Last week saw the launch in the UK of yet another accounting solution for rent over the web. Fashionably called "Software as a Service" or SaaS, the concept allows businesses to rent application software over the web for a fixed monthly charge and theoretically avoid the angst of implementing and maintaining complex accounting products in-house. Gary Simon , FSN's managing editor asks "How difficult is it to maintain an in-house accounting system and are the benefits of a web based operation all that they are cracked up to be?"
We've been here many times before. The idea of sharing computer time and applications over the web is almost as old as the mainframe computer itself. Look back 30 years and you will find that very few companies could afford the earliest mainframe systems so those companies fortunate enough to have their own equipment would share their applications in time slots for a fee and the term 'time slicing' entered the data processing vocabulary of the day. Computer bureaux sprung up everywhere and companies batching up their transactions ready to send off to a bureau at the end of the week became a familiar sight. But so called "data preparation" departments have long since disappeared and it is instructive to explore why this is the case, especially when considering the merits and disadvantages of SaaS.
There is no comparison between the limited processing availability described above and the 24/7 accessibility offered over the web by modern day application providers. The ubiquitous availability of affordable broadband and wireless communications from anywhere in the world confers major advantages over the batch processing world of yesteryear. Batch processing folded because of the convergence of computing power and communications rather than any reservations about bureaux style operations. Today many organisations benefit from payroll bureaux and success stories like salesforce.com illustrate the possibilities of the SaaS model. There is no doubt that the accessibility and affordability of the SaaS model is a major attraction and although earlier incarnations during the Dot.com boom such as ASP's (Application Service Providers) did not survive it is clear that renting software, in certain circumstances has come of age.
In order to make their business case, providers of accounting software over the web generally make several claims about the SaaS business model. These usually revolve around a low fixed monthly cost, speed of implementation and the convenience of not having to provide computing resources and expertise in-house to support the applications. But in a rapidly changing landscape, particularly in the SME market, these potential advantages are facing significant challenge from increasingly powerful and cheap shrink-wrapped solutions.
Kevin McCallum, Commercial director for Pegasus (now part of Infor) agrees. "We do not see the demand from users, the market is not ready for it and we don't think the technical infrastructure is up to it."
"It works for CRM applications where users can dip in and out of the system but accounting software imposes a different requirement," he adds.
The case for a low fixed monthly cost is certainly open to challenge. For example, E-conomic, the Danish provider which opened for business in the UK this month is starting at an attractive £13.50 (ex-VAT) per month or £162 + VAT per annum. This basic subscription provides, general ledger, accounts receivable and invoicing plus accounts payable and reports. (Interestingly, the Reports listed on E-conomic's web site lists a VAT report without making clear whether making clear whether it produces a VAT Return, popularised by competing packages such as Sage). Add on modules such as Project Accounting and Stock Management cost more, £13.50 and £9.00 per month respectively. Add payroll (apparently not part of the standard offering) and the costs start to seem quite weighty to a small business that can obtain Microsoft Office Accounting Express Edition for free and will shortly be able to buy the Professional 2008 edition for around £148 all in (though Payroll is extra).
Of course raw cost comparisons are not entirely fair. SaaS providers will argue that you do not have to provide expensive hardware, a great deal of support is available free on-line and you do not have to worry about product upgrades, security and back up. All attractive points for hard pressed SME businesses. E-conomic also allows accountants and bookkeepers to have free access to their client's books and records over the web.
Buy McCallum argues the need for help on the ground rather than FAQ's and machine generated support over the web. He told FSN, "You can't replace the domain expertise of a re-seller who is steeped in knowledge about the product. They can help you get the 'last yard' out of the set up which simply isn't possible in a SaaS environment."
Whilst the rented software arrangement provides a degree of convenience it is clear from the tens of thousands of users of packaged accounting software that the administrative burden of an in-house solution is not too great to bear. Most packages these days install pretty easily from a CD Rom and once the initial set up is complete require very little attention. Automatic routines remind users to back up their system and increasingly the major providers are enabling users to share their books with their accountant/bookkeeper over the web.
When it comes to implementation effort the advantages of a Saas offering over modern shrink wrapped solutions is more illusory than real. The notion that it is materially faster to implement a solution over the web is simply not proven. Most of the main contenders provide 'pre-canned' charts of accounts (according to popular industry types) but this is true whether the solution is provided in-house or over the web. Furthermore, the effort in planning coding structures, for products, customers, suppliers, employees and setting other parameters such as currency, is the same regardless of the physical deployment of the system. Arguably it is potentially easier to migrate from an existing system on local hardware to another package resident on the same equipment.
Finally there is simply the psychological leap from a secure in-house environment to entrusting the business's crown jewels to an outside provider. Logic says that it shouldn't matter since many businesses are prepared to share CRM and Payroll data with outsiders, but handing over the ability of an outsider to peer into your trial balance and performance sets a dangerous precedent. Just look at the amount of unauthorised personal data swilling around the internet if you need convincing of the problem! Despite the guarantees of security and privacy, history suggests that there will be a scandal one day.
"There is a psychological barrier," adds Pegasus' McCallum, "People are simply not happy with the idea that their accounts data could be hosted on a server somewhere in China . I think we are 5 to 7 years away from this taking off."
Nevertheless, the SaaS model cannot be written off as an irrelevance and it will certainly suit many businesses, particularly start up operations making their first foray into accounting systems. Many software vendors are hedging their bets, hoping to capture traditional and SaaS sales if it takes off. Clearly the industry is yet to be convinced that for accounting software at least the SaaS model is the way forward.
