Recently ReadWriteWeb started a series taking a very high level look at online finance. One of the posts discussed the evolving online finance ecosystem. In the post, RWW editor Richard MacManus interviewed CEO of Xero (see disclosure), Rod Drury and repeated Drury’s assertion that online finance can be separated into four distinct types of markets:
1) Personal Finance (e.g. Mint, Wesabe, Yodlee)
2) Small Business Accounting (e.g. Xero, Kashflow)
3) Cloud ERP (e.g. Netsuite, Salesforce)
4) ERP (e.g. Microsoft, Oracle)
Which strikes me as a somewhat bizarre classification system, and not overly helpful in defining the marketplace. While it may seem a semantic discussion, to those of us who live in this world, it’s important to get this stuff right.
Looking at the four groups MacManus defined, it’s patently obvious that two of them distinguish different delivery mechanisms (cloud ERP and ERP), it’s wrong to separate them as the SaaS ERP players would point out rapidly that they’re seeing a major conversion of users from traditional ERPs – just look at the case studies put out by Intacct, Netsuite, Salesforce et al to see the proof of this. Add to this the fact that most of the traditional vendors are dipping a toe in the cloud space and you can see that the differentiation just isn’t there.
As for the rigid differentiation between personal and small business finance, when I posted about this nearly a year ago I said, and still believe, that it’s all just money:
the distinction between personal and business finance is pretty blurred. Almost all micro businesses I know use a personal credit card for business expenses – sure that can be solved via expense claims but that’s not really in keeping with the actuality. Similarly most micro businesses that require funding achieve it by using their personal equity to guarantee debt – again removing personal finances from this business finance model ignores this fact.
I put this to Drury who countered with the sensible point that:
[the] Names probably are wrong but the distinction is
On premise and off premise currently
Netsuite, salesforce are midmarket SaaS – say 10k to 20k+ per year
SAP, Nav etc are Web based enterprise. Minimum 100k – 1m starting, lotsa consulting
Big SAP will never be SaaS but they will have a midmarket product.
Which is still a little tenuous, but what Drury is getting at is the distinction between midmarket organizations (the $20k spend ones) and larger enterprise – the former definitely getting “cloudy” the latter less so. But again it’s a shifting space.
My classification of the online finance space is somewhat different and follows:
- Personal – products that are generally free to the user and subsidized either as a loss leader for a paid product or cross subsidized by partner organizations (Mint, PocketSmith, Xero personal)
- Micro business – a market of sole traders and freelancers, want a very simple application and don’t have significant money to spend on it – either economically price paid products or cross subsidized products (IAC-EZ, FreeAgentCentral, MYOB, Sage, QuickBooks, Xero)
- SMB – a market of businesses that need “real accounting” but in a simple way. They’re also driven heavily by price. Surprisingly enough this is one marketplace that is really under-serviced. Many of the micro-business products are slowly ramping up their feature set but this is the area of opportunity. Current best offerings are still desktop applications (Intuit (see disclosure), Sage, MYOB)
- Medium business – organizations with many employees, multiple branches and complex operations. Already heavily invested in IT and prepared to spend thousands of dollars on their finance apps (Intacct, Netsuite)
- Enterprise – the big boys, firmly wedded to large on-premises offerings and, frankly, not in a hurry to shift anytime soon. Best opportunity is for cloud providers to find “edge modules” to make inroads with them (SAP, MS)

@ben – you run the risk of lumping everyone as SoSaaS.
Distinctions don’t always have much to do with size but required functionality. I know companies of 50 persons running SAP Business Suite – that’s the biggie to which you refer. And yes, BYD is a saas solution so I don’t know where Rod D gets the idea the company doesn’t have a solution. And yes, there will be a huge push on it in 2010.
Dennis – fair call – cheers for the comment
Ben,
your classification is exactly how we characterize the market. The interesting question for the MicroBusiness offerings (IAC-EZ, Less Accounting, Clarity Accounting, FreeAgent, etc) is whether they should attempt to go head-to-head with the likes of QuickBooks Desktop in the SMB space. Part of their appeal is the ease/simplicity of use which would be hard to preserve when adding SMB features.
From a numbers perspective, MicroBiz looks like a better opp. In the US, SMB is about 6M companies and Micro about 20M. And, SMB is saturated (QuickBooks), while MicroBiz is largely un-tapped.
Ian
Ian – great minds think alike huh? Glad to hear we’re on the same book. Looking forward to chatting about this more…