holden June 25, 2010 at 9:26 am

Fantastic article, totally relevant, especially for the SME market who really do need to start using CRM, incidentally it also follows on nicely from my trip to London this week to see the winweb team, and yes CRM is in the new release, version 6.

In fact, what worries me now, most of what you talk about we discussed in our meeting, so where did you hide the ‘bug’ Dennis? :-)

After seeing version 6 of winweb I think quite a few of the SaaS players are going to be in for a surprise, and as for the SME market the pricing is spot on for something that will be so very powerful, when you look at the pricing of the solution of some the providers to which you refer they are too pricy for the majority of the SME market, in fact other than ‘bolt-on’ solutions I am not aware of anyone who is tacking the SME market in the way winweb are?

Over the last few years there has been such an influx of SaaS players, and this has been good as it is getting the message out there, that SaaS is here and works, but I think now we are starting to approach the point where ‘rationalisation’ will start to happen, sorting out the ‘wheat from the chaff’.

I consider myself a bit more switched on than the average accountant, but when the importance of CRM was explained and demonstrated to me this week, and seeing how such a powerful CRM system can work I ‘got it’.

WinWeb like BrightPearl ‘build’ rather than ‘ship’, personally I think if done well this is the only way to go, but there is a massive cost in both R&D and time and this is I guess why many other smaller players buy in rather than develop.

It’s a brave new world and you're either part of it or …………..

dahowlett June 25, 2010 at 1:14 pm

@jason – nope – working these things out based on market observations, development issues with which I am being consulted etc

Adrian Sanders June 25, 2010 at 6:36 pm

this is spot on. i think it’s clear that we’re fast approaching the moment when SaaS apps need to position themselves as either a clear addition to, or standalone a heavy duty solution that effectively handles most of a companies business solution needs.

for small guys, it’s about choosing Google or SF, or perhaps something in the SMB web?

i think that the bigs have something with an all-in-one but that doesn’t necessarily mean that smaller offerings can be brought in or build their own big offering.

Ben Kepes June 25, 2010 at 7:56 pm

Great Post Dennis.. I think there might be a third way and it’s something BrightPearl allude to in their post (and in their approach towards building a mature app).

It’s something I’ve been ruminating on for awhile now and something I want to come back to in a future post

Adrian Sanders June 25, 2010 at 6:36 pm

this is spot on. i think it's clear that we're fast approaching the moment when SaaS apps need to position themselves as either a clear addition to, or standalone a heavy duty solution that effectively handles most of a companies business solution needs.

for small guys, it's about choosing Google or SF, or perhaps something in the SMB web?

i think that the bigs have something with an all-in-one but that doesn't necessarily mean that smaller offerings can be brought in or build their own big offering.

Ben Kepes June 25, 2010 at 7:56 pm

Great Post Dennis.. I think there might be a third way and it's something BrightPearl allude to in their post (and in their approach towards building a mature app).

It's something I've been ruminating on for awhile now and something I want to come back to in a future post

Rod Drury June 26, 2010 at 2:38 am

There is another dimension to this discussion. SalesForce has done a great job. But they are an Enterprise SaaS company. If their average customer size is 23 it shows they have had minimal success at the micro end of town, which by volume is 80+ percent of the market.

This is because we know that small businesses do not do integration projects. If they have a CRM system, as soon as they send an invoice from their accounting system they have customer data in two places. Therefore small businesses do not, in general, use CRM.

Accounting is the key information system for small businesses. Not CRM. All small businesses have bank accountants and need to file tax returns. Once you have accounting working, with supplier and customer records, then you can add CRM.

Two scenarios will evolve. Either the suite approach where CRM is added to accounting platforms, or the Web 2.0 approach where vendors work together to provide integrated solutions.

Our accounting partners are telling us to keep investing in Accounting. Because there is still a lot to do. And accounting is getting bigger by linking client side and accountant side functionality together.

While there are lots of accounting solutions out there, there are only a few solutions that accountants actually use and recommend. Most solutions are simply client side. To win the valuable accountants channel you need to do both sides, because that becomes compelling.

So our bet is the Web 2.0 approach is most likely to win, where CRM vendors can specialize on their area of functionality and link to accounting vendors who are making the huge investment in their own space.

Trying to do it all is a thin and wide strategy that we don’t believe can work long term.

My 2 cents.

Rod

dahowlett June 26, 2010 at 2:42 am

@rod – thanks for that. I’m not saying you guys have it wrong. I am offering an alternative position as a discussion point.

Rod Drury June 26, 2010 at 2:38 am

There is another dimension to this discussion. SalesForce has done a great job. But they are an Enterprise SaaS company. If their average customer size is 23 it shows they have had minimal success at the micro end of town, which by volume is 80+ percent of the market.

This is because we know that small businesses do not do integration projects. If they have a CRM system, as soon as they send an invoice from their accounting system they have customer data in two places. Therefore small businesses do not, in general, use CRM.

Accounting is the key information system for small businesses. Not CRM. All small businesses have bank accountants and need to file tax returns. Once you have accounting working, with supplier and customer records, then you can add CRM.

Two scenarios will evolve. Either the suite approach where CRM is added to accounting platforms, or the Web 2.0 approach where vendors work together to provide integrated solutions.

Our accounting partners are telling us to keep investing in Accounting. Because there is still a lot to do. And accounting is getting bigger by linking client side and accountant side functionality together.

While there are lots of accounting solutions out there, there are only a few solutions that accountants actually use and recommend. Most solutions are simply client side. To win the valuable accountants channel you need to do both sides, because that becomes compelling.

So our bet is the Web 2.0 approach is most likely to win, where CRM vendors can specialize on their area of functionality and link to accounting vendors who are making the huge investment in their own space.

Trying to do it all is a thin and wide strategy that we don't believe can work long term.

My 2 cents.

Rod

dahowlett June 26, 2010 at 2:42 am

@rod – thanks for that. I'm not saying you guys have it wrong. I am offering an alternative position as a discussion point.

Anonymous June 28, 2010 at 9:37 pm

Interesting post. It makes sense for CRM to be the driver more than Accounting as it is sales/marketing that drives a business. I also agree with Rod from Xero that “small businesses do not do integration projects” and Salesforce has left the genuinely small biz behind as they go after bigger fish.

That is what Worketc find (another antipodean small business SaaS vendor). Worketc is a suite, but aims to everything EXCEPT account – CRM + Projects + Billing + HelpDesk. Those are functions that small business employees do every day and they have to be totally integrated and simple.

Accounting on the other hand is a relatively easy integration. And accounting decision is usually done independently.

bernardlunn June 28, 2010 at 9:37 pm

Interesting post. It makes sense for CRM to be the driver more than Accounting as it is sales/marketing that drives a business. I also agree with Rod from Xero that “small businesses do not do integration projects” and Salesforce has left the genuinely small biz behind as they go after bigger fish.

That is what Worketc find (another antipodean small business SaaS vendor). Worketc is a suite, but aims to everything EXCEPT account – CRM + Projects + Billing + HelpDesk. Those are functions that small business employees do every day and they have to be totally integrated and simple.

Accounting on the other hand is a relatively easy integration. And accounting decision is usually done independently.

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