As part of our Accounting 2.0 series here on CloudAve, we reached out to some accounting software visionaries to give us their take on the future of accounting/business software and how the eco system would look five or ten years out.

Xero is an almost two year old SaaS accounting player that has visions of becoming a world player. Their offering (CloudAve review here) is winning accolades far and wide and their founder and CEO, Rod Drury, agreed to take part in this series. If you're an accounting or business software visionary and wish to take part in this series - please contact us to discuss.

Where will accounting be in 10 or 20 years? Bill Gates once wrote: “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.” I think we’ll see a huge amount of change in the next few years. The last big change in accounting was the move from DOS to Windows.  Moving accounting online changes everything.  Here are my predictions for the next 3-5 years.

1. Online accounting won’t exist as a product category for long

When accounting moves online it doesn’t stay in its sandbox. Once you have online accounting it naturally wants to link to everything else.  Payroll, CRM, your web site and line of business applications.  When accounting is locked in a desktop application only a few people use it in the back office. Online accounting is multi-user, has different user roles allowing front office staff in and links to all the other systems businesses use.

Small Business don’t do integration projects but in the SaaS world vendors are encouraged to work together to integrate their products so small businesses don’t have to.  Some vendors may decide to develop the surrounding modules and have full suites and others will make it easy to link with complimentary solutions. Both models are valid.

Online accounting will become broader business management.

2. Bookkeeping will go away, slowly

Online systems facilitate Electronic Data Interchange (EDI) between banks, suppliers and customers.  Having the application hosted centrally allows the vendors to continuously link to more systems and reduce manual coding. Only brand new transactions should ever have to be coded.  Even the smallest business will have a near real time view of their financials.

Accounting remains the interpretation of the numbers, but manual entry and coding of transactions will reduce significantly over the next few years.

3. Governments get very interested in online accounting

Centralized systems can dramatically reduce Government processing costs.  As they start looking at Standard Business Reporting they’ll see the power of the centralized model which can be justified by reducing compliance costs and benchmarking.

4. Business Internet Banks will emerge

One bank will get the power of the web 2.0 model and expose their banking services as a collection of developer friendly API’s and turn business banking on it’s head. It will take competing banks 2 years to catch up until those services normalize.

5. The Accountants channel becomes more important

When the credit crunch turns around, finance sales people won’t exist as they did up until last year and there will be greater covenants on borrowing. Accountants will play a key role in introducing finance into business and reporting loan status.

6. New global leaders will emerge

There is no global mega company in this space.  The incumbents will eventually get there by acquisition but there is room for a few new players to grab significant market share over the next few years as they are unencumbered by legacy models.  Zoho is one of the companies we’re watching as they are executing around the space and we’re sure they’ll have a product in the market soon. There is plenty of room however and lots of opportunity for niche and vertical players as market size is so large.

7. It really will become software plus services.

For the next few years all the vendors are working on getting their web architectures right.  Parts of accounting will benefit from the power on the local device so we expect to see some functions available and optimized on a smart client, but the cloud will be working for you while you’re asleep.

8. The channel changes

New channels such as telecommunications carriers and banks become the channel for accounting software. Retail computer stores will simply sell less software. It’s difficult to pay a traditional retail channel under a SaaS model.

9. API standardization

A standard will emerge for the major business transactions such as Bank Statements (beyond OFX), Invoices, Contacts etc. Some of this might evolve out of XBRL or Standard Business Reporting as Governments get more involved.

10. Microsoft will enter the market

Microsoft is the only global software provider that already has a relationship with the majority of small businesses around the world.  They are going to be player here, probably via an acquisition. There will still be room for others as products go in different directions.