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Vice President, Software Advice
on 6/23/2010
Is “horizontal” accounting software dead?
Well, maybe not dead, but these days most organizations are looking for vertical solutions – software designed for their industry.
While every company needs accounting software, a surprisingly small number of firms are implementing horizontal (i.e. generic, cross-industry) accounting systems these days.
Back in the 1980s and 1990s, horizontal accounting programs were the norm. Most enterprises were running accounting systems that were often expensive, difficult to maintain, and independent of other software applications (i.e. CRM, project management, inventory control, etc.). However, software buyers are increasingly implementing accounting systems designed for their specialized needs and usually integrated with other applications.
I should point out that we have noticed that this trend seems to vary with company size. Most very small companies (with a handful of employees and less than $1 million in annual revenue) looking for a $200-$500 accounting system will opt for generic packages such as Quickbooks, Peachtree, or Simply Accounting. However, once buyers get above the $1 million to $2 million annual revenue range, they tend to seek out industry-specific or integrated solutions.
Intuit’s strategy of offering vertical-specific editions of Quickbooks (contractors, manufacturing/wholesale, retail, professional services, and nonprofit) is testament to this buying behavior. The goal of the industry-focused editions is to keep users on Quickbooks and to prevent them from replacing it with an industry-specific system.
A review of buyer preferences in three of the industries Software Advice covers illustrates this interest. For buyers with more than $1 million in annual revenue:
- 93% of construction firms looking for accounting software prefer a suite integrated with other modules (usually project management, cost estimating, or service management);
- 100% of manufacturers prefer an integrated suite with MRP and/or shop floor control over a standalone accounting system; and,
- 98% of real estate and property management firms are looking for accounting software integrated with budgeting, facilities maintenance, and/or lease management.
While once prevalent among larger companies, the older, standalone accounting programs are becoming obsolete as new technologies and market conditions arise.
Here are 5 trends that are killing horizontal accounting software:
- Executives don’t want a standalone system anymore. Most seasoned executives are realizing that integration provides transparency across multiple aspects of the enterprise, and that having one system to cover multiple departments is a great way to achieve that visibility. It is also simpler and usually more cost-effective to maintain one system as opposed to several.
- IT buyers want to see systems designed specifically for their “unique” needs. Everyone seems to think their business is different, even if it isn’t the case. Standalone accounting systems are inherently generic. The specialty-specific features of a system are typically found in the automation of other processes (shop floor control, project management, inventory control, etc.) that are removed from accounting. As a result, buyers seeking specialty-specific solutions naturally shy away from “generic” accounting applications and implement complete packages.
- The emergence of Software as a Service (SaaS). SaaS enables collaboration and communication that were either very difficult or not achievable with older client-server systems. This collaboration enables companies to implement expansive systems to tie the enterprise together more easily. Since a lot of these collaborative capabilities will be used by employees across multiple departments, SaaS systems tend to naturally offer much more than just accounting.
- The consumerization of the enterprise. For those new to this phrase, I would define it as “the process by which consumer technologies become prevalent in the workplace, disrupting the status quo of outdated enterprise technology and practices.” A number of research firms have reported that decision-makers are opting for systems that support modern technologies and trends (remote access with mobile devices, integration with social media, open, standard-based systems, etc.). This adoption will naturally squeeze out horizontal accounting systems because they can offer only one function or cannot support the “must-have” consumer needs.
- Software vendors reacting to and further fulfilling the trend. As accounting software companies recognize this trend, they naturally begin offering additional modules and customizations built for specific needs and narrow vertical markets. Their customers then implement these packages, catalyzing the decline of generic, standalone accounting software. This is epitomized by the incredibly large number of options and packages available with accounting systems that were formerly horizontal: Sage MAS 90/200, Quickbooks, Microsoft Dynamics, Epicor, and Infor, to name a few. They all know that they need to go deep into industry verticals and other business functions to stay alive.
We expect the decline of horizontal accounting to continue indefinitely, as many of the above 5 trends are still young. See any other trends killing horizontal accounting software? Let me know below.
As A CPA that works exclusively with small businesses, I can’t agree with you more.
Since most small business owners view accounting as a burdomsome necessary evil of business they look for an inexpensive solution. Entry level programs like QuickBooks and Peachtree fill the bill.
Owners and managers of medium sized businesses don’t think like small business owners. They recognize that there is a wealth of information available in the numbers. They also put more value on solutions that increase the efficiency and effectiveness of the organization. This will most likely be provided by an accounting solution that is industry specific.
June 23, 2010 @ 3:38 pm