The web has been awash with chit chat on the bid by Agresso for CODA last week. Will it go ahead - the view seems to be yes, but at the end of the day who knows? What impact will this have on the Accounting Software Market and of course on CODA customers?

The last few years has seen a fair amount of consolidation in the Industry. Sage continues to buy up companies. Infor has made a number of acquisitions including Systems Union with the Sun Accounts and Pegasus products. Iris has acquired CS Group etc etc.

As a result a number of vendors now own several completely different Accounting Software products. Microsoft and Oracle being two examples. What are the options facing these vendors?

1. Make money out of the well established and usually profitable user bases. This is typically achieved by cutting back on R&D and staff/support costs, increasing prices and trying to sell add on products/services to the installed base. Impact on users is usually not that positive. Less new product comes out, prices can go up and service can deteriorate. Suppliers that take this approach rely on customers to be slow to switch to another vendor – as it is so much hassle and expense.

2. Try and grow each product in the stable in its own right. This is typically achieved by trying to find a niche for each application and drive new business through separate sales/marketing teams. Sage, for example, achieves product differentiation by having different applications on sale in different countries. There is limited evidence of the success of this strategy in terms of generating real growth for a particular product for a vendor. Vendors struggle to create a compelling marketing message on each of their products and can cause confusion if they offer several different products for sale. I would suggest Microsoft is an example of this. Having vendors with different products on sale in different countries carries the risk that global players will take out their market share over time – by having one product sold/used globally. Larger clients benefit from having one application in use globally. All organisations should gain from the economies of scale a vendor enjoys from developing/selling/supporting one product globally.

3. Integrate all products into a new/combined application – or move users to one of the products. Microsoft has/is trying to bring the previously named Solomon, Navision and Great Plains together. Oracle is making similar efforts with Oracle Financials, Peoplesoft and JD Edwards. Combining products creates a huge challenge as different product operate in different ways – e.g. with their GL coding structure. This is limited evidence that this approach will succeed.

The alternative of trying to get a customer to switch from one product to another is fraught with difficulty. The conversion route can be tortuous and costly – and often leads to customers looking at solutions from other vendors. Pegasus in the 1990ies tried this approach, buying up several user bases and trying to convert them to their mainstream products. They had limited success with this.

So what strategy will Agresso adopt with Coda? Cash cow seems very tempting for the CODA/Dream core ledger clients. CODA does have some tasty BI tools that they could merge into Agresso of course – which could help the Agresso client base.

I spoke today to Gareth Arnold – the UK Product Manager of Microsoft’s new entry level accounting system. He was very bullish. Since launching the product late last year they have had thousands of downloads and a real interest in their new application.

Microsoft is putting considerable effort into recruiting Accountants to Microsoft’s Professional Accountants Network. They offer free software, training and support to members of this group. In the UK they have already exceeded their recruitment targets that they hoped to reach by June this year and if the current rate of sign up continues it will not be long before they overtake Sage with numbers of accountants in their program.

With the entry level product, Accounting Express, being supplied free of charge they have an attractive offering. In terms of the potential impact on Sage Gareth says that the product is focused at organisations that are not big enough to have an employed accountant/accounting professional on board – typically with up to 25 staff. This is certainly close to the Sage 50 product range (previously called Sage Line 50) and is likely to affect future sales of this product.

At the moment Accounting Express/Professional has been focused on the UK and US markets. Compared to Intuit with QuickBooks Microsoft has some work to do to develop and supply a global product. In the long term there is the opportunity for vendors to offer one product globally – and enjoy the economies of scale that this brings. QuickBooks has made good progress in this space and Microsoft will need to thing hard about bringing out a global product if they want to really succeed.

Interestingly Microsoft has decided not to offer their product as SAAS (Software as a Service) i.e. a hosted web based solution. Some would argue that part of the reason for this is their determination to encourage users to keep their PCs/Desktops – and continue to buy software for each machine from Microsoft. However, the counter view is that web based solutions are still not being adopted that widely and accountants prefer to have their data loaded on a machine in their office – rather than an anonymous server with the obvious security concerns. I expect their decision to offer their software to run on a PC will have little impact on their sales in the next few years.