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DEBATE OF PC Based Systems Vs WEB between

Rod Drury: CEO of Xero
Ian Stephenson: CEO SoEasyAccounting.com Ltd

POINT 1 “SaaS web based development (3G) simply provides the model that enables “Software as a (chargeable) Service”. Ian
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Rod:- I’m not sure what that mean but to as SaaS is much more about Service that Software. Do you not charge for your Software? I think SaaS provides much more value as we can leverage our large team across a much number larger set of customers. Our solution is upgraded continuously as we learn more about what customers really mean. Perhaps you should clarify your point.

POINT 2. “To own the SaaS model is highly sought by investors because for ever, like the power and telephone companies, they can bill people or cut off the service. It’s a guaranteed income that the user will have extreme difficulty in opting out of.”
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Rod:- Yes recurring revenue’s are nice for investors but it is a massive investment to get there. And customers get a low monthly fee for a service that gets better and better. We (and I can’t think of any SaaS companies that would) would ever cutoff service. Why would anyone do that. Also we (and many other SaaS companies) do not require a contract so customers can leave anytime they like so we have to earn their love each month.

Ian:- The point here is whether you would have to cut off a service.  What is your policy if a customer fails to pay their account? Let them keep using the service? Provide them with access to their data so they can come out of the system? How long do you keep it before it is cleared as inactive? What would they import the data to?

POINT 3 “The price can also be adjusted according to the contract’s fine print.”
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Rod:- Answered in detail in the thread above. Trend is most likely down. Our philosophy is not to charge customers any more for the same service.

Ian:- The monthly fee could still go up. You do not have a contract stating that it will not. I am not trying to debate your right to charge. Point 3 identifies that the user is engaging in an unknown ongoing cost where as in PC based systems the cost if fixed and can stay that way for many years.

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POINT 4. “Who owns your company records stored in Xero? The data has to be owned by Xero because otherwise, if you failed to pay the monthly fee you could still ask for your data back and run it whilst you sorted out your finances. But if you actually did get the data back, what could you run it on?”
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Rod: - Answered in thread above. The customer owns their data. You can get it back. We hope that XBRL standards will lead to a neutral format.

Ian:- Hope is not a good word to use in a debate. What common business applications are available to read XBRL?

For the non technical XBRL looks like this:

<?xml version="1.0" encoding="UTF-8"?>

<xbrli:xbrl

xmlns:ifrs-gp=“http://xbrl.iasb.org/int/fr/ifrs/gp/2005-05-15″

xmlns:iso4217=“http://www.xbrl.org/2003/iso4217″

xmlns:xbrli=“http://www.xbrl.org/2003/instance”

xmlns:xbrll=“http://www.xbrl.org/2003/linkbase”

xmlns:xlink="http://www.w3.org/1999/xlink">

    <xbrll:schemaRef xlink:arcrole=“http://www.w3.org/1999/xlink/properties/linkbase”

    xlink:type="simple"/>

    <ifrs-gp:OtherOperatingIncomeTotalFinancialInstitutions contextRef="J2004"
decimals="0" unitRef="EUR">38679000000</ifrs-gp:OtherOperatingIncomeTotalFinancialInstitutions>

    <ifrs-gp:OtherAdministrativeExpenses contextRef="J2004" decimals="0" unitRef="EUR">
35996000000</ifrs-gp:OtherAdministrativeExpenses>

    <ifrs-gp:OtherOperatingExpenses contextRef="J2004" decimals="0" unitRef="EUR">870000000</ifrs-gp:
OtherOperatingExpenses>

    ...

    <ifrs-gp:OtherOperatingIncomeTotalByNature contextRef="J2004" decimals="0" unitRef="EUR">
10430000000</ifrs-gp:OtherOperatingIncomeTotalByNature>

    <xbrli:context id="BJ2004">

        <xbrli:entity>

Desktop applications tend to export data in CSV and XLS and without doubt, these formats are the easiest option for importing.
At least people can read them. The issue still stands, what can you convert to? For many companies their data is their business and
when it is locked into XBRL it belongs to us geeks. 

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POINT 5: “If the SaaS product did not provide the functionality you wanted, or you wanted to change to a more beneficial deal, could you download and re-import the data to the new product?”
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Rod:- Yes, you can get your data back from almost all SaaS services. And we have no term contract. Do you provide that in your product?

Ian:- Absolutely. In SoEasy Accounting for example you can export and import pretty much everything at any time including crm database, invoices, debtors ledger, creditors ledger, cash book, accrual, groups, products register and stock, audit trails, archives, and we also have document linking to clients xls, doc, pdf, jpg, psd, cdr, zip that can be exported as well.

This topic was covered in POINT 4: What can you export XBRL to? I bring us back to the point of discussion, Web vs PC and the advantage of PC over Web is that the data files are easily exportable by even a novice, and re-importable into 100s of other products so the user is again in control.

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POINT 6. “Provide silent back door access for the IRD so that they can automatically assess and deduct their taxes. Surprised they haven’t asked yet.”
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Rod:- They haven’t. But authorities can demand financial records from anyone, at anytime right now. Are you saying it’s a benefit that you can hide your books. I think you’ve got bigger issues if you get asked.

I’m sure that any access from authorities would not be silent. We would fight that hard and publicly.

Ian:- In the PC based systems there is a simple barrier between small businesses and the IRD and that is they don’t have enough staff to get around everyone so they take a sample each year.

With web based deployment the IRD could see this as an opportunity to “integrate government activities into the workflow of application provider’s solutions”. This is exactly what the Small Business Advisory Group suggested should be done.

With web based the audit of your accounts would be done by a routine instead of a person and I am sure the routine could also pass judgment and deduct its findings from your bank automatically. I can just imagine the phone call now: “Press 1 if our IRDbot has taken money from you and you feel it should not have. Press 2 if the IRDbot has placed a suspension on your business activity pending further investigation, Press 3 if you have been given an automatic Liquidation Notice…

As to the silent nature of a probe into your accounts, we can reflect on the fact that the IRD have access to your bank accounts in a silent manner now. What would the SaaS application do, present a popup letting you know they are having a look around? You would need some deep pockets to fight that hard.

These problems are not an issue in the PC based system.

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POINT 7. “When taking out a bank loan the bank could make it compulsory for the business to use Xero so that they can monitor your finances for you behind the scenes. (Always read the fine print!)”
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Rod:- It is likely banks will require a certain level of financial systems and regular reporting from any borrowers in the short to medium term. Smart business owners, like Paul above, have already worked out how to embrace that.

Ian:- Yes but what Paul does not take into consideration is that the bank now has full access to his business records and in essence have become a daily overseeing authority on his spending, and will do so long after the loan is repaid.

Plenty of people have applied for bank loans on a PC based system so why is the SaaS model beneficial in the process? The only one benefiting are the banks. What happened to privacy?

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POINT 8. “If the system’s method of analysis and processing was standardized, you could save costs by eliminating the bookkeepers (I think you are already able to do this), accountants and business consultants. After all the system could report directly to the IRD’s platform and do its own sums. I see The Institute of Chartered Accountants have already seen this as a benefit to its future members.”
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Rod:- We believe online accounting empowers accountants and small business owners. Yes the relationship may change but for the better. Most small business owners are not accounting or even business experts and they will always need a hand and the security of an expert adviser. We had 60 accountants do certification training in the last month so I think the industry would disagree with you.

As for reporting directly to the IRD. Yes that is the point of SBR and other industry/Govt initiatives to reduce compliance costs. It may that you don’t even need to do a tax return. Are you saying that is bad?

Ian:- The relationship will change. Currently there are 29,000 registered accountants in NZ. By reducing compliance costs I take it you are recognizing that SaaS could reduce the cost of processing the end of year reporting and quite possibly even eliminate the need for tax returns. These activities are the core business of accountants and I think such changes will result in their income reducing and a reduction in their numbers. PC based systems provide work for millions of accountants and book keepers world wide and what SaaS threatens is the industry numbers.

Software is very capable of looking after it’s self. SoEasy for example has an artificial intelligence built into it that makes sure people do not make mistakes. It took years to build and analyses over 5,600 common mistakes. The one difference is that our accountants then take the results and process them to legally reduce tax liabilities. Your evolution would see the accountants cut out and the results directly posted to the IRD’s system. Tax advice would be eventually eliminated as more rules were entered into the system. It is hard to believe that accountants cannot see the progression.

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POINT 9. “Eliminate tax loopholes by establishing verification procedures for certain types of transactions.”
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Rod:- That would make sense wouldn’t it.

Ian:- It depends who you are working for. Tax loopholes are a legal form of reducing tax. The standardization of the system would not benefit the business owner and would eliminate tax consultants.

In PC based systems, the interaction of owner and consultant provides an interpretation buffer zone between the owner and the IRD. SaaS would eventually eliminate this relationship leaving only the business owner, IRD, and a new profession called something like Business Tax Lawyer to defend the business owner’s various issues.

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POINT 10. “These are just some of the many advantages to the global community if you should put your business on the web. You may also find a benefit of being able to email your invoices. Oh that’s a feature available in the 2G platform so we may have to think deeper as to what your actual benefit is.”
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Rod:- With Xero you can email from any web browser, not just the PC with your accounting system stored on, and from your mobile phone.

Ian:- PC based systems can email invoices also so there really is no difference. SoEasy has been able to do so for many years and on top of this, you can email messages directly to your entire client base within minutes. You can even set up marketing campaigns that happen automatically whilst you are asleep and when we print something on a printer, it is at a high resolution where as web’s best possible resolution is 72dpi I think.

Not everyone has an email address so you do still have to print stuff out.

Another point is that PC based systems can also be delivered over the web, to your phone or PDA via Remote Desktop and what’s more, if you loose the signal on a PC base system, you don’t loose your work where as on a web based system your work is lost unless it was saved.

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POINT 11. “I can certainly see the benefits for everyone else so there must be one in there for your business and future employees somewhere? Oh that’s another bad one; we won’t need employees, we could get the software to do all the communications and negotiations. Better still we could set up a Trade Me environment where businesses could compete for work like an auction only in reverse. The lowest bid wins. After all if Xero can get all the banks, Tax Revenue Departments, accountants, and all the businesses to promote and use the same platform, what’s the need to employ anyone?”
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Rod:- Not sure what you’re on about there.

Ian:- This is probably the most important point.
SaaS is capable of eliminating jobs as I have previously described, especially in the accounting industry. When software can communicate with other software, there is no need for a great many other positions.

For example. Here is a stock ordering routine:
a) The software recognizes stock is low on kettles (boils hot water).

b) It sends an order file to an authorised supplier whose system imports the data automatically.

c) It processes the request, bills the order and produces a picking list for despatch.

d) The despatcher (the only human in the process) sorts the items and scans the deliver tickets against the despatch job.

e) The delivery ticket identifies proof of delivery and a secure process sends the invoice to your system which is automatically processed through to your creditor’s ledger, and request the payment from your bank.

f) The payment is transferred to the supplier

g) The payment is imported into your system and automatically lodges against the creditor and is processed through your cash book and accrual.

I know business owners would be salivating by now at the prospect of such a system and it is definitely possible. The problem is that the only person employed in the process is the despatcher. Numerous jobs have disappeared from the flow and as a result no one can afford to buy the kettle.

Yes I know there is probably a utube film that could identify with my phobia but the truth of the matter is that we are a delicate community reliant upon jobs for our people and our children’s future.

It is the intention of the web based accounting models to provide an advanced level of communication between systems with a goal to increase business efficiency and reduce costs. The real cost saving is employment and what SaaS can do for our community is to eliminate the very jobs that create the consumers.

That is exactly the position we are in at the moment but with the SaaS model it simply continues unless we can think of jobs to provide the growing numbers of unemployed.

PC Based software creates jobs and increases consumers.
SaaS reduces jobs and therefore reduces consumers.

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POINT 12. “2G has its place and in my opinion, it’s not at the bottom of the pile. At SoEasy Accounting we will stick to 2G with web integration”
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Rod:- Absolutely. Lots of applications still suit 2G. Retail, stock, warehousing still suit 2G. We may even add client features for some of those functions in the future. What we are also expect to see is that vendors with vertical 2G systems don’t have to rebuild the GL - we’ve done that, so they can invest in high value vertical applications or horizontal features.

Ian:- Sound like a global domination plan similar to Microsoft. Thank god for Linux!

PC Based applications do not intend to monopolies the industry therefore creating a larger development base. Why just use one GL system? There is a culture at risk here. Why not just get one artist to paint the base of all pictures and then others can add a bit on the top? Because we loose creativity and our society thrives on the stuff.

Rob My post did not claim the end of MYOB or 2G systems, they’ll go on for years but the delisting of MYOB is a significant event for the SaaS accounting industry.

Ian:- Believe it or not, MYOB is a small player in the market. Quick Books, Sage, SAP, for example, are much larger PC based systems and MYOB could disappear and be absorbed by the PC market within 3-5 years. The purchase of MYOB’s existing shares and resulting delisting is an indication of their strength. Investors are looking for sound investments and MYOB obviously impressed them. In this current climate, investing in highly developed PC based software is a good move considering that it shows a profit whereas SaaS models have yet to achieve the same.

Rob:- MYOB have started talking again about their SaaS product …

Ian:- MYOB have a problem in that they are written in many different platforms. They need to find one platform to move into and web is the obvious choice. It will be a difficult port and will take many years. It would be seemingly impossible for them to be able to port client’s existing data from the many different versions and their functionality will be limited for many years. They may just miss the boat on that one but that’s just a gut feeling. Lets keep our fingers crossed eh Kerry.

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http://newsletters.myob.com/In_Partnership/February09/index.html

The benefits sound really great …

“Imagine being able to access your clients’ general ledgers at any time, from anywhere. No more passing data files back and forth, fixing mistakes, or dealing with multiple software versions.

With MYOB BusinessBasics Online that’s exactly what you get. It’s an online accounting system for your clients - that you can access.

We’ve designed BusinessBasics Online to create a way for accountants and small business clients to work together. We believe it can re-invent the way you service your clients - opening up a new way for firms and businesses to operate.

BusinessBasics Online provides a general ledger, bank reconciliation functionality, invoice creation, debtor management and comprehensive management and GST reporting - all the features you’d expect from any entry level accounting system. What makes it unique is that you can work with your clients on the same data, guiding them and helping to prevent possible mistakes.

An accountant’s view enables you to see and access the GLs for all your clients that use BusinessBasics Online from a single screen. So you can work with them all simply and easily.

With BusinessBasics Online your clients benefit from an easy to use system. Because it’s web-based they can use it anywhere, anytime and they don’t have to worry about installing or upgrading software.

So BusinessBasics Online provides some great advantages for you, and your clients. If you would like to know more, visit myob.co.nz, email accountants@myob.co.nz or contact your MYOB Client Manager on 0800 94 96 99.”

So even MYOB would seem to agree.

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Rod:- Anything else you’d like me to cover?

Ian:- I have debated the job losses in both the general work force and accountants, the reduction in the consumer base, the cost differences, the loss of privacy, the elimination of the buffer zone between business owners and the IRD, the difficulty in exporting your data into another product and therefore being locked in, and most of all, besides being able to reduce you business costs (and in the process, eliminate the consumer base you rely on), we have not found one advantage in SaaS model other than people who you don’t know from a bar of soap can have access to your sensitive business information at any time. Just imagine if you had trusted Bernard Madoff to have access.

http://globalcomment.com/2008/50-billion-dollar-scam-the-saga-of-bernard-madoff/

There is also the massive issue of speed. The Internet is slow at the best of time and on the school holidays its better know as the World Wide Wait.

The web models motto “Work anywhere… slowly”.
PC model motto “Get more done in less time!” and time management is the one commodity the SME market need to manage. The web just isn’t up to it.

That is unless you can get the govt to spend big on a cable and that’s going to take years and is unlikely to progress in the current market. Why spend the money? We already have a very stable PC based infrastructure. Lets put the money into mentors, tax cuts, and venture capital.

 

For our community to accept Web based solutions we would need to project forward and see the true benefits for future generations. Right now we see it as the new kid on the block and provides a new direction for the IT industry with a subscription based model that is attractive to investors. But extrapolate the results and you will have as many questions as I do. It is not a question as to can we do it, it is a question of should we do it?

True power in software systems comes from functionality. For most web based products they still have years of development to go before they can match what is already available in the PC market. In today’s market you need functionality and PC based 2^nd Generation wins.

 

“It is not the end of an era, just a point at which we need to make a decision as to where we want to go.”

 

Thanks for the opportunity to debate this very important subject.

 

Ian Stephenson

CEO

SoEasyAccounting.com Ltd