It’s time for companies of all sizes to start thinking seriously about migrating their financials to the cloud. In the early days of the cloud, I was an investor in Closedloop Solutions, a SaaS solution for dynamic financial planning, since sold to Lawson. At that time, IT and financial directors were hesitant to place sensitive data outside company walls. Much had not yet been proven about the security, reliability and fine-grained controls on the Web. This is changing now, and fast.
But first: some disclosure. I am an investor in cloud companies and founder of a new VC firm, Costanoa Venture Capital, which focuses on software as a service (SaaS), analytics and cloud startups. I sit on the boards of Intacct, Demandbase, Guardian Analytics, Inflection, LinkSmart, Return Path and QuinStreet.
Having worked in the Web software industry since the founding of Netscape (where I was the first product manager), I have some perspective on the development and maturity of business-class cloud services. Back in 2000, when companies such as Salesforce and Host Analytics were pioneering enterprise-focused SaaS providers, only progressive SMBs considered the concept of subscription-based online software. Larger companies and those in industries handling sensitive data, such as healthcare and financial services, wouldn’t even consider going to a SaaS provider due to their concerns about both security and uptime.
SaaS providers responded, instituting tighter physical and digital security technologies and measures, implementing modern interfaces that look and feel like the tools their employees use as Web consumers and delivering contractual guarantees for service levels that meet enterprise standards. In 2012, we witnessed the continuing success of several public SaaS companies, including Workday in Human Resource Management (HRM), ServiceNow for automating enterprise IT operations, Salesforce.com in Customer Relationship Management (CRM) and LogMeIn for remote systems management.
Acquisitions of SaaS leaders such as Eloqua, RightNow and Taleo by Oracle and Success Factors and Ariba by SAP showed that enterprise incumbents understand that the market has turned. The next group of SaaS leaders, including Intacct, Marketo, Demandbase, Return Path, and DocuSign are poised to demonstrate the same level of growth and performance in their respective categories.
CIOs and their deputies are seeing that their level of control and security for critical assets and data is just as great or greater in the cloud as when their system administrators install and manage the assets themselves. Most importantly, in a challenging economic environment, companies recognize the need to improve productivity and agility, which are cornerstones of cloud applications. Finally, critical enterprise integrations are far easier and less expensive with cloud applications, which is helping companies realize the vast benefits of best-of-breed environments.
In financial software, SaaS offerings have matured sufficiently. CFOs are seeing beyond the bottom-line benefits of reduced capital spending and IT maintenance costs. They’re looking at how cloud-based financials can help business leaders respond to market opportunities faster and compete more aggressively.
The impact of consumerization
Ask anyone who’s a regular user of cloud-based financial software and they will tell you the same thing: it’s vastly easier to share information, manage workflow and do reporting. The technology enables organizations to complete all activities within the system, instead of exporting data into a spreadsheet for reporting and analysis or distribution. Integrating analytics and business processes into the applications, rather than dumping data out into a spreadsheet for ad hoc analysis, saves time and reduces errors. Yet there are exciting new opportunities ahead.
The expectations of business users now include interfaces they can learn on their own and “mobile first” environments that let them be productive wherever they are. In fact, many providers of business productivity software have successfully targeted individual users for initial adoption with a “land and expand” strategy, including Dropbox, Evernote and Yammer (now Microsoft). Applications that delivered acceptable user experience 10 years ago, such as Peachtree and PeopleSoft, are now clunky in comparison.
The impact of integrated analytics and workflow
The first generation of SaaS companies replicated the on-premises versions but made them available as a service; groundbreaking as this was at the time, it was all about the delivery model. Now, cloud apps have advanced sophistication in analytics, structured workflow and collaboration.
By enabling better collaboration between the finance group and business users, a company can benefit from tighter alignment of spending and budget. There’ll be fewer surprises, more cooperation and better allocation of spend and matching of financial priorities with business priorities.
For a multi-site or multi-entity company, the complexity of financial reporting and planning is overwhelming, particularly when based on spreadsheets and disconnected systems. By integrating data, analytics and workflow in the cloud, companies can streamline processes, ensure accuracy and increase business agility.
The impact of easier third-party integrations
Fifteen or 20 years ago, there were just a few large suite vendors. The CIO typically bought a mammoth ERP system with the hope that it would limit custom integrations, while realizing that the tradeoff meant that some modules would be weaker than others. CIOs with more ambitious agendas tried to cobble together a best-of-breed environment — at considerable cost and pain — and sometimes with suboptimal results. Either scenario involved great expense and risk and often took years to implement. That world is now gone.
Many observers have called the current phase of software innovation the “API economy.” Application programming interfaces are critical because they enable a company to tie together best-of-breed applications and create a highly functional, integrated business system. Successful SaaS vendors are in essence platform companies, exposing key functions and data to customers, Value Added Resellers (VARs) and partners. APIs have become so critical to SaaS companies that an entire industry of API management companies has been born to help vendors control and distribute APIs. Companies such as 3scale and Layer 7 are leading this effort. When vendors are not able to handle integrations for customers, products and services such as SnapLogic, Jitterbit, Boomi or Cast Iron can do the dirty work.
Today, integrating Intacct for Financial Management, Salesforce for CRM and Clarizen for Project Accounting is as seamless as an enterprise customer using Workday. Better yet, companies avoid the “jack of all trades master of none” issue that has always plagued the suite vendors. Some companies will continue to prefer the “one throat to choke” approach, but in my view, best of breed will become the predominant approach for most organizations.
Cloud financials are on the cusp of something truly game-changing for customers. Interfaces that let business users be productive without extensive training are facilitating collaboration across functions that on-premises vendors can’t match. SaaS leaders in this space deliver tremendous value with advanced platforms and integrated analytics.
When considering a move to the cloud, finance directors need to do their own evaluations of features, cost, security, workflow, collaboration and integration with other systems. Having observed the development of products in this category for 13 years, when I review the data and the experiences of my portfolio companies, it is evident that the time to move financials to the cloud is now.
Greg Sands is founder and managing director of Costanoa Venture Capital. Prior to Costanoa, Sands was managing director at Sutter Hill Ventures. He serves as a director at DemandBase, Guardian Analytics, Inflection, Intacct, LinkSmart, QuinStreet and Return Path.