The New Polymath, my friend Vinnie Mirchandani’s new book is getting closer to the finish line. In the latest excerpt, he talks about the consumerization of technology and how it is impacting all our lives. It makes for thought provoking reading. A few snippets:

SOHO is no longer just a Manhattan neighborhood but a growing revenue category for technology companies as the acronym for small office, home office.

And they’re all (well almost all as far as I can tell) looking for technology that fits their needs, not that of others.

Some companies are trying the superficial—let’s “put a lipstick on the pig,” – change the user interface to look more “cool,” and use language and graphics in manuals younger employees can relate to.  That will not help with Mia Lindheimer, who knows treasure hunts are not for Easter alone. Since she was six she has been geocaching. In this game, people set up caches all over the world and share their locations on the Internet. GPS users can then use the location coordinates to find the caches. How do you find more about the game? “Oh, just Google it,” she says to the annoyance of her father, who works at Microsoft and would rather she say “Bing it.”

Anyone want to name names?

Enterprises are gradually waking up to the fact there is no law precluding them from using products aimed at consumers themselves, sometimes at startling savings.

One word – -Google.

I encourage you to flip over to Vinnie’s place and catch the rest.

As an aside, I sometimes get emails asking me why I write about such apparently off beat topics. They remind us that the world we occupy is changing rapidly, that the clients we had yesterday won’t be the same ones we have tomorrow We need to adapt or perish.

I kid you not – Google the phrase shit hot accountants and see what comes up. The guy in the video at the top of the page. It would be nice to think that my US readers will get the dry humour. My UK and Aus/NZ readers most certainly will get it.

And there I was thinking that I was one of the very few (OK – Ken Frost has HMRC is Shite) with a propensity for uttering things that would otherwise be seen as ‘not safe for work.’

ooVoo is a service not wholly dis-similar to Skype. I’ve used it on occasion for multi-way video conferencing calls. Like most services of its kind, performance is wholly dependent on the quality of the broadband connection between the parties on the call. Video sucks bandwidth like crazy so that pretty much rules out video calls to the US and as for Australia and New Zealand? Fuhget it. At least on my 300KB uplink.

I know speeds will improve. It’s just a question of time. What’s more interesting are the prices ooVoo is able to charge for calls from the US to various parts of the world. Check the table I received earlier on in the day. The price differentials are truly stunning, There is ONE problem with this.

While the rates look great on paper, getting a connection is a lottery. It has nothing to do with bandwidth issues but what are called termination fees imposed by the telcos.  Since ooVoo is charging such a small amount, the telecomm providers can’t get their otherwise lucrative pound of flesh. Here’s a good discussion on the topic.

Don’t ask me how this works but at times I can make a connection, at other times, I am told by an automated message that I am not allowed to call the number in question. That’s because of the arbitrary way termination fees are applied. What it amounts to is a tax on our ability to communicate. That’s not what I would call fair.

The notion of free doesn’t always sit well with many colleagues. If there is no monetary sale price then the theory runs that there is less value to be had than from levying a monetary charge. But is that true? One argument in favour of SaaS is that the buyer doesn’t have it make an investment in the software. Even though software tends to be a fraction of the overall total cost of acquisition and ownership, it remains a bargaining point, especially when you’re looking at a large deal involving many thousands of pounds/dollars/euros.

That in turn fuels discussions around the maintenance element. Depending on which vendor you’re buying from, maintenance runs 15-25% of the initial software price. On a rough average and as a rule of thumb, you end up paying for the software twice over a 5 years period. That’s the conventional wisdom. There are many shades of grey in this discussion. In some cases, software licenses almost end up free as long as you pay book price on maintenance. In other cases, maintenance will be based on the net price paid. The point is that the locking together of an acquisition cost AND a maintenance number creates a tension that keeps people like my pal Vinnie busy.

Look what happens when we examine the SaaS world. At the very small business end of the market, it is hard to deny the success that many of those I mention here have enjoyed the last year or so. In relative terms, they’re doing far better than the incumbents. Ray Wang, another colleague, has been keeping a scorecard on the difference between the realtive financial performance of on-premise providers and the SaaS players.

You’ll need to click the image to see what Ray is talking about. His explanation is intriguing:

As we tally up the winners and losers for 2009, SaaS vendors have shown to the industry what’s required for success in today’s tough economic condition.  The secret to their success transcends subscription pricing, cloud services, rapid levels of innovation, and point solutions.  In fact, the success in SaaS comes from the attention to the relationship and the willingness to take a customer friendly stance.  On-premises vendors who have delivered on a partnership with their customers have known this for years.  However, they risk being consumed by the new business models of SaaS and Cloud.   Customers expect their vendors to deliver hybrid options; and private and public clouds.  Expect on-premises vendors without a Cloud deployment option to fade away in this decade as they become the legacy vendors they replaced in the client/server and Internet eras.

I sense there are a few holes or perhaps unspoken factors in Ray’s analysis. The notion of service resonates well and is well founded in the highly visible and genuine praise we see heaped upon the smaller players. Is the same true when we look at the larger players? Yes and no. Most of those in Ray’s league table have had ‘issues’ of one kind or another. Even so, they continue to score. Given the economy is supposedly tight, how is it then that SaaS players continue to grow at such a fair clip?

I don’t think it has anything to do with the technology or the tech pitch. I sense that Ray is getting close when he talks about service but is missing a vital element. Wittingly or otherwise, it seems the SaaS players, while often still trying to work out economic models, are playing a fundamentally different game to the on-prem folks. My sense is they’re playing a game that is based much more on the principles underpinning behavioral economics thinking. Here’s a simple example taken from an intriguing video (see above) by prof Dan Ariely of Duke University:

Which do you think was the most attractive offer? The one that’s free with the $5 shipping charge. In prof Ariely’ words: “There is no negative downside with free.” But notice instead that the customer is paying for the service of having the product delivered.

In (parts of) the SaaS model, the same allure holds true albeit you can argue about the economics to some extent. In essence the vendor is saying to you: ‘You can have the service/product but we will charge you a reasonable economic rate for all the other things that you expect of a software vendor. More important, the vendor has a clear obligation to deliver because without the service element, he/she has nothing to offer.

So from the buyer’s perspective, he/she is getting what appears to be a relative bargain. And that is what appeals. Of course my example is over simplified but it speaks well to the issues that SaaS vendors should be addressing when they’re fleshing out their value propositions. In closing out, I’m going to pose a few questions but first a word of congratulation.

Kashflow has been selected as the system of choice for AIMS clients that would otherwise be shoebox/spreadsheet style record keepers. That’s a big win. But look carefully at what Henry Ejdelbaum, AIM’s MD said:

“We are impressed by the functionality and the reliability of the software having submitted it to a rigorous evaluation process. We see KashFlow appealing to those of our members who are acting for small businesses that have typically used spreadsheets to record their financial transactions.� Because KashFlow allows small business owners access to their books from any computer with an internet connection, it means that they are more likely to keep accurate records.

The first and second statements make sense. The third doesn’t. Why would clients keep more accurate records by having internet access? History doesn’t teach us that to be true. Quite the reverse. It represents a leap of faith that I sense has been taken because of unspoken factors that play to the irrationality that is an important feature of understanding behavioural economics. In this analysis, AIMS has made what might be considered an irrational choice. As a social scientist by education, I find this intriguing.

• Do you agree?
• And if so, what does this kind of decision making mean for the software industry as a whole?
• Do behavioural factors put the SaaS players in a price position against which the incumbent cannot readily compete?

I have other examples that I may be able to share at a later date. In the meantime, this will present difficulties for a profession that prides itself on the daily exercise of applied logic.

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Last week, Neil Seekings, sales director of� The Lerryn Group and I had a backwards and forwardsing over email. He said:

We are launching a link for MyPAYE and the Sage 50 product family which will allow Sage clients to use MyPAYE online and through a small desktop app download pay data into Sage 50 this might cause a stir from Sage as no need for their payroll and support, plus we are white labelling the app for our accountant partners to sell on to their clients using MyPAYE. We feel it might also stir up the Hard line SaaS activists as we are moving best of both worlds with link to desk top app.

Maybe. It’s certainly an interesting move by a company better known for its larger scale business credentials. What does its mean? Apart from keeping the die-hard Sage 50 accounting types happy it means that for many of the smaller businesses prepared to use MyPAYE, they can make substantial savings. Sage payroll (before print costs) is going to set you back £45 per month including SageCover. MyPAYE costs £1/month/user or less. Even without SageCover, customers are looking at £22/month.

I am familiar with MyPAYE and while it is not the prettiest solution out there it does come with an HMRC accreditation.

MyPAYE is already integrated to e-conomic, Xero and Kashflow although those integrations don’t require a desktop app. Even so, Lerryn’s shot across Sage’s bows is another example of how vendors can get squeezed by those that are acting smarter. Why? Sage’s payroll business is one of its most profitable lines. Look at the ratio of maintenance (because that’s what it is with a few bells and whistles) to license: a tad over 51%. And that’s before we start talking about the paper business Sage has been running at huge margin for many a year.

If MyPAYE and Lerryn can make a living at a fraction of the price, then what does this mean for the long term Sage payroll business? Sage will claim brand leadership but it would be a foolish professional accountant who didn’t at least look at what MyPAYE can offer in the alternative.

The solution launches 1st April and yes, I did check. It is a fully functioning application.

Update: the Lerryn service costs £14.99 pa

iXBRL is only a matter of weeks away and panic has set in. On AccountingWeb, Excel expert Simon Hurst makes a valiant effort at seeing if he can make Excel produce a valid set of iXBRL tags. In telling words he says:

If you use tax and accounts production software then it’s easy. You’re in the hands of your supplier. For a bit of reassurance, you can go to the HMRC site to see if your supplier is in the iXBRL approved list or just “working towards”. Several suppliers have issued white papers and progress reports for additional information.

But what happens if you produce some or all of your accounts using Word or Excel? You’re now the software developer – how are your development plans for incorporating iXBRL output into each of your Word documents or Excel spreadsheets progressing? Hopefully not at all, because I’d be surprised if any organisation that doesn’t have software development as its prime focus will find it worthwhile building its own iXBRL output.

[my emphasis added]

Simon then goes on to show that even with XML capabilities in Excel, he can’t get ‘anywhere near.’ Why am I not surprised?

As someone who has continuously railed at the utter stupidity of contributing towards year-on-year evidence of high failure rates in spreadsheets since 1997, the emergence of iXBRL must surely serve as the coffin nail that finally convinces professionals that attempts at using spreadsheets as a reporting tool are borderline insane. Only the arrogant or those with too much time on their hands would fly in the face of the evidence but heh – that’s what we have spreadsheet failure conferences for.

Having said that, the developers haven’t exactly been stepping up to the plate. HMRC’s website lists 20 providers that have tested successfully with HMRC for submitting CT600. Only TWO can produce iXBRL accounts, FOUR can produce iXBRL computations while EIGHT can submit iXBRL documents. Shabby? I’d call it pathetic. Notably missing from the role call is Digita – more on them later.

I first wrote about XBRL for Dummies back on November 2007. What’s the industry been playing at the last 28 months? Twinfield has had XBRL since February 2009.

As always it seems, the UK professional software market player bitch and moan about regulatory update requirements but still leave things until the last minute. In the meantime, comments at AccountingWeb are already raising fears about the cost of managing the new formats. Guys and gals – talk to your software providers. Ask them why they’re dragging their feet. While you’re at it, remind them it’s a regulatory update so no extra charge on top of maintenance fees. Especially given HMRC has some free tools you can use.

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