Accounting software market boom to continue

Accounting software market boom to continue

Chris Wheal discusses the latest shape of the accounting software market and what this means for accountants and bookkeepers.

Accounting software market boom to continue

Making Tax Digital (MTD) boosted the UK accountancy software market. First-time users of accounting software had new choices from new vendors, with accountants and bookkeepers called upon to advise on software packages and combinations to their clients.

But MTD was good news for established suppliers as well as the young Turks. The big players also used the MTD deadline as an opportunity to modernise and upgrade their existing client base, moving many at least partially to the cloud, if not to new full-cloud services.

Sabby Gill, UK MD of Sage, was bullish after publishing his company’s annual accounts in November. “Subscription penetration was up 54% with our online Sage Business Cloud booming from 28% of customers to 67%, with those preferring to stick with their traditional software adding cloud capability. A lot of that was around Making Tax Digital. It was more of an opportunity than a threat,” he says.

Sage has been producing accounting software for 38 years.

Xero sum gain

Xero, too, benefited, with growth in its target SME sector. Gary Turner, MD of UK & EMEA at Xero, says 10 years of investing in cloud accounting has paid off. “In addition to our own efforts, the recent macro trends and legislation such as Open Banking, fintech and, of course, Making Tax Digital, also served to accelerate a broader shift towards adoption of cloud tech like Xero,” he says.

Xero recently opened a new office in Manchester to help service the small business clientele in the north. But Xero has also specialised, providing niche services aimed at agricultural industries, integrating the accounting with farm management.

Sage claims its accountant network infrastructure is second to none and still brings in a lot of business. But Xero’s Turner says: “We work with the majority of accounting and bookkeeping firms across the UK, from PwC to a small start-up accounting practice, Pink Pig Financials. Any firm that has a small business as a client is a prospect.”

Room for growth

There’s plenty of room for all the competitors, as several market analyst reports attest. “The global accounting software market size, valued at US$1,071.6m in 2018, is projected to reach $20,408m by the end of 2026, exhibiting a compound annual growth rate (CAGR) of 8.02%,” says a Fortune Business Insights report published in November. It predicted high growth of cloud-based software.

Fortune says the top players are;

  • Oracle (NetSuite)
  • Sage
  • Microsoft Corporation
  • Xero
  • SAP

A report from Mordor Intelligence predicts the accounting software market will grow at a CAGR of 8.5%  during the forecast period 2019 to 2024. It says the increasing functionality in modern software is the key driver of the market now. Integration with other technologies and automation of functions to save time and money are crucial.

Mordor says the major players by size are:

  • Oracle (NetSuite)
  • Microsoft
  • SAP
  • Xero
  • Intuit (QuickBooks)

In October a Research Nester report was slightly more cautious in terms of growth but from a higher start point. It predicts a CAGR of 6.3% from 2017 to 2024. But it says revenue for the global market for business accounting software was valued at $3.2bn in 2016 and is projected to reach $4.4bn by the end of the forecast period.

It says the market is “primarily driven by growing demand for better account managing solutions in business and enterprises coupled with increasing penetration of business accounting mobile applications to manage functional modules of business”.

Research Nester says the key players are:

  • Microsoft
  • FreshBooks
  • Acclivity
  • Intacct
  • Intuit
  • Oracle
  • Red Wing Software
  • Sage Group
  • Zoho
  • Xero
  • Expensify

Hey, you, get off of my cloud

Craig Sullivan, group vice-president of product management at Oracle’s NetSuite, saw the benefits of cloud software long before MTD was an apple in HMRC’s eye. He has been with NetSuite since it was called NetLedger, founded by Evan Goldberg in 1998. In the tech world it is widely considered to be the first cloud computing software provider – a true groundbreaker.

“We have been targeting small and growing businesses with this cloud-based approach since before it was called the cloud,” Sullivan says. It’s about “outsourcing infrastructure” and providing a “broad and deep set of capabilities to run an entire business”, he says. Steps such as MTD is the government catching up. “I like to think of the ‘e’ in e-government as ‘efficiency,” he adds.

Key to NetSuite’s philosophy is to have all customers on the very latest version with all the functionality, even if only the most advanced users are trying the new functions. As basic activities get automated, accountants and business managers with more time on their hands should start to see the opportunities that exist within the “suite” and use more functions, analyse more data and make further efficiency savings.

More than counting beans

Sullivan says NetSuite is winning clients who previously used Xero or QuickBooks or Sage because they want more than just accounting software. NetSuite is a full enterprise resource planning (ERP) system. Customers might use it to help manage sales and the warehouse storage, along with HR functions as well as finance, all integrated into one system.

New clients can be as small as five employees and as big as 500 or more. “GoPro bought NetSuite when it was just three people,” Sullivan points out. “Though not every new client plans to grow that fast.”

NetSuite can tailor services and set-ups to niche sectors. It will look at whole industries, such as retail, service, wholesale or non-profit but also micro verticals, such as apparel and footwear – a sector it has identified with its own specific demands.

Trusted partner

Sage flags up the level of trust it has among the accounting and business community. “We have relationships with the ICAEW, ACCA and HMRC going back years. People look beyond the costs,” says Gill.

Sage’s advice was the top Google result for searching MTD. It produced guidance on a possible no-deal Brexit before it was widely understood. “We provide support for accountants. Our role is as trusted adviser,” says Gill.

He says the scores Sage gets on review websites such as Trust Pilot, as well as within accountancy bodies, among employees and elsewhere, show the value of sticking with, or transferring to, Sage. “Ask anyone. They will tell you we have been driving to a new level of engagement,” Gill says.

Relying on spreadsheets

Sage still has clients on desktop-based software who simply want connectivity to enable compliance with MTD and other rudimentary functions. But Gill says he expects everyone to have moved to the cloud soon. The added functionality and integration with other technologies, such as barcode readers and other software-based services, will drive that. And 5G will be a boost too.

“People talk about four industrial revolutions. I think we’re already in the fifth,” Gill says. He says the service industry will be fully on the cloud first. Manufacturing and distribution will be the “slight laggards” but he says: “We’re not talking five years. It will be less than that.”

NetSuite’s Sullivan says: “The opportunities offered for all of us are enormous. There are still businesses on old desktop software and even some relying entirely on spreadsheets.”

Switching providers

In addition to the new users, some businesses are switching. Both accountancy firms and bookkeepers are recommending their clients switch.

“Our accounting and bookkeeping partners have built whole businesses around Xero and our ecosystem, which is incredible. If we create features that save them time, and allow for better integration, it means better business for them and their small business customers,” says Xero’s Turner.

“This means we have built strong relationships and advocates across the accounting industry, helping us to get more businesses onto the cloud.”

Narayanan Vaidyanathan, head of business futures at ACCA, says: “A big part of the accountancy software market is small and medium-sized practices often serving SME clients. A lot of solutions are bought on a licence fee (as a service) type basis which is an ongoing operating expense not up-front capex, it is therefore more accessible for smaller companies.

“Many big software solutions are creating an eco-system around themselves. So there will be practices who may be using one type of software and they will have clients that manage their data/systems and operate in a way that is conducive to this software.”

Why recommend change?

Sylwia Kotarba-Harris is associate director at London and Brighton practice Accounts and Legal. She says a little over three years ago they did a review of the software packages their clients used and had 200 on Sage or QuickBooks that they decided to migrate to Xero. These range from small businesses to a firm with a turnover of more than £30m. “Their efficiency really improved,” she says.

Kotarba-Harris was a lawyer by training who moved into accounting. She argues that many packages are designed for accountants and then modified for use by businesses, but Xero was designed for businesses without accounting knowledge and is more user friendly.

“We were on Sage ourselves as a firm and we moved ourselves. Xero brings the business to life and allows you to see things faster and more clearly. I’ve worked on Sage and QuickBooks and every single system, and Xero is by far the easiest. The user experience of the others is nowhere near as good,” she says.

Future of accounting software

Everyone agrees that technology, such as artificial intelligence, and increased data analytics will dictate the market. Sage says six out of 10 CFOs drive their firm’s digital activity and even control the budget. “The CFO used to be looking in the rear-view mirror. They now need to be the satvnav, looking forward and finding a route around the traffic,” Gill says.

Where there is no CFO accountants and bookkeepers will continue to influence, but many companies are still making choices direct over which software package to use. There will be competition between suppliers but there remains a huge untapped market. Those new customers will make up their own minds.

There’s no accounting for taste.


NB: other firms such as SAP and QuickBooks were approached and were unable to provide comment.

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