Outlook Cloudy

The online hosting and delivery of key business services is well on the way to becoming mainstream. How did it all happen so fast? Glenn Baker tracks the remarkable rise of cloud-delivered services through the eyes of both providers and clients.

As I sit in the Auckland office of Xero waiting for new GM Amanda Armstrong to join me, I ponder the origins of the expression ‘cloud computing’. Who coined it?
As Armstrong reminds me later, cloud computing has actually been around for some time. Previous acronyms include ‘asp’ (application service provider) and more recently SaaS (software as a service) – but essentially ‘cloud’ refers to the online hosting of software – and some of that has been around for a while (think Gmail, Facebook, SalesForce, Twitter, etc).
As it turns out, a Google search reveals that in 1996 at the US office of Compaq Computer, a group of technology executives was plotting the future of Internet business – referring to it as “cloud computing.” But it would take another decade for the term to become ubiquitous.
It’s for this reason that Armstrong is reluctant to call Xero a cloud pioneer, even though the company has been around since 2006. What’s pioneering about Xero, she says, is its single ledger platform – a single version of a business’s financial data that both accountant and client can access. No data transferring required.
In the six years Xero has been operating, Armstrong says awareness of ‘cloud’ or online services has increased considerably and business owners are now requesting cloud delivered accounting services like Xero’s through their accountants. Not surprisingly, the company has become a major market player – with more than 57,000 customers in New Zealand, 135,000-plus globally, and counting.
Of course, the ‘cloud’ is not just about accounting services – many other business services are now commonly delivered online. Productivity and collaboration tools (think Microsoft Office 365), video, IT support, data security and backup, marketing services and payroll are just some that spring to mind.
Cloud-hosted payroll has become extremely common, particularly with smaller businesses. This is probably a reflection of the large number of providers operating in the cloud space, and the desire by payroll admin staff to make the whole task stress-free. Nobody wants to muck up the payroll – just look at Novopay!
In terms of cloud-delivered payroll services, iPayroll is pretty much the pioneer. They launched purely as an online service in October 2001 – back in the bad old ‘dial-up’ days.
Tailored for smaller businesses, clients soon appreciated the benefits of broadband Internet connectivity when it kicked in and the lack of desktop issues. Today 100 percent of iPayroll’s clients are online and of those 93 percent directly input to the system. The remaining seven percent use a traditional bureau service with iPayroll providing the data entry services. However, even this seven percent still have online access to their reports and data.
Martin Gleeson, iPayroll’s MD, says much bigger companies are now getting involved with the cloud and they’re getting many referrals from this sub-group of the SME market. He believes New Zealand is ahead of Australia by three or four years in the uptake of cloud online services such as accounting and payroll.
When it comes to listing the positives and negatives of cloud delivery – Gleeson’s hard pressed to find anything negative. If the Internet connection goes down, the fault is usually with the client’s ISP he says – and alternative access points are usually easily found. Let’s not forget that you can still get online through mobile devices such as iPads and iPhones which are becoming more and more prevalent these days. “It’s not necessary to be online all the time anyway – only when you have some work to do.”
He says the Christchurch earthquake highlighted the merits of cloud computing to many people, and added that none of their clients in the region were locked out from completing their payrolls from a data perspective. “Obviously I am not downplaying the terrible situation that arose at the time and continues in many ways to this day, my point is those clients with cloud services were easily able to continue as needed from an access-to-data perspective, while those with traditional desktop solutions were locked out.
Also on the positive side – Gleeson cites their subscription model, which means upfront costs are minimal and clients just pay for what they use. There’re no software update hassles for clients either (worth remembering with three complex Kiwisaver changes kicking in on April 1st).
Cloud delivery makes life easier for providers too; they can offer a big chunk of services for a very modest cost. Any client problems can be quickly ironed out, thanks to an online helpdesk. Gleeson remembers a Palmerston North trucking firm administrator who was urgently needed elsewhere, but had the payroll to complete. iPayroll was able to knock it off in five minutes for him.
Less overheads mean lower costs for cloud providers – and there’re no upgrade disks to post, no payslips to print and post, no expensive high street presence required, and so on. Those savings get passed on.

Minimal risk
Tony Price, business co-ordinator at cloud-based Crystal Payroll, launched in April 2006, agrees that the Christchurch quakes made great case studies for cloud delivery of payroll. “The images on the news of people breaking into the red zone to retrieve their computers scream everything we need to say. Those with cloud-based systems didn’t have to face those risks; they just got a new computer and logged in for their valued data.”
Price sees convenience as the obvious benefit of cloud delivered services. “There’re no interruptions for software upgrades or any need to reload software when a customer’s hardware malfunctions or changes. When time is money there’re obvious cost-savings when all you need is a functioning browser, anywhere and anytime, to manage your payroll,” he says.
“A less obvious example of a benefit was the employee of one of our clients who was going to France. For her visa she needed proof of income in New Zealand. We were able to quickly provide her a login via our standard employee access, and she was able to immediately extract reports to satisfy the French authorities online. Holiday sorted!”
Price is boldly predicts that all off-line software provision will eventually be consigned to history as businesses upgrade over time. “The drift to online services is inevitable.”
Kevin Murphy, CEO of Datacom PaySystems, a supplier of outsourced payroll services that offers cloud payroll applications, says today every software vendor has a cloud strategy. “If your supplier is not already offering cloud applications, ask them about their plans. You don’t want to end up on an application with a limited future.”
Murphy points out some additional benefits that cloud vendors bring to the table.
“They run their software on advanced servers that have high levels of redundancy so that the server will continue running in the event of a hardware failure.”
Cloud vendors use powerful platforms for running their software he says. This allows clients to grow or shrink their businesses without constraint.
They have a replica of the servers, software and your data at a disaster recovery site that is ready to replace the main site in the event of a disaster, he adds. Both sites are connected by a high speed network link used to continuously copy data.
“As long as they run a ‘multi-tenanted’ platform, they will also continuously update this with new versions of the software so that you always connect to the latest version.”
The costs of payroll from a cloud application vendor are generally lower due to their scale, Murphy continues. Cloud vendors may connect their systems to the banking network too, so once you have processed your payroll it can be automatically passed to the banks for your employees to be paid.
Cloud vendors may also have connected their systems to Inland Revenue’s system so taxation forms and data are automatically submitted on your behalf. If the cloud vendor is a registered PAYE Intermediary then the PAYE may also be automatically paid.
For payroll providers, the cloud has proved the ideal platform for service delivery. PayGlobal is another that has seen a big take-up. A third of its New Zealand customer base has already made the transition since 2009.
PayGlobal says performance is one of the most obvious benefits of moving to their cloud platform, and customer feedback reflects this. Less obvious are the benefits customers receive around high availability and disaster recovery. It’s a win-win situation – one of the most significant benefits for both parties, provider and customer, is the ability to deliver enterprise-level services to customers of any size. “It simplifies the implementation process and allows us to streamline our support and professional services offerings,” says Warwick Metha-Hutchins, PayGlobal’s online services manager.
“Operating a standardised and well maintained environment with in-house expertise at hand also allows great collaboration among the service teams and the application developers.”

Cloud-driven productivity
Business productivity tools are increasingly being accessed in the cloud. One of the most well-known programmes is Microsoft’s Office 365, launched here in June 2011. Frazer Scott, director marketing and operations for Microsoft around Cloud and Office 365, says thousands of SMEs up and down the country are using it. They range from smaller businesses like family-owned winery Kumeu River to large enterprise level users such as Yellow and Opus.
Office 365 gives enterprise-grade reliability to smaller businesses, says Scott, and easy deployment. “Meaning SMEs don’t need an IT department to get things up and running.”
As with other cloud products, you don’t have to be in the office to be productive. Staff can access their email, contacts, calendar, and SharePoint sites from a range of mobile devices including Windows Phones, Nokia, Android, iPhone and BlackBerry. “Staff can also access the familiar Office suite of productivity tools from a range of browsers and work both online and offline.”
Of course, as Office 365 is a service, users will always be running the latest version of the product. “They no longer have to think about which version of Office they are running and when/how to update. That’s delivered to them as a matter of course,” says Scott.
So what is it like switching to a cloud-delivered product like Office 365? Fortunately, because it’s a cloud deployment of the familiar Office suite, there’s no steep learning curve.
“There are always issues to be mindful of when deploying cloud solutions,” says Scott. “One is security: as with any good IT security practice – be it cloud or on-premise – check your vendor’s policies including service level agreements (SLAs) and how they are promising to protect your data. Organisations should also ensure that they have proper internal standard security processes around passwords and data management.”
Scott says the majority of software solutions are now moving to online platforms and Microsoft expects Office 365 to have the fastest uptake in the company’s history. “This is because the cloud allows users to stay connected and gives everyone the ability to work online and offline with the best productivity tools that are familiar to them.
“The traditional concerns of data sovereignty and security are also waning,” he says. “Mostly on the back of demonstrations from leading cloud providers like Microsoft that we take these aspects of our responsibility incredibly seriously, and as people get more familiar with the notion of cloud computing and its benefits.”

Cloud: the enabler
If anyone knows the upsides and challenges of switching from traditional desktop accounting programmes to cloud-only solutions, it’s MYOB. It’s first accounting product, LiveAccounts, for start-ups and smaller businesses, launched in August 2010. It was followed by website builder MYOB Atlas and AccountRight Live – the cloud-enabled version of its flagship desktop product.
Today it has around 90,000 clients using its cloud solutions. Scott Gardiner, New Zealand sales manager, business division, says cloud accounting solutions now account for 40 percent of all new client registrations. Client research shows bank feeds is the number one feature of cloud delivery he says. “They love the time saved by having bank transactions fed on a daily basis into their accounting system, automatically and directly. They also love that the transactions are auto coded, so they only have to press ‘Match’ or allocate a code to transactions that aren’t yet auto coded.
Gardiner says in general, the top benefits clients enjoy are time savings, less data entry, improved data accuracy, greater collaboration with staff and business advisors, being able to work ‘anywhere anytime’, and improved productivity.
“It frees up time for them to build the business or enjoy more of life outside work.
“Further, with AccountRight Live, existing clients love being able to move to the cloud at their own pace with the interface they’re already familiar with. And all clients can enjoy the ability to choose how to do their accounts: online, offline or by alternating between at any time.
“Obviously when the Internet goes down, if you’re working with an online-only accounting solution this can stop you working on the accounts for as long as the outage lasts,” adds Gardiner. “This is one reason why some of our clients choose to use AccountRight Live.”
Gardiner describes cloud as an enabler. “Being an online technology provider has seen our culture change in numerous ways as we’ve embraced thinking, working and delivering in an ‘online’ way.
However, he doesn’t see the future of business technology as cloud only. “There will always be a need for desktop products. Some business owners simply prefer it. We expect this group to decrease over time as the general public becomes more comfortable with cloud.
“We also believe the hybrid (online + offline) model, which is used for products such as Microsoft 365, Google Drive, DropBox, Evernote and AccountRight Live, will become even more popular.”
 
Final words
After chatting with Xero’s Amanda Armstrong, some further myths and issues surrounding cloud computing were quickly peeled away. For example, there are still some questions around security and the cloud, but relying on desktop or office server security has its own risks. Which is better – having your data in a highly secure data centre or having it in the back room of your small business?
A small business could rarely afford the level of security offered by a cloud provider, she adds. “From a managing risk perspective, cloud is definitely the way to go.”
As for concerns about Internet failure and data extraction, a good cloud service offering allows clients to import any information whenever they require it – into a simple Excel or CSV data file stored locally if that’s what they want.
Armstrong, who has also experienced Xero from a client’s perspective when she was a consultant, reminds us of the generational shift happening in parallel with cloud’s adoption.
“Many partners in these accounting firms that serve SMBs are reaching retirement age. This paves the way for younger decision makers who are far more tech savvy. They will demand the benefits of the cloud straight away, and they know in this business environment if they don’t change, they die.”
Cloud platforms like Xero give accounting firms the scope to offer much better value for clients, says Armstrong. “They can produce a set of annual accounts far more quickly and provide better management reporting for a much wider range of clients than ever before.”
No getting bogged down trying to find unreconciled numbers on bank accounts she says – “that time is better spent helping clients build their businesses.”

Cloud payroll in practice
Matthew Underwood, director of Wellington-based chartered accountancy Matthew Underwood Limited, recalls returning to public practice as a chartered accountant in 2003.
“I had done a lot of IT and project work up until then. I figured I knew what a good process looked like and I knew about Fiat using robots to make car engines in the dark, which we referred to as ‘lights out processing’.
“As I grew I needed payroll for my business and eventually my clients started asking me about payroll for their businesses too,” he says. “With iPayroll the cloud factor was really quite a small part of the initial attraction. What attracted me initially was the way the service offering took a minimum of information from you and then managed all the downstream aspects of the payroll. Sure, iPayroll’s engine does the wages calculations, but they then do all the banking, file all the IRD forms, pay the employees, make payslips available to the employees, and keep a register of all the transactions and year-to-date summaries. So it’s an end-to-end process managed for you.
“iPayroll also has a great helpdesk, so in many ways when we refer our clients to iPayroll we also outsource that payroll competency and we don’t take calls about payroll anymore.”
Gone is the tyranny of distance, says Underwood. “All you need is a browser and a web connection. These days most of us have enough of both on our mobile phones. We really can operate from anywhere in the world.
“I never had an issue with the cloud aspect of the service,” he adds. “The obvious issues are security and relying on someone else to do the backups, but I have never had a problem with this.
“Once we have convinced clients to use iPayroll we generally send all the required information off to iPayroll in an introductory email – so iPayroll can make contact and set the client up.
“We can provide all the information in terms of bank accounts, IRD numbers, etc, so iPayroll have everything they need.
“In short, we love iPayroll. They take care of our clients – and us – and that leaves us free to take care of our clients in other ways.”

Cloud at the coalface
Pukekohe-based Engine Room is an accounting services firm and Xero Gold Partner that knows all about the practical application of cloud-delivered accountancy services. Director Margaret Holmes is finding more complex businesses now want to move to the cloud environment – and these can now be specifically catered for too, with Xero ‘Add-on Partners’ (there are more than 200) providing ERP system applications around the likes of stock management, job costing and point of sale, to name a few.
Holmes says clients are generally receptive to using the Xero platform, and that cloud connection generally eliminates problems with corrupt files, lost backups or incomplete information. “Business owners are notoriously bad at backing up their information. The cloud significantly reduces that worry.”
Holmes says their Xero Gold partnership also enables them to provide better management information to clients and give them a better understanding of how their businesses are performing. And from Engine Room’s point of view, they can provide better and timelier advice. “We’re spending less time preparing the numbers and more time interpreting and explaining them to clients,” says Holmes. “We run our entire business in the cloud these days too, so we can really help our clients do the same for their businesses.”
Holmes believes that cloud products will dominate the market for SMEs in the next few years.
From an industry perspective she says accountants really need to think about what they are delivering to their clients. Cloud solutions are making compliance services a commodity.
“Clients are once again looking to their accountant as their trusted advisor to help them grow their business. Accountants must have a broad understanding of business – more like a CFO – and take the time to understand their client’s business.
“It is not enough to take client’s numbers and edit them for tax purposes. We need to be sitting at the client’s table helping see the future and what they need to do to get there.”