Monopoly money

Later this year, Microsoft will launch a version of Office that includes accounting software. Lesley Meall considers the implications for the world's suppliers of small business accounting applications

Microsoft loves a monopoly. It grabbed market share in the operating system market by convincing computer dealers to pre-load PCs with Windows rather than competitive products such as OS2, and dethroned Netscape Navigator as the browser of choice by bundling a free Microsoft Explorer with Windows. But the richest business mogul on the planet can't always have what he wants, exactly when he wants: witness the accounting software market.

Microsoft entered the fray at the end of 2000 with the purchase of US accounting software supplier Great Plains ($1.1b). This didn't play well outside its home market, so in 2002 Microsoft purchased the Danish supplier Navision ($1.3bn). This gave the company a way into fortress Europe, but world supremacy in accounting software remained elusive. Now, Microsoft is preparing to launch its third assault on the marketplace and, this time, it's using a Trojan horse. It has added an accounting application to the world's leading suite of productivity tools (see box). Alongside familiar applications such as Excel, Outlook, and Word, Microsoft Office for Small Business Management will include MS Business Contact Manager and MS Small Business Accounting.

'It will be an easy-to-use financial management program that will bring the ease of use of Office to accounting, while offering deeper integration with Office than any other vendor,' says Dave O'Hara, Vice President of business development for the small and mid-market solutions and partner group at Microsoft in the US. This is an interesting assertion, and one that could strike fear into the hearts of the numerous national suppliers that currently dominate the small business accounting software market.

Take Intuit and Sage: the market leaders in the US and UK respectively. As developers, they have to work with Microsoft, but it is also their main competitor - and not because of Money Small Business or Small Business Manager. When it comes to very small enterprises, the rival accounting software suppliers most frequently face isn't actually each other. 'Our main competitor is the spreadsheet,' says Kamlesh Rajyaguru, the QuickBooks product manager with Intuit.

Around the world, millions of small business people opt for the spreadsheet over accounting software, because they think it is easier to use. 'It's a problem of perception,' says Peter Reich, IT services director with the accounting firm Carter Backer Winter. 'Most small business clients simply don't want to learn lots of new terminology.'

A spreadsheet can be set up to use any term of reference you choose, requires very little specialist financial knowledge, and there are an awful lot of them out there: more than 300m copies of Excel are installed worldwide. So, in theory, Microsoft has a heaven sent opportunity not only to provide a painless upgrade path to some of its small business spreadsheet customer base, but to use its brand strength to get new entrants onto the first rung of the accounting software ladder - from where they can move up onto other products in the Microsoft Business Solutions portfolio.

Most small businesspeople currently take that first step with a well-known national product, but they might easily be persuaded to take the path of least resistance. 'If Small Business Accounting has an interface that uses layman's terms, it would be a very appealing proposition,' says Reich. This, however, may not be the case.

'Small Business Accounting quite clearly isn't an entry level product,' argues Paul Stobart, MD of UK business for Sage, 'it's a proper accounting product for people who know how to use one.' The proof of the pudding will eventually be in the eating, but SBA is certainly not short on features, and some of the functionality is quite complex. 'This begs the question: 'What's it doing in Office?'' says Stobart.

Support

It's a fair question - and not just because Microsoft may be trying to leverage unfairly the quasi-monopolistic status of Office. There is also the issue of support. According to Microsoft's O'Hara, the new Office edition will be 'delivered and supported' using 'the standard model for all Microsoft Office system products'. So, hand holding and support for new users is likely to be thin on the ground, which could be a problem for many small business users.

It is not unusual for practitioners to be called in by desperate clients who have tried to get to grips with a package on their own, only to realise it was way beyond their capabilities. 'At the moment, you need some level of accounting or bookkeeping expertise to exploit even the best market offerings,' says Reich. Take assets and expenses. As a finance professional, you know that a computer purchase needs to go into the chart of accounts as an asset, but how many small businesspeople do?

Without a finance professional, or a reseller with the necessary expertise, basic ignorance can cause costly and complex misunderstandings. This is one of the reasons why organisations such as Intuit and Sage work so closely with accountants. The other is power: practitioners are the single biggest source of sales referral. 'In the US, accountants play a critical role in Intuit's success,' says Cameron Peters, the director of Intuit's personal finance division. 'Nearly 60% of QuickBooks customers were influenced by an accountant to purchase the software.' A similar situation exists in other national markets.

'Localness is very important to small businesses,' explains Stobart. 'Sage has to be more British than the British, and more French than the French.' In addition to differences in business practice, fiscal and legal requirements vary widely from country to country; and all of this has to be reflected in business and accounting software. Suppliers' also have to be able to respond quickly to change. 'When the Portuguese Government introduced new VAT rates last year, the software updates were done, dusted and on the shelf within 24 hours,' says Stobart, adding: 'I'd like to see Microsoft do that.'

One area where Microsoft does have the opposition on the run is integration. 'This is really what small businesses need,' says Dennis Keeling, chief executive of trade association Basda. 'The new version of Office will relieve people of the many problems caused by systems that can't easily talk to each other. It's all good news.' Even Microsoft's competitors seem to agree. 'It's been a timely reminder that Sage needs to improve its own integration with Office,' admits Stobart. 'We haven't done nearly enough to build deeper integration, and now we will.'

Lesley Meall is a writer on business and technology issues.