CCH and Xero face uphill battle, rivals say.
Two of the largest vendors of practice management software for Australian accounting firms have underlined the difficulty of breaking into the market in the face of recent acquisitions by cloud accounting vendor Xero and financial information services giant CCH.
CCH had previously attempted to sell practice management software in Australia but had little impact on the market, said Clive Rabie, group CEO of Reckon, maker of the APS and Reckon Elite suites. However, he recognised that CCH would be “an intelligent competitor”.
CCH was best known in Australia for its information services to accountants, but its parent company Wolters Kluwer was the second largest supplier of practice management software in the world.
The Acclipse acquisition was CCH’s way of getting some traction. “CCH has been here for four or five years, they haven’t been able to be successful and they’re pulling their hair out. So they say, let’s make a little acquisition so at least we have some traction on the market and then we’ll try and build from there,” Rabie said. “If a big firm in the industry for many years are having difficulty then it’s hard to think that Xero will (succeed)”.
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While CCH had a strong relationship with accountants, “the question to them then is why have you been in this market for five years and not got any traction?” Rabie said.
“Everyone is already running some system. The barriers to entry for anyone bringing practice management into other markets is extremely difficult.”
“Pedigree counts for a hell of a lot in practice management and should never be underestimated. That’s going to be a challenge for CCH,” said Alan Osrin, managing director for Sage Australia, developer of Handisoft practice management software.
Osrin said Handisoft picked up a lot of business when CCH pulled out of practice management software during a previous attempt to crack the Australian market. “The accountants who have been around have long memories,” Osrin said. “CCH haven’t been successful in the software business ever since they pulled out” the last time.
“We did indeed investigate bringing the US full Practice Management suite to Australia,” said Emma Watson, Wolters Kluwer’s regional director for strategy, innovation and technology. “However it was clear early on that a local solution was required for many of the modules, such as practice management and tax in particular.”
CCH launched a small range of point solutions which suited the local market, Watson said. “The Pfx Engagement product has sold well and provides firms in Australia with an audit solution which integrates with our CCH content.”
Mastering the domain
Selling practice management software required a lot of domain expertise to understand how to make an accounting firm more efficient, Rabie said.
“When you look into best practices the cost of software relative to the amount of revenue they generate is very, very low. Accountants look at the most efficient software, they don’t necessarily look at the best price,” Rabie added. “It’s not about price it’s about what are they comfortable using and what gives them the best experience.”
Cloud programs such as Xero’s WorkflowMax Practice Manager and CCH’s iFirm would take a long time to match the features of the server-based incumbents, Osrin said. “iFirm looks very nice but functionally it’s a bit light. It’s going to take the cloud guys a long time (to create an equal product). There’s years and years of (intellectual property) in our product.”
Sage was working on adding mobile functionality to its practice management software including a document portal and cloud-based time sheets and calendar. But few clients had expressed any interest in moving the whole suite to the cloud, Osrin said.
“Our development is always based on meeting the requirements of our clients. That’s how we decide what goes in the next version of the software. If you asked me whether one of our clients would like to be sitting on a beach processing tax returns, I’m not sure how practical that is.”
Sage was also preparing to announce an initiative to provide its practice management software as a hosted solution through a partnership with national technology provider OBT. The “private cloud” approach trialled by some firms gave them access to the software without having to buy servers themselves.
Software which only offered partial solutions for firms, such as WorkflowMax which lacked tax and integrated document management, would not be attractive to accountants, Rabie said.
“A standalone workflow product by itself in my books would not be practice management. If you look at our whole product suite we have document management, workflow, business process automation, tax. There are lots of things,” Rabie said.
Rabie also questioned Xero’s strategy of giving away practice management software to accounting firms which sold a minimum number of licences. “We pay $1 million a year just to keep our tax product up to date. That’s a lot of money to spend on no income,” he said.
The decision to give away practice management software left Xero vulnerable to moves by rival companies, Rabie added. “Everyone is not going to sit around while Xero gives stuff away for free and not be competitive. (If accountants say) ‘Xero is giving away tax for free and they’re going to get my business’, I might as well give accounting software away for free. So where’s the market going to go?
“If you go into a market and give away something for free and then you get affected in another space and all of a sudden you need to make money from it – it’s never to me been the smartest strategy that I’ve ever heard of.”
Sage’s Osrin agreed that a free strategy would not guarantee success. “There’s an old saying, ‘you buy cheap, you buy twice’. If it was a functionally rich product I’m not sure they’d be in a hurry to give it away for free.”
MYOB declined a request for comment.