How accounting software applications are purchased and deployed has changed significantly over just the past two years. I thought it would be useful to update nonprofit and government accountants and managers on the current landscape – or at least my take on it. I will focus on accounting software, but most observations would apply to business software applications in general.
Software Models – First there are two basic software models that are in wide use, the client-server model and the and the web-based model. The client-server model is the older and was developed for running on PC local-area networks way back in the 80s and 90s and modernized since to take advantage of faster and more reliable hardware and modern software technology. These applications were designed to run on a server machine with user access from a client PC across a local area network. This is still the dominant model is use for accounting applications; think MAS 90, Dynamics GP, Financial Edge and MIP Fund Accounting.
The web-based model came along in the last 10 years, and for accounting was largely pioneered by NetSuite and Intacct. The software is centrally hosted by the primary vendor with access by the client through a web browser. All data and execution of the programs resides with the vendor. A user organization is a one of many tenants using a common application, needing only an Internet connection and a browser. The device can be a scaled-down PC , tablet, or even a smart phone. Most new software developed today follows the web-based model and most major players still on the client-server model in transition to the latter over next few years.
Software Acquisition and Payment Models – Until fairly recently, most accounting software was acquired as a perpetual license. The buyer makes an investment up front usually based on the functional modules required (e.g. GL, AP, etc.) and number of users. Additionally, the buyer pays one annual maintenance and support fee to the vendor to receive periodic updates and technical support. The buyer or using organization owns the license which is usually non-transferable for perpetuity.
With the advent of purely Web-based software applications the subscription model became the principal method of acquisition and payment for applications. This is commonly referred to as the SaaS (Software as a Service) model. Eventually the model was made available by vendors of the more traditional client-server applications as an option. Basically the software application is rented by the vendor to the customer at a monthly charge, again based on functionality required and number of users. There is no separate maintenance and support fee as those services are factored into the monthly charge.
Hosting Models – Until the more recent movement to ‘cloud computing’ most traditional accounting applications resided on the using organization’s own server and local area network. That is still a reality but there is a definite trend toward application hosting by a hosting service, the physical location of which is not relevant, thus the ‘cloud’. The user accesses the software over the Web using a Citrix or Microsoft Remote Desktop connection. The hosting vendor provides a level of service guarantee and all normal back-office IT and software maintenance functions. The using organization pays the vendor a monthly hosting fee based on the number of users who access the system. The software vendor, such as Abila for MIP Fund Accounting, may offer the hosting service and bundle it with the SaaS subscription fee, or at the user’s choice the hosting service may be an independent third-party. For example, in our accounting services outsourcing practice we utilize an independent application hosting service for QuickBooks Enterprise that allows our staff and clients to access the software on a 24/7 basis.
For entirely Web-based applications which by definition are hosted, normally there are no other hosting options as the vendor has a proprietary data-center infrastructure that supports all the users – or multi-tenants – who share the same application.
Sorting It All Out – I will use this article as a framework for a subsequent article about evaluating the combination of models for your organization and talk about other factors that enter into the decision. I want to leave with a flowchart that graphically illustrates the framework. I welcome your comments and suggestions.