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.
- 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.
- 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.
- 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.