This article was a joint collaboration between chartered accountant Jonathan Bradford and computer scientist Ian Leader. They blog at Jay Eye Sea.
In September Google added a presentation application to its Google Apps suite, thus creating an online office version of the
"holy trinity": word processor, spreadsheet and presentation tool. So what's next for Google Apps? What might be the next killer app? We think it will be an accounting system and in this article we will outline why. There are strong benefits to an online accounting service in Google Apps – both to users and
to the targeted advertising-driven business of Google. [Ed's note: we are also running a poll at the end of the article]
To date, there have been a number of online accounting systems developed - e.g. Mint and Xero - which
showcase some of the obvious benefits of online accounting:
There are a number of drawbacks in the solutions currently available:
Simplification
The greatest drawback from which accounting systems suffer is their UI. Accounting systems are invariably designed “by accountants for accountants”, which makes them overly complex for the small businessperson - who typically doesn't have accountancy training. At the end of the day, it's just debits and credits. Accounting systems need to be “Googlised” - in the same way that Gmail broke the mold from what had come before (compared to mainstream products like Yahoo! Mail and Microsoft Outlook), accounting systems need a simplified interface that makes sense to business people.
Costs
Accounting software providers are well known for limiting the functionality in their “starter systems” - forcing users to upgrade to more expensive systems if they want to do much more than they can already do in Excel. Online solutions have exacerbated this problem by charging small amounts on a monthly basis forever.
What are the marginal costs of operating an online accounting system? They do not require significant processing capability, nor do they have significant storage or bandwidth requirements.
Basic online accounting systems should be FREE. There are significant opportunities to generate revenues from other sources other than the core functionality. Small businesses are overcharged for “limited” accounting systems. Offering free business services is familiar territory for Google or start-ups working off a cloud computing platform, such as Amazon Web Services.
Google could bring significant expertise to online accounting, thanks to their ability to deliver simple, effective online applications with high-performance and reliable infrastructure.
But other than providing an attractive service to small businesses, which could be integrated into Google Checkout and Google Docs, what else would make this proposition attractive to Google?
Historical information
Eric Schmidt stated this year that it is “Google's goal to organize your daily life". However he also said that "we cannot even answer the most basic questions because we don't know enough about you. That is the most important aspect of Google's expansion."
Let's revisit the records within an accounting system and consider them from a different perspective: what we have is a detailed multi-year repository of information about a small business. Remember, business owners are required to retain records for a certain period by tax authorities.
The records would include: what it has been bought, when it was bought, from whom it was bought it and how much was paid. This is the information that 'loyalty cards' regularly look to acquire. So it creates significant opportunities to deliver targeted and localized adverts. Undoubtedly Google could generate revenues from an online accounting application that exceed its low incremental cost. Yes, there are privacy issues, some of which Google faced when it launched Gmail. But consider this: the threshold a business owner places on his/her business records are lower than his/her personal information. You regularly share your financial information with your accountant and bank manager – but you wouldn't do the same for your personal data.
A business owner might also benefit from sharing this information to allow Google to present more cost competitive suppliers. Furthermore, it is not unusual for small business expenditure to be greater than an owner’s personal expenditure – thereby creating a more attractive opportunity for advertisers.
Other revenue opportunities
There are two exceptions to 'accounting systems should be free': one is payroll, and the other is automated submission of returns (VAT, income tax and national insurance).
Both of these business processes require updating and validating on at least an annual basis, to keep up with changes in national legislation. Almost all small businesses pay an accountant and / or payroll agency to handle these - but an online system could offer this at substantially lower cost. This might not be that far away, given the recent additions by Google of Gtaxes to their DNS records...
Lack of innovation
Sometimes it takes someone to look at things from
“left field” to move an application forward. By way of example:
Online scanning. Since the launch of Book Search, Google has developed significant capability in scanning and the TesseratOCR technology. This could easily be used to scan invoices and bank/credit card statements – removing the tedium of its input. Furthermore, it will include additional information which would be valuable to Google. Rather than just record the flight costs, the invoice might include other information such as time, destination etc. These documents could be scanned or faxed – similar to the service provided by File123.
Mechanical Turk
If scanning documents does not appeal, why not use a service such as Mechanical Turk to outsource the manual input of less sensitive information, such as such as invoices. Scanned invoices could be randomly presented to different Mechanical Turk users to be input for a few cents.
Integration capability
Google already has a variety of services available that could be tightly integrated into an accounting system:
Tell us what you think in the comments - is Online Accounting the next business frontier for Google to enter? Or will one of the current crop of online accounting startups get there first?
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Hi there - I agree to a certain extent with the gist of this post - but there are a few points I'd like to respond to:
"Collaboration: More often than not, accounts are prepared collaboratively by a business owner and their accountant – and there may be a bookkeeper involved for all but the smallest companies."
My experience is that many accountants are very conservative and don't want change. They'll stick to what they know - even if that often means printing out reports for them. Having used an online accounting application (one that I helped develop) with two different accountants, they preferred to receive paper versions of reports than using the login that they had access too.
The inertia in the industry is tough to crack - but perhaps a Google branded offering might be enough to shift people over the line. I think it's telling that Microsoft has been trying to crack this market, albeit with paid models, for some years and still haven't really shaken the Quickbooks and MYOB stranglehold (assuming small biz market - their larger-company offerings have faired significantly better).
"But consider this: the threshold a business owner places on his/her business records are lower than his/her personal information."
I think perhaps the authors underestimate how private people like to keep their business accounts. Our experience is this is one of the key barriers to uptake of online accounting - that the data isn't secure and that it's hosted on a third party server. The idea of another organisation using this information for advertising or other benefits is a significant barrier.
Thinking about the payoff of someone sharing information with their accountant or bank manager. Firstly, those consultants have a strong trust relationship that exists with the business owner. Secondly, the value for disclosure is very high - more funding, overdrafts, analysis and advice on tax implications etc. How often does a business owner just hand over their business records to a supplier because they may receive some small benefit?
With regards to payroll etc. you suggest that "Both of these business processes require updating and validating on at least an annual basis, to keep up with changes in national legislation."
Two points - basic business records and handling of tax in an international system are perhaps more complex than is outlined in your article. GST in some countries, multiple currency support, tax laws and reporting requirements can all have slight differences. That's not to say these can't be overcome, but it's a significant challenge (one that a player like Google may be willing to tackle, but all of the apps on their platform have not required this degree of localisation).
There are many companies already applying the "mechanical turk" model to bookkeeping - it will be interesting to watch that space and see where it goes. Coupled with good OCR could produce interesting results.
All in all I think it will be some time before Google enters this market - certainly not within the next 12 months.
Also - there are a couple of other accounting webapps that may be of interest to your readers:
* Freshbooks - http://www.freshbooks.com/
* Saasu NetAccounts - http://saasu.com/
* Less Accounting - http://lessaccounting.com/
And invoice managers:
* Blinksale - http://www.blinksale.com/
* Simply bill - http://www.simplybill.com/
Posted by: Grant | December 12, 2007 11:29 PM
It's strange that you could write this article without so much as mentioning QuickBooks Online, which has been around for 6+ years.
Your critique of existing online accounting systems basically boils down to the fact that they are not free, and that you perceive them as being too complex. But without any specific examples of unnecessary complexity, how do we know that's true?
With regards to cost:first, we've seen many different kinds of online software succeed with non-free business models -- 37signals, salesforce.com, etc.
And the cost of the software itself is a very small percentage of what it costs to deal with small business finances. Tax preparation and an accountant's time are far more expensive than most small business accounting packages, online or not. The advantages of incumbency with accounting software is much more significant than with personal email or document sharing.
Next -- small business accounting practices vary widely across national boundaries. The localization challenges go far beyond language, making successful delivery of a truly international online service a remarkable feat.
I agree with some of what you've said about wishing for greater innovation in the space, and it may well be a promising area for Google. But your article leaves an awful lot out.
Posted by: dave | December 13, 2007 12:01 AM
Hi,
Buxfer (www.buxfer.com) is a great tool for PERSONAL finance management, I use it almost every day to track my expenses, who owes me money, splitting money between groups and comparing income vs expenditure on some of my side projects.
It also has budgeting, but I havent played with that yet =p
Craig
Posted by: Craig Morris | December 13, 2007 12:27 AM
There's no way I'm giving an advertising company access to my financial data. Ever.
Posted by: Jeff | December 13, 2007 2:42 AM
1 & 3 have it -- there are plenty of options out there -- some free, some not. For small businesses, a great lightweight choice is SimplifyThis.com.
Posted by: Sanjay Kumar | December 13, 2007 5:34 AM
I'm using www.TradeInvoice.com for my invoice management. It is simple to use (no accounting talk), reasonably priced (free if you only do a few invoices a month) and so easy to learn.
I think letting Google get a hold of all your finance details, is going to turn a few people away. I also believe there are other offerings Google would be better to provide.
Posted by: Pumm | December 13, 2007 5:44 AM
Come on, what makes you think that debits and credits make any sense to normal business people? Or that they are required for accounting? Financial statements (which are required) can be inferred by code from economic events (that is, what actually happened, plainly stated), with no debit and credit thinking needed by the users of the system.
The whole field of computerized accounting is filled with paving the cowpaths set up by paper-based systems designed several centuries ago. This stuff can be made a lot lot simpler.
For example, see http://en.wikipedia.org/wiki/Resources_Events_Agents
Posted by: Bob Haugen | December 13, 2007 7:06 AM
"There's no way I'm giving an advertising company access to my financial data. Ever."
Ditto.
I can't even contemplate using any online system.
Posted by: Dave Barnes | December 13, 2007 7:19 AM
i think this article makes a lot of sense.
Posted by: Coleman Foley | December 13, 2007 8:28 AM
do you think they could export financial info against the XBRL standard?
Posted by: Derek | December 13, 2007 8:37 AM
Derek, do you know XBRL well enough to tell if it would be any good for day-to-day business management?
I understood that XBRL is about external financial statements. Business management requires detailed info about actual economic events: receipts, payments, orders, inventory and production transactions, etc.
Can you find order line items in XBRL? (I went and looked, but the online doc is too opaque to tell, and I did not find the word "order" anywhere. Googling for XBRL "purchase order" suggests that they are "in the works", but there are impediments to their adoption.
Moreover, XBRL has a rep for being overly complicated (google for "XBRL complicated"), so simplicity was probably not one of their goals.
Posted by: Bob Haugen | December 13, 2007 9:00 AM
I understand peoples reluctance to let ANY online company (be it Google / Yahoo / Microsoft) store financial records, but people will and going forward people will be doing it more.
The big Three do need to produce a PERSONAL online accounting tool. I would use it to manage my statements from my bank. What needs to be done though is for the banks and any other company to agree a common standard of the metadata (not sure what XBRL is). When this is sent to you by post, it can be scanned and the metadata be recognised for what it is. Alternatively these companies can email it to you and export it into your PERSONAL online accounting tool.
The scanning could be done by a trusted company if needed. I could get my Bills addressed to Jez#123456767890JEZ at MAILSCAN plc, and they would automatically process it into my system. Why not trust the big three to do this for me??
I would like my bank to do it for me though.. save the rainforests! I see the end of Paper Mail being delivered through my letterbox in 10 years anyway.. anything important will be couriered to me.
I imagine its some googlers 20% project already.. it requires users to have trust that this OUR data is being managed responsibly.
For SMB's though.. doesn't Google have a relationship with Quicken? I imagine they are talking how to integrate this into GAFYD as we speculate!!
Posted by: Jez | December 13, 2007 9:04 AM
Accounting laws differ from country to country. I think some laws indicate that the books of records need to be kept onshore what then ??
Keeping Final data with any company is a trust factor. Most companies don't like to have their with any other company other then their Chartered Accountant Firm.
SOX compliance is another pillar which needs to considered too for sustainable practices.
Posted by: /pd | December 13, 2007 1:43 PM
Given Google's model of introducing Web Apps for long Beta's prior to ever putting their production blessing to them. I doubt that even if they were to introduce a Accounting program that they would be greeted the the type of response they are accustomed to.
We are talking MONEY here and no company I know of would want to risk their companies books on BETA software. After all what happens after 6 months and they find a major logic flaw in the software. Google says it only BETA software and the companies affected shouldn't have been using it in production. Google is off the hook, after all it is BETA software.
It's not going to happen, at least not the traditional way Google does things.
Posted by: Steven Ashley | December 13, 2007 1:52 PM
Bob says:
"Come on, what makes you think that debits and credits make any sense to normal business people? Or that they are required for accounting? Financial statements (which are required) can be inferred by code from economic events (that is, what actually happened, plainly stated), with no debit and credit thinking needed by the users of the system."
I agree with this wholeheartedly Bob - I think the underlying system must work in these terms, but the UI and process for entering data can be abstracted. Some of the systems in my initial comment definitely steer away from this kind of language. However, there are some circumstances where you have to expose the debits and credits approach (accountant corrections for example).
"Moreover, XBRL has a rep for being overly complicated (google for "XBRL complicated"), so simplicity was probably not one of their goals."
Agreed - and certainly not particularly relevant/suitable for small business. Strikes me that it's much more geared towards bigger business with heavy compliance/reporting requirements.
PD mentions "Most companies don't like to have their with any other company other then their Chartered Accountant Firm." I think this reflects that trust relationship, and also the fact that accountants and business bankers are bound by codes of conduct that increase a business owner's confidence in handing over sensitive data.
Dave says:
"Next -- small business accounting practices vary widely across national boundaries. The localization challenges go far beyond language, making successful delivery of a truly international online service a remarkable feat."
And Jez says:
"The big Three do need to produce a PERSONAL online accounting tool."
Those two comments I think point to where Google will head first. By focusing on personal finance, many of the localisation issues disappear - limited largely to multi-currency support which is a well solved problem.
Posted by: Grant | December 13, 2007 2:31 PM
It appears to me that Google is all about mass consumer market, and the demand for accounting is typically business driven. Google also want global presence with their solutions, and the complexity around localised tax makes this exceptionally difficult.
For example, Microsoft have a free Express version of Microsoft Office Accounting, however a business in New Zealand would quickly realise that it doesn't handle the basics of GST (the NZ Goods & Services Tax) adequately, and so would need an alternate localised solution.
I also disagree with the comment "... the threshold a business owner places on his/her business records are lower than his/her personal information. You regularly share your financial information with your accountant and bank manager – but you wouldn't do the same for your personal data." For many small businesses (in Australia and New Zealand), the personal financial information is inextricably linked to their business financial information.
I think there certainly is a future for online accounting, and agree that it must be aimed towards making the life of the business owner easier. It also needs to provide the core accounting that a businesses Accountant/Book Keeper/Trusted Advisor needs, and in a way that makes sense to them too.
(Please be aware that I am an MYOB NZ employee, however these comments are my own opinion and not officially endorsed by MYOB.)
Posted by: Stuart Bale | December 13, 2007 3:23 PM
LOL! And if Google didn't have enough information on us already :)
Posted by: SEO Canada | December 13, 2007 3:57 PM
I found it odd that FreshBooks wasn't mentioned in this article. If anything, I would expect Google to acquire FreshBooks (FB), as its still (relatively) small, has lots of killer IP, has a great team, and has a noteably Googly approach to product development, data analysis, and corporate philosophy. Basically, a good fit all around.
Dear Google: If you're hiring an M&A advisor, I am available.
Posted by: rod / techwatching.com | December 13, 2007 5:49 PM
Who knows which way Google will head, but I'm sure glad my company www.File123.com got a mention. While our goal is accounting related, we are in the business of securing important business and personal documents in an offsite location in the event of a disaster. But in addition to disaster preparedness, File123 has become a very useful tool for collaboration between people and their accountants or business associates. Try it out for free. Thanks.
Posted by: Matt | December 13, 2007 8:43 PM
I don't agree that this should be dismissed out of hand, as other commenters seem to. But the Mechanical Turk idea seems completely bonkers. Even if it was done in a way that didn't reveal any sensitive data, persuading people they weren't broadcasting their accounts to the world would be a tough sell.
Posted by: Tim Bradshaw | December 14, 2007 2:31 AM
Good article.
I find it interesting that I am willing to host my code with a third party but cannot imagine hosting my financial information with any third party. And I agree with Dave - even if I were to decide to use an online accounting software, there is no way I would ever host it with Google.
Posted by: BR | December 15, 2007 1:39 AM
While I understand your argument, I don't see a lot of people trusting Google with their business financial reports. Google is an advertising company and I do believe they want to know everything they can about your purchasing habits. Then they can target ads dirrectly to you. Advertisers would pay dearly for this type of information. I for one would not use such a service.
As someone who is married to an accountant I doubt she would use such a system first, Second there are a lot of securty concerns. Typical accounting packages hold bank account numbers as well as a lot of other personal informatiom. This would be a gold mine for identity theives and they would try very hard to get their hands on this type of information
Posted by: Bruce | December 15, 2007 5:16 AM
Actually this comment is part of a strategy that I recently learned about, and call "SEO for dummies" - read 2 blogs a day, comment and remember to include your URL.
Google uses this information as inbound links. Voila - 730 free links per year ... good for SEO:-)
Posted by: Soren Uggerholt | December 16, 2007 4:53 AM
Here at Saasu.com we are a medium sized online accounting SaaS (Software as a Service) provider and already offer a free version with substantial features beyond many of those mentioned above.
Putting Trust aside for one moment (because it can largely be addressed by people voting with their feet; opt in contracts; privacy laws in many jurisdictions; and not to mention Google Analytics already has a lot of revenue data), we think this commentary is very timely.
Saasu.com quietly compete in this space in more countries than most of the firms listed above (around 50 today) and with more users than many and with a 'carefully designed and engineered simplicity takes priority' approach.
Our thousands of users do trust us (based on what they tell us) but yes it is a serious hurdle and yes we work hard to continue to earn and improve that trust improving world class technology, people and more.
I think overall however the decision to trust someone else with your data is a commercial reality driven by time, if you save small business people enough time they don't mind the risk provided there is a way of migrating if they really really need to do so.
There is also the simple reality that plenty of clients of ours have told us over the years - 'I had my laptop stolen/dropped etc... and my MYOB files were lost but I was up and running with Saasu.com the same day. Thanks...'
We say 'your saasu.com data is backed up constantly intraday and has a guy with a gun on the door protecting it - does your laptop have that'?
The functionality debate is interesting, we think most people underestimate the real business benefits of online financial management and confuse it with simple invoicing. Sure that is a good place to start but it is only one. We go way beyond invoicing, but you can start there if you wish.
Many online accounting companies already do anonymous industry benchmarking and their clients are interested in seeing it and their clients also use SaaS providers for other key infrastructure (e.g. google corporate email, skype business for phones, word press for publishing, ebay pro for distribution etc...) so they are more than aware of the trade-offs that arise when information sharing is part of the price paid for 'network effect' benefits.
Also, SaaS delivery to small businesses is very nearly a consumer market in terms of scale and management approach so 'Google style' products and services can be powerful. That said, even though XBRL is interesting it is some time away in this segment due to the simple amount of time required to get your head around it (reduces payback for time poor owners) and lack of SME/SMB priced products supporting it.
Of course we all have reservations about market power being abused but that is the wonderful world of capitalism, speaking personally now I believe the open web is more than capable of enabling consumers to aggregate their views and influence corporations who don't deliver an appropriately fair or transparent service.
Happy to discuss more here or via our simplify life blog at saasu.com
Cheers, Peter.
CEO
PS: Wait until you see our two Q1 releases and you'll really see what we mean about some of this stuff!
Posted by: Peter J Cooper - Saasu.com | the web finance engine | December 19, 2007 9:21 AM
Add another online accounting application to the list of applications. http://www.efinancials.com, a relative newcommer to the market with a very clean interface.
More and more people will feel comfortable using these services as time goes on.
Posted by: Harold | December 23, 2007 10:01 PM