The accounting technology market has always moved between times of consolidation and expansion. So, the recent moves by Iris, Bright and Sage to acquire Senta, Accounting Manager and Futrli respectively, is all part of a well-accepted pattern. There has, recently, been a renewed interest in the approach to ‘build, buy, or partner’. This term refers to the fact that ambitious and well-funded accounting technology vendors often have a choice between building out their own capabilities or doing it via an acquisition. But, the fact that ‘buy’ is currently winning out will have a knock-on effect for your practice.
Owning more of the process
Most software these days is in the cloud, meaning that data passes between them much easier. Lots of applications will have these technical relationships, and some like Xero have grown very much to depend on them – as their Xero Marketplace shows. However, when a vendor acquires another it expands their in-house capabilities directly, allowing them to create tighter integrations and control more of the inputs and outputs.
On the whole, this kind of approach tends to add value – especially if you are using both bits of software already. Creating better features, and merging functionality so that you can do more in one place has its advantages. However, it can also mean that functionality can be limited or removed altogether – as we have seen recently with Intuit buying Datadear and making it unavailable to Xero users. This latter approach is increasingly seen as a step backward, as keeping the doors open to competitors can also be a positive.
Buying into your competitors’ clients
If the company you are buying has integrations with lots of providers you are also acquiring a link to your competitors’ clients. It’s likely some of them may not have considered using you before. A good example of this is Sage’s acquisition of Futrli, which instantly bought them analytics and reporting capability. But, as the bulk of clients are linking to Xero ledgers they are also making money from the Xero ecosystem, and enticing them to become Sage clients in the future. Often a software vendor decides to sell as they have taken things as far as they can, and need the resources and strategic fi t of a larger business to take things forward. What the acquirer gains in capability they also gain in market share, revenue, and the ability to market to their new customers. Firms who are existing clients shouldn’t expect the hard sell, but there will be an expectation they can be enticed to give more of their IT spend in that direction over time.
Creating new services
An acquisition where a vendor wants to create a whole new service is likely to have much more of an impact. That’s both in terms of overall benefits, as well as potentially the most frustrating from an end-user’s perspective. The Iris acquisition of Senta practice management software has provided a basis on which to develop their new flagship Iris Elements platform.
Essentially, Elements is the first substantial step Iris has taken towards creating an affordable and true 100% cloud practice and compliance solution. What this means for existing Senta and Taxfiler (which Iris purchased in 2018) customers is that they will be required to migrate to the newly-badged IRIS Elements Practice Manager and IRIS Elements Tax & Accounts services. On the positive side, Iris will have a substantial product that can be developed on a module-by-module basis, opening up the potential for a much more scalable and integrated experience overall. However, for those that have bought into these ‘challenger’ providers, precisely for the fact that they weren’t part of the larger software groups, then this may prove to be frustrating. Essentially, these customers fear future price increases, and the loss of a closer and more responsive customer service approach.
The innovation cycle
For those who have been in practice for some time, then this is just the latest round of consolidation in the accounting software market. The cycle of innovation comes around at regular intervals pushed on by technological advances, and often accelerated by regulatory change as we have seen with MTD. Choice is important for accountants to best serve the wide variety of clients that they have, and as long as there are businesses there will always be complexity and challenges to solve. What we must remember however is that software is there to meet our ends, not just the ends of the provider. If you feel it’s no longer in your best interests, then just look around, the cycle has probably already started.
