People may have spotted that SAP has recently announced a new mid market offering called Business ByDesign. This is going to be a hosted, or Software as a Service SAAS, application. The product includes accounting, HR, order processing and CRM.  SAP has announced they will be investing c. 500m dollars in the product. Many will know that SAP is the largest business software vendor worldwide and has primarily focused on the corporate market.

So is this going to become the SME product of the future - gradually replacing the hundreds of different applications in place at the moment? Or will it be a dud?

SAP certainly has an impressive track record - but this has been at the high end of the market. Will mid market companies succumb?

The product will require people to adopt a hosted model. As they do not offer an onsite server solution this will put some off – certainly in the next year or two as resistance to the hosted model continues. Organisations like NetSuite have struggled with their application – partially for this reason.

SAP has little experience of the mid market. They have tried before to gain a foothold in this space but with limited success. I suspect part of the reason for this is that the culture and approach to selling ERP solutions is very different from working in the mid market. Less time is available for sales process and there is a lot of competition. There is the question of whether SAP really understands this arena.

As an example I have spoken to a couple of fairly senior people at SAP about the product over the last couple of weeks and have had different messages from around the organisation. One person claimed that the product could be a Sage killer. Another suggested initially that the product will be sold with a minimum of 25 user licences. The annual licence fee for this being c. £25,000 plus potential a one off cost of £40k upwards to implement. This is hardly the core Sage market. . This suggests perhaps that SAP do not understand this market.

So I think SAP is going to have a tough time in this space. The product could well sell into existing SAP corporate users for their smaller subsidiaries but the audience is definitely out on whether they will make it into mainstream SME’s. With $500m to spend one thing for sure – we will hear more about them over the coming months

I’ve had a number of discussions following my last posting regarding the future of accounting software. Will the market continue to have thousands of applications in use/on sale in 5 years time as it is the case today? What will break this position? One idea gaining ground is the use of ‘hosted’ solutions (trendy buzzword for this now is Software as a Service - SAAS). The mechanism for this is that you access the accounting software package via a web browser and store all your information on the supplier’s servers. The IT industry is talking up this model as the potential future for all software. Will it apply to accounting products?

Obviously users will need reliable web access to use the system – which is probably sort of available today. Users will also need to trust their supplier will keep their data securely and make sure their own servers/software is working day in day out. Leading SAAS vendors like Skype have experienced downtime – but so do servers in your own office. In terms of potential cost saving larger organisations are likely to still need lots of servers to run all the other software products so it may not save much money – although pricing models for SAAS can be different e.g. per user per month with no upfront financial commitment. For small/start up businesses you can now most if not all of the basic software via a hosted service so if you are starting from scratch this may be attractive.

With a hosted solution there is the benefit that anyone anywhere with web access can use the system – so staff can work from multiple offices or say from home

Practically SAAS can work. Emotionally accountants may be reluctant to lose control of their application/data, even if a hosted environment is actually more secure than a server in your office. I suspect it may be the emotional fear that holds back the deployment of this technology. Ironic perhaps that accountants – who are stereotyped as being low on emotion - may not choose accounting software products via the web for emotional reasons!

My first blog for Accountancy Age. I am tasked with writing about technology. Technology and Accountants – where better to start than accounting software.

Is this a yawn subject? Businesses in general change their systems infrequently so tend not to be on the constant lookout for a new system. However user satisfaction levels are not that great so many like to keep an eye on what is going on. Also the market is very fragmented. There are still hundreds of completely different products in use in the UK – and thousands plus worldwide. This is perhaps one of the last areas of legacy (or old) software that could consolidate? The market is worth billions to the software industry and someone stands to make a slow killing if they can mop up the market over the coming years. Sage, the SME market leader in the UK, has achieved its growth by acquiring companies and now has dozens of different products on sale throughout the world. They enjoy little organic growth from their existing products. Many thought that Microsoft would achieve this – as it did with spreadsheets and word processing. However its entry into the market has not achieved its initial growth plans and is still way off being the leading player. SAP has a very strong footing at the high end but still faces fierce competition from the likes of Oracle. Implementation of their software has usually been painful to say the least and people are wary of changing vendors.

So will the market consolidate? Maybe a single entry level system for the smaller business, a second for the mid market and a third at the high end? Or will someone bring out a one size fits all solution?

What will be the drivers for change? Will an existing vendor do something different and gain market domination – or will it be a new vendor? Or will we have the same fragmented market in 20 years? I’ll be talking to the vendors/users of systems in the coming weeks and let you have my views.