Software 2006: Questioning the McKinsey Study

McKinsey and Company in collaboration with the Sand Hill Group, organizer of the Software 2006 Conference released their Industry Study (pdf) that I have to take issue with. (yes, I know, who am I to disagree with McKinsey?)

“Business Model Discontinuity: Software as a Service (SaaS) and Open Source. Two major business models are vying for an growing share of software spend: Software as a Service and Open Source. …SaaS has already gained traction in number of application areas – such as payroll, human capital management, CRM, conferencing, procurement, logistics, information services, and e-commerce) – and should make gains across a much broader cross-section of applications over the next 3 years. Out of 34 application areas we have examined, only nine are unlikely to see some SaaS adoption over through 2008”

Apparently McKinsey tells us that Financial Applications are the back-office function most unlikely to see SaaS adoption for years to come. Hm … I know the trendy app now is CRM, but there were widely-used web-based packages long before CRM. Intuit, NetSuite (originally NetLedger), Intacct, 24SevenOffice, WinWeb ..just to name a few.

Perhaps these companies can jump in here, and tell us what they think of McKinsey’s prediction that SaaS will not take off for financial apps?

Update (4/7): Dennis Howlett has a really good point bringing up Document Management, the other “unlikely” area per McKinsey. As to confidentiality concerns: the numbers in the financial apps are the result of real business activity that may very well have been in other hosted systems, e.g. CRM, Procurement..etc. Document Management? Oh, well, our external interaction is often on hosted platforms (email), sales contracts are largely in hosted systems (CRM)… I could go on.
Interestingly enough businesses lost more confidential data stored “safely” inside the firewall due to disgruntled ex-employees than due to “exposure” to SaaS providers.

But the point I made about Accounting systems, that this isn’t subject to predictions, it’s already happening, or has happened largely: accounting was available On-Demand before CRM was “born”.

Update (5/31): New McKinsey paper bullish about SaaS model. (hat tip: Nick Carr. Free registration required to read).

Update (8/17): Dennis points us at Gartner’s Hype Cycle for Software as a Service.

On-Demand Financial Management Applications and On-Demand Sales Force Automation are said to be at the peak.”

Interesting. McKinsey says it’s not coming for years, Gartner says it’s already at the peak. Go figure …

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  1. Anonymous says

    I’ve no idea how McKinsey comes to this conclusion but at first glance it appears as an example that smacks of siloed thinking. Accounting IS commoditised infrastructure. At that level there is no reason to consider it an on-premise jewel.

    If McKinsey is assuming this is a buying cycle thing then again, fair enough. However, I can fully understand large organisations needing to retain direct control and if that’s the prime motivation for sticking as is then sure – I understadn though I don’t necessarily agree. My argument is simple. If you outsource/Saas payroll, why not accounting? Payroll data is far more sensitive than say billing info – isn’t it?

    But – where SaaS accounting makes a huge amount of sense to me and where I see less objection is in the largely untapped yet fragmented midrange. If you assume there are no globally dominant midrange players (I’d be interested on views around that) then there is a clear opportunity to make a fresh play in this area that recognises the infrastructure components of running a business. I know of one example.

  2. As the General Manager of QuickBooks Online all I can say is that our adoption is the best refutation of this theoretical study. We’ve been doubling our customers every year for five years and are now at 65,000 wildly happy customers. We’ll acquire more customers this year than all prior years combined – and we’re just getting started.

    While it’s true that many people are still scared putting their financials online, many are not, and see the benefit of anytime/anywhere collaboration and the reduction of the IT hassles typically associated with shrink wrap software.

  3. Anonymous says

    Hi Zoli,

    I’m also confused why they have Financials as the least likely application to migrate to SaaS. We launched the Twinfield online accounting solution in the UK at the end of last year, but it has been available in the Netherlands for over 5 years. We have just passed 18,500 users – I’m trying to get my colleagues to publish the growth figures in the same format as Dennis’s post to highlight the growth, which is running at around 10-15% per month. The Dutch clients include 6 of the top 10 accounting firms in the country, including BDO, KPMG, Ernst & Young. To put this product in context, we have customers of all sizes from 1 user to 1000 users. So our experience is similar to the positive position at QuickBooks and Winweb. One of the key advantages the clients see is the removal of the IT headache, and a backup/recovery approach that a major enterprise would be proud of, that just comes included as part of the service for no extra cost.

  4. Who Will Make the Move to SaaS First?

    At the Sand Hill group’s Software 2006 event last week, I attended a presentation by McKinsey & Company analyst Vanessa Colella entitled “Unifying the Ecosystem.” During the presentation Dr. Colella presented findings from McKinsey’s Software 2006 I…

  5. Anonymous says

    This blog posting was of great use in learning new information and also in exchanging our views. Thank you.

    Chris Scanlon

  6. Accounts Software – Part II

    My previous posting about SaaS didn’t mention that McKinsey Co question accounting software on the web, free or not! Thank you Zoli Erdos for the

  7. to manange your account well, you need an excellent accounting software, i usually use “EzyTrans”

    you can see more details at

  8. Financial Accounting Services

    some great accounting software info

  9. im also using eas trans now and its working very well, choosing the right accounting software can be hard, nice new look by the way zoli


  1. […] seeing the numbers makes me feel good, given that I debated a short-sighted report by McKinsey a few years ago, when they predicted that Financial Applications would be amongst the last to move […]

  2. […] seeing the numbers makes me feel good, given that I debated a short-sighted report by McKinsey a few years ago, when they predicted that Financial Applications would be amongst the last to move […]

  3. […] seeing the numbers makes me feel good, given that I debated a short-sighted report by McKinsey a few years ago, when they predicted that Financial Applications would be amongst the last to move […]

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