2016 was the year when accounting software in the cloud indisputably came of age, it was also the year when most new comers to the cloud were not businesses migrating there but start-up businesses born there. Realistically – if a business has not yet migrated to the cloud, it probably for whatever reason; never will, so software providers now recognise that the initial stage of cloud deployment is complete and they can move to the second stage; aggregating the data and making it work for the business.
But first– where did we go and what happened in 2016?
The cloud accounting software market place in Australia continued to be very competitive. Although 2016 did not see any new players enter the market, there was a continued jockeying for subscribers through the delivery of improvements and enhancements amongst existing incumbents. This was good news for small businesses as they reap value from their investment, get better insights into their business and increase productivity.
Both Xero and Intuit continued to rollout new features during the year. Intuit put additional effort into improving the user experience through changes to colour and fonts to assist in highlighting important information. Intuit also released Self Employed, a mobile-only app enabling the self employed to track expenses and mileage. I wasn’t overly impressed with this primarily because there is no upgrade path, it cannot integrate with QBOA and currently does not cover GST despite Taxi drivers being one of the five vertical markets targeted. However time will tell on this one and although subscriptions may be high, I would expect churn to be high and retention low.
Reckon is gradually enhancing Reckon One but its main focus remains price rather than functionality; although a major redesign of its navigation was launched in August making it much easier to find functions and reports. It remains very much the Harvey Norman ‘we won’t be beaten on price’ solution for the cost conscious small business owner; although COO Daniel Rabie has more elegantly described this as disrupting ‘high margin incumbents through a game-changing pricing model’.
Significantly Xero has never competed on price and remains the most expensive option here in Australia and whilst it has tinkered with field names, it remains wedded to a primarily blue experience with no font or navigation changes.
For the first time for a while, I logged into Saasu and was pleasantly surprised to find that it has become a whole lot more user friendly. It is never going to compete with the metrics of the likes of Xero and Intuit simply because that is not how CEO Marc Lehmann measures success. The company is privately owned so there are no constraints with meeting shareholder expectations and it does generate a profit year on year. The product has a relatively small but dedicated body of subscribers, comprehensive functionality, ticks all the main boxes with regards to Mobile, payment gateway/PayPal integration and meets its own success criteria and so will happily co-exist alongside Xero and Intuit.
Sage completed its second year of providing a cloud accounting option in Australia with Sage One. As with QuickBooks Online and Xero, it has an Accountants Edition to assist in managing all Sage One clients from one place. It did launch with comprehensive functionality and we haven’t seen much change in 2016. The smarts on the customer invoice and the variety of payment options that we see in Xero and QuickBooks Online remain absent.
Third party Apps and the ecosystem – 2016 saw the continued emphasis on the ecosystem. Sage One was the only product to buck this trend integrating with just a selected few third party apps including amongst others; Shoeboxed, WooCommerce, Shopify and eWAY. All other software providers expanded both the breadth and depth of third party apps available although interestingly Intuit looked to be changing course and providing a platform with embedded third party apps. This has already been evidenced in Australia with KeyPay for Payroll but Intuit looks to be expanding the concept in its relationship with TSheets and Bill.com (US only) This approach has the advantage of providing a standard user interface across the platform, a single sign on and a consistent customer experience. It also conveniently takes out all the guess work for the customer in selecting an app but reduces the number of players in its ecosystem.
Mobile; this remains an area of focus throughout 2016 with all software providers working to ensure the mobile experience keeps pace with ever expanding expectations.
Financing: During 2016 there were three separate threads of developments here. Firstly since all business data is in the cloud and available to authorised parties including financiers, there has been an expansion in loan products available to businesses. These can generally be approved by the financier within a matter of hours or at least within one business day. Interest rates are higher than with the major financial institutions but time taken to lodge the application is dramatically reduced making this a flexible and cost-effective option. All the main accounting software suppliers have their own finance provider – for example Reckon One loans is powered by Prospa and by December last year had provided more than $1m in loans to small businesses. Xero and QuickBooks Online have similar providers.
Secondly – there is increasing sophistication in the interaction of the business with its customers and invoicing with the objective of reducing days outstanding. All too frequently, cashflow is a major headache for small businesses and any feature that reduces debtor days can bring welcome relief.
Thirdly – there has been emphasis on the integration between the accounting software and payment partners. In 2016 QuickBooks Online integrated with Apple Pay and deepened its integration with PayPal. Xero integrates with Stripe, Square, eWAY and PayPal. Saasu also has a mix of payment options however Reckon and Sage have yet to come on board here.
What can we expect from 2017?
So one month into 2017, what changes will we see? In many ways 2017 will continue to build on the developments of 2016. ’Cloud Everything’ is becoming the dominant theme for many small business owners. Mobile will continue as a priority as will the ecosystem or platform as the gap between the entry level software and the next level up remains dauntingly high for most small businesses. All software suppliers have fully embraced the need for positive User Experience, whilst this doesn’t add new features or functionality; ease of navigation, meaningful colours to lead the eye to numbers that need attention and clear fonts assist in providing user happiness.
Cashflow will continue to be a focus feature, anything that will assist businesses in receiving cash faster from customers – whether by smart invoicing or streamlined payment options will again be a priority this year. Xero has already released the live preview of invoicing so a business can easily see exactly what the customer will see before it has been sent. There will be more to follow
However one major feature that was very much in its infancy last year was Machine Learning. There should certainly be some huge developments here in 2017
In 2016 both Xero and Intuit announced that due to the volume of data that was accessible to them from the cloud deployment, they are now in a position to aggregate that data via machine learning to deliver both auto-coding of transactions and their version of a Chat bot. Xero will provide a bot via Facebook Chat and Amazon Alexa and Intuit will deliver its ‘QB Bot’, both of which were demonstrated at their annual conferences. Sage already has its bot ‘Pegg’ released.
The rollout of Machine Learning has some interesting implications – if the machine can auto code bank transactions more quickly and more correctly than can be done by manual intervention; why would a business owner use a bookkeeper? And if the machine can deliver better business insights, surely the role of the accountant will be impacted. Additionally the paradigm of big is beautiful has been proven; the more data that is available for analysis, the more consistent the results so accounting software suppliers that don’t have access to large volumes of data are at a relative disadvantage when it comes to Machine Learning and this may impact them as Machine Learning becomes more widely embraced.
Subscribers – Agreed Saasu has done away with that as a metric for success, but Intuit and Xero continue to focus on subscriber numbers. Globally Xero is expected to reach the 1 million mark this year with more than half of these in Australia. Intuit is expected to reach 2 million total subscribers (includes subscribers to Self Employed) but it remains primarily a US company with less than 20% of its QuickBooks Online customers being outside the US and less than 4% in Australia. Based on these soon to be expected number of subscribers; 4% of 2 million is a lot less than 50% of 1 million. This impacts what these two software providers deliver in the way of country specifics.
Xero has always provided excellent support for the Australian BAS/IAS regime. Whilst it has only recently provided auto fill of the W1 and W2 boxes, through Xero Tax they have delivered a seamless and seriously easy experience in reporting to the ATO. The GST preparation and recording in QuickBooks Online remains cumbersome (a by-product of reverse engineering into pre-existing code). An enhanced GST reporting centre is due for release into QuickBooks Online early this year (just as the ATO is releasing Simpler BAS) , however Intuit has no plans to deliver an SBR solution for Australian accountants except through a third party provider such as GovConnect – a serious point of difference.
This is finally turning into reality. The legislation is now complete with a timeframe of being available to all businesses from 1st July 2017 and a requirement for all businesses with 20 or more employees from 1st July 2018. (No date set yet for businesses with less than 20 employees). Will the software suppliers be able to provide a solution to meet the July 1st 2017 date? I would expect that both QuickBooks Online and Sage One should be able to comply as they both have embedded integrations with specific third party payroll products which have a client base larger than just those products. I think that Xero will be able to comply however, Xero Payroll currently requires a manual workaround to process an ETP and unless that is resolved, it will not be able to report completely.
Annual Conferences and Roadshows
These have long been an important feature on the calendar for Xero, Reckon, Sage and MYOB. It provides an opportunity for the software providers to outline their achievements and set expectations for the coming year. In 2016 Xero hosted a highly successful and glitzy XeroCon South in Brisbane which even included a session on Conscious Accounting from a Buddhist monk! Intuit has now hosted three international conferences in San Jose, California however the tyranny of distance has prevented many Australians from attending, but this year Intuit will host its first ever QuickBooks Connect in Australia in May. I am sure we won’t be disappointed.
I mostly focus on the accounting software from the perspective of business users, but as many of the software providers market their product primarily through Accountants, the support provided to accountants to manage their clients is an important factor in their recommendation of software to their clients. Sage, Intuit and Xero all provide an accountants platform however Xero looks to have stolen a strategic advantage over Intuit with its delivery of Xero HQ. This open practice platform will replace existing practice management solutions with a single client list highlighting tasks and activities. The fairly basic Beta version was delivered in November but we can expect to see that come to fruition this year. Intuit unfortunately is not planning on delivering functionality of this nature in Australia despite providing advances for our US colleagues. As Xero HQ takes hold, this could prove a disadvantage for Intuit
Mergers & Acquisitions
I am certainly not getting out a crystal ball here. There have in the past been rumours about potential takeovers of Reckon which they have strongly denied. Providing support for the denial is the acquisition this year of perpetual licences to the source code of two cloud based applications; Pose – Point of Sale and MicroManager – time tracking. So maybe it will be business as usual there.
One thing is certain – change will continue in a myriad of ways throughout 2017. The cloud has disrupted how businesses operate and this year it looks set to disrupt the working lives of the accounting professionals themselves. Accountants and Bookkeepers like many other jobs are not immune from automation. However anticipating and embracing the change and the opportunities that change brings means that never again will accounting be considered ‘boring’, it will remain cutting edge, pushing the boundaries of technology and working in tandem with businesses.
Cloud accounting software products are by now fairly mature, robust and sophisticated so the changes that we see in 2017 will be more on the periphery – mobile, the ecosystem and banking. But these changes will positively impact businesses in terms of productivity, insights and service delivery.
2017 is looking good.