The launch of Microsoft Office Accounting in the UK could pose a significant threat to Sage in the UK and frustrate SAP's plans to take share in the SME market. The entry level version which is free to download and use is widely expected to make inroads into the business start up and SOHO (small office home office) space following its huge success in the US where 2 million copies have been downloaded in the first year since its launch.
In probably its smartest move in the business market to date Microsoft has launched a product which could well transform the SME accounting landscape overnight. In an audacious move, Microsoft is to provide its entry level accounting product free to anyone who wishes to download it from its web site and in so doing is creating a whole new market in the SME space.
There is an estimated four million small businesses in the UK many of whom shun the cost and inconvenience of setting up traditional accounting packages until they are forced to adopt a solution once they become VAT registered or incorporated. Instead they use an assortment of spreadsheets and paper based work-arounds which make it difficult to manage their businesses and migrate to an appropriate accounting package when the time comes.
By making the "Express" version of the software available to download free and to implement easily, Microsoft is opening up a whole new market previously 'hidden' from view. Once established, start up businesses can simply upgrade to the Microsoft Office Accounting Professional 2008 version for a licence fee of £149.95. This version of the package which will be available through retail outlets next year or directly over the web right now is available on a 60 day free trial.
The positioning of Microsoft Office Accounting is likely to pose a serious threat to established players such as Sage and SAP as well as smaller operators in the mid-market. By offering the software free to download Microsoft clearly hopes to create brand loyalty early in a business' development. Rather like retail banks, customers are reluctant to change brands once a system is embedded in their working practices – especially as the Professional version is designed to carry them through to around 25 employees.
But there is also another reason that Microsoft Office Accounting is likely to shake up the SME market. This is the first time that Microsoft has developed its own accounting solution from scratch – and it's very good – building in the familiarity of an Outlook style user interface and the massive advantages that Microsoft can muster when it comes to leading edge integration with the rest of the Microsoft Office Suite. For example, users can track billable time, create quotes and send invoices directly from Outlook, Export reports to Excel with one click and lodge accounting documents designed in Microsoft Word directly in the body of emails.
As such the Microsoft Office Accounting "Professional" version product will appeal to established small businesses that may have been tempted to buy elsewhere in the past. The free model also poses a threat to other suppliers promoting an 'on demand' model based on software rented over the web. The ease of entry and the ready availability of Microsoft Office Accounting as a download could shift the balance back towards on-premises solutions, as small businesses weigh up the advantages of a low risk, low complexity solution on-site, compared to more expensive rental schemes.
Cleverly, Microsoft's latest solution offers an interesting compromise between on-demand and local processing. Businesses manage payroll information and generate payslips locally but "Gross to Net" payroll calculations are handled via secure communications on a central server. This way Microsoft maintains completely up to date tax tables to help prevent small businesses making errors. Payroll processing is free until April 5 th 2008 and £9.95 a month thereafter.
Microsoft knows only too well that securing the support of accountants in practice is vital to the success of its play in the SME market. This is why considerable effort appears to have gone into garnering support from accountants during the development of the product and creating a support network specifically addressing their needs. Accountants in practice can take advantage of data exchange utilities to assist their clients through year ends as well as offering on-going accounting support via a specially created interface that provides an instant viewpoint on performance. There are also opportunities for practice accountants to build tailored interfaces directly into their clients' systems so that relevant accounting and tax services can be positioned with them.
Microsoft Office Professional is a comprehensive financial management system and many of the design concepts have found their way into the larger sister products designed for bigger businesses and marketed under the Dynamics brand. Microsoft says that there will be no contention between the two product sets but the attractiveness of Microsoft Office Accounting combined with the merits of a completely in-house developed solution may prove too compelling in the long term. Whether Microsoft allows the package to travel upstream into larger companies (beyond 25 users) remains to be seen.
Microsoft is coy about its competitive positioning with Sage claiming that the package is opening up new markets rather than designed to take market share from Sage. But under the bonnet the package offers a number of migration tools which enable Sage data to be brought easily into the Microsoft Office Accounting environment. In the face of free software, outstanding functionality and pricing combined with a simultaneous attack on its traditional strengths in accounting practices it is difficult to see how Sage will not be affected.
