The Open Source Future of Accounting

Rod Drury’s ten trends in accounting are spot on, but they could all be encapsulated in the first: “Online accounting won’t exist as a product category for long.” Rod writes…

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.

Like all software, accounting software is becoming part of an ecosystem. As the ecosystem evolves, components evolve and connect to diverse related components. The emergence of standardised APIs, integration with other business modules and with banking systems, and the emergence of a market for integrators are all artefacts of this.

What Rod misses is that the exact trends he predicts are strongly favourable to open source accounting software components. Accounting software is the classic example of the “critical non-core” category where open source works best. As Geoffrey Moore points out, accounting software doesn’t by itself make anyone any money, but everyone has to have it. There is therefore no threat to competitive advantage in collaborating around it. In a component-based environment, even business models that do rely on particular transaction flows derive their advantage from implementation, rather than the components themselves.

Another trend that favours open source accounting solutions is the suspicion of business models based on lock-in and datamining. With open source cloud solutions, the customer has greater freedom to move between service providers without having to change the software that they use.

In the last couple of weeks, I have heard of two projects to integrate time and job management modules with the open source accounting system that we use, Ledger SMB and help of www.greycpas.com.

One Response to “The Open Source Future of Accounting”

  1. Lightweight

    Dan, that analysis is excellent. I couldn’t agree more. When Rod asked us, after his presentation on Xero at the Cii a few months back, who was *not* going to go right out and set up an account on Xero, I was one of two who raised our hands. Rod asked me to explain why I hadn’t fallen for his pitch… I said “because I’ve been using an open source web based accounting solution (LedgerSMB) since 2002. It might not be as pretty as Xero, and it might not integrate directly with the banks, but it has a great feature set, has been extremely reliable, costs nothing to run, I control the data, and I can integrate my other systems with it the way I want to.” His response, out of the corner of his mouth, was “don’t tell anyone about that.” I suppose time will tell whether Xero and that proprietary web services approach offers sufficient value to retain its market share in the long term… My question is what happens, now that Xero have paved the way for agreements with NZ and AU banks and promoted the idea of “cloud accounting” in the marketplace, when a different service provider initiates those agreements with banks but instead uses LedgerSMB or similar as the actual software and undercuts Xero substantially on cost (due to not bearing the full cost of development and market education)… I’d say that Xero should make hay while the sun shines, because the market window is pretty narrow. Best of luck to them, and thanks for carving out the new niche.

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