Xenakis on Technology

Technology Sidebar: The Midrange Accounting Software Shakeout

Written by John J. Xenakis for CFO.com, Jan 10, 2001.

Microsoft's acquisition of Great Plains troubles waters that were already churning.

Microsoft's announcement that it's buying Great Plains Software is roiling a midrange accounting software industry that has already been increasingly troubled for years by several major trends:

• Rapidly changing computer technology: new versions of Windows and Internet-based computing models.
• Demand for internationalization: multiple currency support, multiple-language support, and support for foreign accounting and tax rules.
• Need for increased functionality: general business functionality such as project accounting, manufacturing, inventory management, E-commerce, supply-chain management (SCM), and customer-relationship management (CRM), as well as demand for support of numerous specific verticals.

When these trends are combined, the financial demands on any midrange company may become overwhelming. Indeed, although Great Plains has proven itself to be a very viable company, the continually increasing development costs required to keep a product at the leading edge was certainly a factor in the company's desire to be acquired.

In fact, almost every single midrange accounting software vendor has been directly affected by a merger or acquisition within the last year.

Great Plains itself has acquired two decades- old competitors: RealWorld Corp. and Solomon Software Inc. RealWorld's products are being phased out, and its resellers and 19,000 customers are being migrated to Great Plains Dynamics. Solomon's products are being maintained for its 20,000 customers.

London-based Sage Group plc was almost unknown in the U.S. until 1998, when it acquired State of the Art, a U.S.-based accounting software vendor. Then last year, Sage acquired Peachtree Software, and now markets a wide set of products ranging from low-end to high- midrange.

Denmark-based accounting software firms Navision Software a/s and Damgaard Software a/s had separately established strong presences in Europe and were slowly entering the U.S. market. Navision has been doing well, but Damgaard has had slow going, especially after a proposed partnership with IBM failed. Recently, Navision and Damgaard have announced a merger, with the new company called NavisionDamgaard.

In a stroke, AccountMate Software Corp. went from being a small, closely held U.S. company to a large international company, when it was acquired by Softline Limited, a South African company with major financial software offerings in South Africa, the UK, and the rest of Europe.

And SBT Accounting Systems was recently acquired by Accpac International, a division of Computer Associates' interBiz group. Accpac was itself acquired by Computer Associates in the early 1990s. SBT's products will continue to be marketed and supported on their own.

Timothy Tow, an analyst at the Gartner Group, expects the shakeout to continue, with a lot of added pressure resulting from Microsoft's acquisition of Great Plains.

"Ultimately, Microsoft and Great Plains will grab a greater share of the market, especially in Great Plains' strength, the pure financial accounting product," says Tow. "Sage's Mas-90 and Epicor's Platinum for Windows will especially feel the pressure, and it's likely that these products will become increasingly difficult to support and sell. Companies that provide manufacturing apps have more staying power in the market than those with just financial accounting, since Great Plains is not that strong in manufacturing."

(This is a modified version of an article that originally appeared on Jan 10, 2001 on CFO.com at this location. )