Opinion: Middle men may be doomed, but not by cloud software companies

AFTER READING last week’s article by The Practitioner, “Will Sage & Xero cut out the middle man?”, I’d like to share my perspective as managing director of one of the aforementioned software companies.

While it’s true that companies like Xero are associated with the structural changes that are unfolding inside the profession, our view is that most practitioners will be enabled by cloud technology rather than made redundant by it, but this still represents a competitive threat.

The economy is able to sustain 20,000 accounting firms today. This is largely due to the economic inefficiencies of the existing accounting services model where information and data are fragmented and messy, and which in turn forces a manner of client engagement that’s set against a basic framework of compliance.

If the application of cloud technology to accounting does one thing, it significantly streamlines data accessibility and, therefore, client engagement, both of which then profoundly change the economics of the accounting services model for cloud practitioners.

Cloud today, gone tomorrow?

Fine, you may say – so what if I move to the cloud today or go kicking and screaming five years from now?

Theoretical models for the adoption of new technologies tend to follow a familiar bell-curve shaped path where early adopters get on board soon after a new technology emerges, then early and late majorities and finally, the laggards. This simplistic theory is fine for modelling adoption of consumer technologies like LCD televisions, but falters when the new technology in question changes the service dynamics of an entire market.

And so it’s in this important aspect that any perceived threat of disintermediation should be seen. Believe me, accounting software companies don’t want to be accountants any more than accounting firms should seek to write their own software.

Rather, it’s those practitioners who embrace cloud software earlier (by the way, we’re now well past ‘early’) could end up consolidating out of the industry those later adopter firms who choose to wait and see.

As with other disruptive cloud enabled shifts, whether it’s Netflix, Spotify or Uber, with cloud accounting it’s not just a case of whether you’re an early or late adopter of the new technology. It’s more likely that early adopter practices will end up adopting the clients of those firms who misread or misjudge the impact of such a profound industry shift.

Gary Turner is managing director of Xero UK