Global SMB by nimalama5695


									AccTrak21® Business Management & Accounting Software for Small and Medium Businesses

The Global SMB Software Market

                         April 2005
                         An Integrated Platform for Small

                         The global business management software market for
                         small and medium-sized businesses is poised to enter
                         a period of dramatic change, as incumbents and new
                         entrants compete to provide more efficient ways for
                         such businesses to conduct their operations. At stake
                         is long-term dominance of this high growth, highly
                         profitable market sector.

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                           trademarks of AccTrak21 International Ltd. All other trademarks
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AccTrak21® Business Management & Accounting Software for Small and Medium Businesses                                                                 AccTrak21®

The Small and Medium-Sized Business Software Market
Most small and medium-sized businesses (“SMB”s) use some form of accounting software in an effort to better manage their
activities, at its most basic level, recording revenues and costs, paying suppliers, monitoring receivables and complying with
tax requirements, but often extending to tracking inventory, scheduling manufacturing, managing customer interactions,
conducting retailing and paying staff. The “Big Three” incumbents, Intuit, Microsoft and Sage, are vigorously competing for
global dominance of this market against each other, and against aggressive new entrants, SAP and Oracle.

This market is poised for several years of rapid growth, not just because millions of U.S. SMBs do not presently have an
accounting software solution, or because 600,000 new SMBs are formed in the U.S. every year1 , but because the majority of
SMBs wish to progress from their existing “entry level” bookkeeping systems, to more sophisticated solutions that:

       •    allow them to conduct all of their business activities through a single, fully integrated software platform; and

       •    provide tools for them (and their advisors) to better analyze, and therefore, improve, their business performance.

The benefits to SMBs of conducting all of their operations through a single, integrated software suite are many. In an integrated
system, data is shared between functions, obviating the need for duplicate data entry (both costly and error-prone), and
increasing both the accuracy and visibility of key business information throughout the organization. This improves internal
collaboration, efficiency and sales performance, and leads to more informed management decisions.2

None of the above is controversial, nor should it be surprising; this same aspiration by large enterprises is what drove the ERP
software boom of the ’90s.3 The most interesting aspect of the current SMB software market is that none of the major players
referred to above yet has a solution that can effectively accomplish these objectives, although this is clearly a critical objective.

The Business Management Software Market Includes Ancillary SMB

The other important implication of the desire for SMBs to conduct all of their activities through a single software platform is that
it widens the scope and definition of markets for the products and services required by SMBs. That is, the “accounting
software” market becomes the “business management software” market, which is then widened to include all products and
services that can be provided to SMBs electronically, or that would be more efficiently provided with some electronic interaction.

For instance, even though CRM and Business Intelligence software is often sold by specialist, stand-alone software
developers, neither is relevant nor valuable to the user unless seen and interacted with in the context of the user’s
accounting system, where the business’s key transactional data resides. Further, the above mentioned incumbents all offer
some form of CRM and Business Intelligence, even if this is sometimes achieved through alliances with third party vendors,
and promote the advantages to SMBs of accessing these features through a single software platform.

The same arguments apply to payroll and tax; whether a stand-alone company is providing tax and/or payroll solutions in the
form of software (whether installed at the client’s premises or accessed via the internet) or a service (client sends information
to a service provider who does the actual work), they are competing for customers who want a single, integrated software suite
against the incumbents’ versions of these solutions. This means they are competing in the wider business management
software market.

    U.S. Small Business Administration:
    Aberdeen Group sums up the benefits of integration for SMBs: “The ability for organizations to share data and integrate business processes and the flow of
    information can greatly improve business productivity, and the value of enhanced visibility, efficiency, and analysis usually results in higher overall profits”.
    CRM and Back-office Integration for the Small and Medium-Sized Business, an Executive White paper, September 2002.
    This is not to say that most Enterprises that bought ERP systems have yet achieved the goal of a single, integrated system.

AccTrak21 ®                            AccTrak21® Business Management & Accounting Software for Small and Medium Businesses

   Accordingly, stand-alone providers seek to enable their customers to electronically link their products to others, especially
   those of the incumbents, to provide a virtual, single software suite. However, the technical difficulties and costs associated
   with seeking to achieve this goal are considerable, and users naturally find the importing and exporting of information across
   fragile integration links to be tedious, frustrating and costly. Further, as in most cases, the incumbents also offer their own
   version of that product/service, there may not always be a spirit of cooperation in ensuring ease of integration! Of course, the
   alternative for such users – the re-keying of data – is even less attractive. In the Enterprise sector (i.e. very large companies),
   this distinct choice between trying to glue together “best-of-breed” applications versus installing an already integrated suite, is
   increasingly being settled in favour of the latter, and will be similarly resolved in the SMB sector.4 Indeed, as SMBs lack the
   resources, both financial and technical, needed to install and maintain integration links between disparate systems, this
   outcome is even more certain than it has been in the Enterprise sector.

   Offering complete, integrated suites is the central pillar in the strategies that Microsoft, Intuit, Sage, Oracle and SAP are
   deploying in the global SMB market, notwithstanding:

          •     the quality of the integration currently offered by them is deficient; and

          •     these companies do not yet offer the full range of features and services required by SMBs.

   The increasing emphasis on the value and importance of integration in SMB software is highlighted by Microsoft’s efforts to
   develop a single, fully integrated business management solution for SMBs, Project Green, a multi-billion dollar investment
   designed to facilitate Microsoft’s goal of earning $10 bn in annual business management software sales from the SMB sector
   by 2010.

   The other telling confirmation that ancillary markets have been absorbed into the wider SMB software market is the November
   2004 announcement that Microsoft had formed a strategic alliance with leading payroll provider, ADP, to offer an integrated
   accounting-payroll-CRM-Office solution for very small businesses.

   ….and Interactions between SMBs and their Accountants

   It is probably not contentious to state that stand-alone, specialist providers of such ancillary products/services as CRM,
   Business Intelligence, payroll and tax are now competing in the wider business management software market. However, it is
   less obvious that this market also includes the provision of solutions to accountants who serve the SMB sector.

   Accountants serving the SMB sector are the most successful example of outsourcing in modern business: not only do they
   perform a variety of vital functions for their clients, functions which their clients are usually ill-equipped to address directly, but
   they generally have long-term and non-confrontational relationships. Indeed, it is universally accepted that the accountant
   tends to act as a trusted advisor and counselor to his SMB clients. The high level of trust between SMBs and their accountant
   makes it logical for software suppliers to assist them to work more closely and efficiently together.

   The key to maximizing the efficiency of the accountant-SMB client relationship is to provide direct and uncomplicated data
   linkages between the software systems they use. Direct data transfers reduce the costs and risks of data re-entry, as well as
   allowing accountants to perform their traditional client work (write-up, tax) in the most efficient manner: data is presented to
   accountants when they want it, and in the form they want it. Further, where such data transfers are accompanied by tools to
   assist the accountant to analyse and better understand the client’s business performance, the accountant will also be able to
   pro-actively provide timely business advice. The objective is to move the accountant up the value chain from outsourced
   accountant (and provider of commodity services) to virtual-CFO and business advisor.5

       For an excellent description of the problems caused by disparate applications in the Enterprise sector, see “Stemming The Software Spending Spree” in Optimize
       magazine, April 2002, by Charles Phillips (then of Morgan Stanley, now President of Oracle):
       “The ability to turn write-up work into analytical work is key to greater [accounting firm] profitability”, Jack LaRue, VP Marketing, Creative Solutions, as reported
       in Accounting Technology magazine, March 2005:

AccTrak21® Business Management & Accounting Software for Small and Medium Businesses                                                                    AccTrak21®

The importance of improving the quality of information transfers between accountants and their clients is generally well
understood: Intuit and Sage provide software for both accountants and SMBs; and there are several tools on the market
designed to assist in extracting data from the SMB and sending it to the accountant in a form enabling importation into his
software system. However, efficiency is hampered by the disparate nature of the software solutions involved: providing (and
maintaining) links between different software systems is difficult, error-prone and expensive, notwithstanding that the different
systems may be owned by the same parent company.

Only a single, integrated software architecture designed to address the needs of accountants and SMBs, and their commercial
relationship, will deliver a sustainable, low-cost solution. Although nothing has been said publicly, it is highly probable that
Microsoft’s Project Green also incorporates the accountant’s needs, and the effective transfer of information between
accountant and SMB client.

It is not just the incumbents in the SMB market whose actions are causing the SMB market to merge with the accountants’
market: a major supplier to the accountants’ market, Creative Solutions (Thomson) has recently announced a goal of “zero
data entry”, that is, transactional data entered by the SMB in its Creative Solutions system, which is also accessed and utilized
by the SMB’s accountant in its Creative Solutions system.6 Leading tax preparation software provider to the U.S. accountants’
market, ATX, is currently providing a similar vision to accountants and their SMB clients.7

Just as the actions of Intuit, Sage and Microsoft have broadened the definition of business management software to include
all ancillary products and services used by SMBs, so too they, and others, are broadening it to include the software needs of
accountants who serve the SMB sector. A stand-alone provider may seek to cater only to the needs of accountants, but as the
incumbents increasingly improve the integration between their SMB and accountant suites, or more significantly, release a
single architecture solution encompassing both, a single accountant-SMB platform will come to be regarded as essential.

Integration versus Bundling

The above arguments in favour of the ultimate triumph of integrated suites rely upon the indisputable efficiency benefits to SMB
users from accessing their various needs through a single, common platform. These need to be distinguished from the
successes that can be achieved by merely “bundling” new solutions with existing products; bundling in this way provides for
a simpler buying decision and process. However, it doesn’t necessarily increase the efficiency of the user’s ongoing business
operation (apart from better managing software supplier relations). In this regard, it is important to note that Microsoft’s
proposed accounting-CRM-payroll solution for small SMBs will be tightly integrated with Office in order to provide a seamless
business platform; it is much more than just bundling. Notwithstanding this major difference, it is interesting to note that at
least one incumbent competitor, Sage, has already raised the suggestion that this might constitute anti-competitive bundling.8

    Comment by Creative Solutions CEO, Jon Barron, at annual Creative Solutions Users’ Conference, November 2004: “We are trying to help accountants take
    advantage of integration for maximum productivity, while also helping them to understand how these advanced technologies can further enhance relationships with
    their clients.
    Paul Stobart, Sage’s UK and Ireland managing director: “I would be very surprised if we weren’t to bring it to the authorities’ attention as we would with any unfair
    competition. Microsoft will have to think carefully about how they do it. If they do bundle, they are leveraging a quasi-monopoly position in one market to give
    a very strong foothold in a new category for them in accounting software’’, reported in the Daily Telegraph newspaper:
    main.jhtml?xml=/money/2005/02/14/cnmicr14.xml. At the Microsoft Business Solutions “Convergence Conference” in March 2005, Bill Gates talked in his
    keynote address about Microsoft’s goal of making Microsoft’s Office and its business applications “come together”.
AccTrak21 ®                           AccTrak21® Business Management & Accounting Software for Small and Medium Businesses

   Integration Vs Integration

   The incumbents presently offer variable degrees of integration between their various modules although none offers a single
   codebase, fully integrated solution. For instance, Sage describes how users can link its SalesLogix CRM solution with some
   of its financial solutions by means of a complex integration project that transfers relevant information between multiple
   databases in order to obtain a complete picture of the business.9 Thus, Sage can be said to offer an “integrated solution”, and
   yet for the user, this solution involves initial and ongoing cost and complexity. Where Sage itself offers different packages that
   have been pre-integrated, the cost and complexity is addressed by Sage. However, even where two separate products are
   owned by the one company, such that a form of cooperation can be mandated, two separate products still means two separate
   codebases, which means two separate development teams and development programs. This complexity within a
   development company translates to increased prices for users, and an increased risk of integration failures.

   The optimal applications suite is one where all modules and features access relevant data from a single, central database. In
   this situation, there is no need for transactional information of any kind to move between different databases via integration
   links, increasing costs and risks of integration failures and data inconsistencies; all modules access true and consistent data
   from the central database.

   The difference between these two outcomes is shown the two diagrams below. In the first, disparate applications (codebases)
   are brought together with the goal of creating an integrated suite: data is stored in multiple databases, one per module, and
   must move between them via integration links to ensure data is relevant and consistent, and that the user can see all of the
   information he needs. Even if these disparate codebases are now owned by the one company, the integration links are by no
   means simple to construct or deploy, and they are never simple to maintain: as individual modules are enhanced, historical
   data files and integration links need to be carefully reorganized to ensure continuity of integration.

       Sage whitepaper: “Software “Integration for a Customer-Centric View: How to successfully integrate front and back-office applications in your small or medium-
       sized business”, January 2004.

AccTrak21® Business Management & Accounting Software for Small and Medium Businesses                                                              AccTrak21®

In the second diagram, data need to be entered and stored only once, yet it is available to be used in any module. Only this
single application architecture will give the user confidence that there is a single source of “true” data. Only such a single
application architecture will allow users to easily extract and combine data from different modules for reporting or business
intelligence purposes. Such an application architecture is the only way to allow software developers to accomplish fast and
efficient product enhancements.

Given the time, cost, complexity and risks involved, it is a vast undertaking for a provider of ancillary products to the SMB sector,
or software to the accountants’ sector, to seek to build the features and modules they presently lack. It’s why so much product
development in the software industry is undertaken via product acquisition. On the other hand, is it possible for such
companies to integrate their products with other providers in order to offer a complete, pre-integrated suite? As the Microsoft-
ADP alliance shows, a complete software suite can be compiled without having to resort to acquisitions.

The success of any such integration alliance will depend on two key factors.

        •     The number of disparate products proposed to be integrated.
                    Ø    Obviously, the greater the number of separate codebases that require linking, the greater the costs, risks
                         and likelihood of failure.10

        •     The nature of the integration link.
                    Ø    It is a complex matter to integrate, and then maintain, a CRM solution with a financials solution – each has
                         its own database containing customer records, which means constant data flows, and database cleansing
                         and harmonization, are required.

                    Ø    On the other hand, it is much simpler for two software companies to integrate and maintain a payroll
                         package or a tax package with a financials codebase, especially if the financials package has been built with
                         open interfaces. In these examples, data is stored centrally in the financials database, and then accessed
                         as needs be by the external tax or payroll solutions. The user sees a complete and integrated system,
                         unaware their components have been developed (and are maintained) by two distinct developers.

     “Nobody has found a rapid, low-cost way to integrate a lot of applications from different vendors.” Larry Ellison (in Softwar, by Matthew Symonds, page 127).

AccTrak21 ®                   AccTrak21® Business Management & Accounting Software for Small and Medium Businesses


   SMBs want a tightly integrated software suite that provides for all of their operational needs and requirements. Crucially, this
   includes business dealings with their accountants. The optimal way to provide this environment is via a single, integrated
   software architecture. The major incumbents in the SMB and accountants software markets, and new entrants, are investing
   heavily in an effort to create this vision, and thereby achieve a position of long-term industry dominance.

   April 2005

   We welcome any comment or questions regarding this white paper. Please email

   About AccTrak21

   AccTrak21 designs and develops fully integrated and fully scalable business management and accounting software for the
   global mass market of SMBs and their accountants. The company was founded with the objective of providing a solution that
   delivers high-end features and performance, but for a price that makes it affordable by businesses of every size. For further
   information on AccTrak21, please visit or email us at


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