TrustRadius recently published a Buyer’s Guide to Accounting Software in which we noted the increasing dominance of cloud software in that sector. In the guide, we said that accounting software users have been slower to switch to cloud solutions than those in other software categories, potentially because of concerns about security and change management. Indeed, many on-premise accounting products, such as QuickBooks Desktop and Sage 50 (formerly Peachtree) are widely adopted.
However, a number of cloud products have emerged, both for small businesses (such as Xero and Wave), as well as for mid-market companies (such as NetSuite and Intacct). Additionally, vendors of on-premise software have released cloud products, including QuickBooks Online and Sage One.
Given that this sector has been slower to switch to the cloud, how slow is slow? Are there other reasons for this slowness, besides security concerns? How much growth can we expect among cloud vendors in the coming year?
To find out, we asked TrustRadius members with expertise in the accounting sphere, whether they were primarily using a cloud or on-premise accounting product. We then asked the on-premise users if they had plans to switch to a cloud solution.
Among the 350 respondents, 52% are primarily using a cloud solution, and 48% are using on-premise software. The 52% does indicate a very real encroachment of cloud technology in the accounting domain and is perhaps higher than might have been expected. Although the data does not segment responses by company size, it seems reasonable to suggest that the QuickBooks hegemony has clearly started to crumble a little at the lower end of the market, while on-premise ERP is also under pressure from cloud vendors such as NetSuite and Intacct in the upper-midmarket.
Gene Marks at Forbes predicted as far back as January of last year that despite the fact that QuickBooks is an excellent product:
“It’s inevitable that you’re going to replace your on-premise QuickBooks system for something cloud-based, and you’re going to discover that there are some interesting alternatives.”
Our small sample indicates that this is already happening. However, that is not the whole story.
We also asked the on-premise users about their likelihood of switching to a cloud solution.
More than half (56%) of the on-premise users indicated that they were unlikely or very unlikely to make the switch in the foreseeable future, and a further 21% were unsure of what they are going to do. Only 23% indicated that they were likely or very likely to move to a cloud product.
Some of this is no doubt due to the strength of the on-premise products, many of which are fully featured products benefitting from years of astute product development. Another issue is the fact that Intuit, the most dominant vendor in the market, has struggled with QuickBooks Online, which is widely seen as inferior to QuickBooks desktop products, despite a recent overhaul.
Where the switches are going?
For those who indicated an interest in switching to a cloud solution, we asked what they were considering switching to. Although these respondents indicated a wide range of options, the most popular choices were Xero, Intacct, and NetSuite, with QuickBooks Online not far behind.
Reasons for not switching
We followed up with the on-premise stalwarts who said they had no intention of switching, and asked them, “Why not?” This group was rather vocal about the advantages of staying put, and a few themes emerged:
As might be expected, security is a major concern. Many respondents discussed worries over data privacy, potential system failure, performance, the reliability of the Internet service provider, and bandwidth limitations:
“Data security is important to me and I’d rather take responsibility for that [myself] rather than leave it to someone else.”
“Security is primary. Also, we have more than sufficient backup, both in-house and with our computer service bureau to cover all our needs.”
“I just prefer having it in-house and not having to rely on an Internet connection to reach my software”
There is a widespread belief among this group that cloud software is significantly more expensive than desktop or installed software over the long term. This comment appears to apply more to larger firms who need robust solutions capable of multi-location management, etc. However, the perception of higher cost is common across the board.
“The cloud-based solutions are much more expensive over the long run. You can keep Quickbooks desktop for at least three years for one fee. The QBO solution is a never-ending monthly fee.”
“All of our accounting staff works in-office, so a cloud solution would not be justified by the cost. Plus upgrades and migration are costly and consuming.”
3. ERP investment sunk costs
Several larger customers are heavily invested in installed ERP products that are highly customized with multiple integrations to external systems. For these respondents, switching to a cloud solution looks too costly, as it would mean ripping and replacing years of work.
“We are heavily invested in an on-premise ERP right now and do not see the ROI in investing in a new ERP. However, if we did make a change, we would invest in an on-premise software for a number of reasons:
- Definitely a much lower TCO with an on-premise solution over the life of an ERP.
- Better security
- Better integration”
Looking at the TrustRadius audience in the Accounting sphere, it’s clear that the switch from installed to cloud software is well underway. However, there also seems to be considerable resistance to change among those who have not yet jumped ship. Cloud vendors may have already harvested those ripe for conversion, and many of the remaining installed software users may be a much harder sell.
Find the top rated accounting software for SMB’s and enterprises in this latest Buyer’s Guide To Accounting Software.