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Accounting Software: Cloud vs Desktop

An important part of my role at Ford Peterson is researching major changes in the professional services space. Over the coming months, I will be writing a series of articles covering topics such as: cloud-based accounting software; consulting over compliance; growth in technology assets within the big four; and digital innovation in the fintech industry.

This is the first article in the series.

Accounting Software: Cloud vs Desktop

The accounting profession is not unfamiliar with rapidly evolving technological change. 15 years of an increasingly paperless work place, all-in-one desktop computers, and back-up file storage that can fit in your pocket has seen to that.

In a similar vein, one of the biggest changes happening in accounting at the moment is the move towards cloud-based accounting software. The cloud platform, which makes data and software accessible online, anywhere, anytime, and from any device, is gradually replacing traditional on-premises accounting software.

The Benefits

Besides accessibility, some of the other benefits of cloud computing include:

  • Integration with other popular third party cloud applications and accounting software
  • Cost base flexibility (paying for only the services required on a monthly basis)
  • Better backup, immediate access to upgrades, and faster bug fixes
  • Multi-user access online allowing increased collaboration & productivity
  • More secure data storage

Of these, it is the integration with quality third party software platforms that particularly benefits small and medium-sized businesses. In a recent Evans & Partners research report into the accounting software industry, analyst Peter Stamoulis highlighted that cloud accounting allows small and medium-sized businesses to “pick and choose between enterprise software – online accounting, inventory, CRM, business intelligence, payroll – that is most relevant to their day to day operations.”

Although currently in its infancy, cloud-based accounting is likely to extend beyond traditional data input and financial reporting in the very near future. Cloud software can provide business and data intelligence that enables live and relevant insights into the financial stability of a business.

Accounting Work

For accountants, this means an evolving role. The improved accessibility and efficiency of the cloud allows an accountant to be more cost-effective and collaborative with clients. Evans & Partners believe “the role of an accountant who takes advantage of all the new tools and opportunities available to them through the cloud will have an opportunity to allocate more time in a business and financial advisory role, while reinvigorating growth across their core skill sets.”

Competitive Landscape

Given the shift towards cloud-based accounting, it’s not surprising that accounting software companies are investing heavily in the development of their cloud products. MYOB, the largest accounting software provider in Australia, is investing around 15 per cent of its revenue in research and development as it competes for clients with arch rival Xero.

MYOB, with 384,000 desktop customers and 116,000 cloud subscribers, enjoys a much larger customer base than Xero. However, Xero is the largest cloud accounting software provider in Australia with 200,000 subscribers. Although MYOB’s client base continues to grow at around 10 per cent each year, Xero’s customer base is currently growing at more than double that of MYOB’s cloud subscriber growth.

The other players in the Australian cloud accounting market are Quickbooks Online, Reckon Online, and Saasu. However, their market share is significantly smaller with only 32,000 total customers between them.

Transitioning to the Cloud

With cloud computing likely to dominate the accounting software landscape over the next five years, industry analysts believe accounting software providers such as MYOB, Xero and Quickbooks will focus their efforts on increasing customer retention through the development of higher quality cloud solutions.

For now, the core of MYOB’s business remains traditional desktop accounting software. However, as the company gradually transitions its desktop customer base across to a cloud-based platform, it’s relying on a hybrid solution. With the rise of Xero as a major cloud software provider, as well as other new entrants in the market, it seems likely that MYOB’s hybrid platform will provide a short-term solution as the company accelerates the development of its pure cloud-based products.

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