Technology driven ecosystems are not new phenomena. The emergence of the PC had its moment, the internet revolution sprouted a wave of innovative thinking. Mobile is redefining business models and online accounting will inevitably share some parallels with prior technology-driven disruptions.
At the core of these disruptions are a few companies who are in a position to develop and share their vision of the future with their partners, suppliers and customers. The shared vision allows all the parties to coordinate their efforts and investments and work to a mutual benefit. Historically the bellwether companies have taken different approaches in directing efforts of others.
From humble beginnings, Apple relied on third party developers to differentiate itself from dominant mobile solutions of the time. By harnessing the innovative thinking of the developer community it was able to create a wave of successful software products, cementing its lead with each new app and creating a positive feedback loop.
From a competitor’s point of view, it is hard for an internal department to keep up with a system where multiple developers take investment risks, get rewarded for success and in the process improve the appeal of the platform. Of course some developers fail to gain a return on their investment but Apple is not affected by those costs.
Google, with its Android operating system, developed a similar approach, albeit focusing on hardware manufacturers (in addition to developers). By providing an open and customisable platform, Google was able to leverage R&D, marketing and production efforts across a range of hardware manufacturers and pricing points. For Google, while the potential for hardware revenues diminished, its software mobile ecosystem flourished at an incredible pace.
The online accounting ecosystem exhibits some similarities to the mobile space. The current pace of innovation in the add-ons space is high, driven largely by independent entrepreneurs and developers. It has given small business owners technologically sophisticated tools that can be tailored to suit their needs. As seen before, by using the open ecosystem, it is possible for a company to leverage the marketing dollars and innovative expertise of the crowd to outpace its competitors.
The are, however, several factors that question the viability of a truly open ecosystem in online accounting. Unlike the majority of mobile applications, online accounting add-ons require a considerably greater investment in development, marketing and ongoing support. It means that for an add-on to be financially sustainable it needs to achieve a certain level of repeating paying customers. This is a difficult milestone if adoption rates of the add-on program trail the general adoption of cloud software, and if the add-on only targets a niche (i.e. small) market.
Unlike the mobile world, where only a small percentage of applications are critical to a smartphone’s operation, a certain level of functionality across reporting, payroll, inventory, quoting invoicing, etc. is expected in a online accounting platform. A online accounting solution that is able to meet these standard requirements would be preferred to a solution for the same price that requires additional third party subscriptions.
If the core features are enhanced as a means of competition between accounting platforms, the demand for add-ons will be driven by specialised requirements, putting further financial pressure on third-party developers.
To date the success of the online accounting ecosystem has been driven by the pace of innovation. The next stage in its development will focus on economic viability.