ACCPAC -- Being Much More Than Meets The Eye Part Three: Market Impact

Event Summary

Seemingly unfazed by (although certainly aware of) a tough economic environment and/or by its heavyweight competitors' recent initiatives, ACCPAC International (www.accpac.com), an independent subsidiary of Computer Associates International, Inc. (NYSE: CA) that has been offering accounting and a broader range of other enterprise business solutions for small and mid-size businesses, continues to expand its products footprint and operations worldwide. To that end, its latest product offering now ranges from accounting to include customer relationship management (CRM), human resource management system (HRMS), manufacturing, warehouse management system (WMS) and many aspects of e-commerce. On December 18, ACCPAC also announced that it has filed a registration statement with the U.S. Securities and Exchange Commission (SEC) relating to a proposed initial public offering (IPO) of common stock. All of the shares are being offered by ACCPAC International, Inc., and the offering will be managed by RBC Capital Markets, SoundView Technology Group and Adams, Harkness & Hill, Inc. Although the registration statement relating to these securities has been filed with the SEC, it has not yet become effective. These securities may therefore not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective.

During the past year ACCPAC has announced the following:

• Acquisition of AGS Software, Inc. for point-of-sale software (POS)
  
  
• Acquisition of eWare Limited for CRM software
  
  
• Acquisition of manufacturing software from Lahey Software
  
  
• Release of ACCPAC Advantage Series version 5.0 for a 100% web-based accounting solution for mid-sized companies.
  
  
• Release of ACCPAC Advantage Series for the Linux desktop
  
  
• Release of ACCPAC Exchange the first Electronic Data Interchange (EDI) offering to integrate mid-market accounting applications with IBM Business Exchange Services, aimed at delivering affordable EDI transaction documents over the Internet.
  
  
• Release of Simply Accounting 2003 the new version of its integrated accounting program for small offices/home offices (SOHO).
  
  
• Formation of the ACCPAC Sales Success Distribution Program a global distribution program for ACCPAC third-party developers.
  
  
• An agreement to collaborate with CGA Online Services Corporation to develop CGA Online a new web-based online system that will provide a single source of information and services for Certified General Accountants (CGAs)

This is Part Three of a four-part note.

Parts One and Two detail recent ACCPAC announcements.

Part Four will cover Challenges and make User Recommendations.

Market Impact

ACCPAC is definitely not a stranger to the business applications market. Quite the contrary, enter its long incumbent status (since 1979) and proverbial focus on the small and medium businesses, its broad and well-attuned product portfolio developed mainly internally and through a limited number of sensibly acquired solutions that address the needs of the market segment, its large customer base (over 0.5 million users in over 130 countries worldwide) and a far-reaching distribution channel of over 6,500 Business Partner relations including value added resellers (VARs) and consultants, many retail outlets in the near future, in addition to telesales, direct email & Web ordering, look for ACCPAC as significant obstacle (in addition to Intuit and Best Software) the likes of Microsoft, Oracle, PeopleSoft and SAP should face in their entry of the market segment.

Headquartered in Pleasanton, CA, USA, with offices in Australia, Canada, India, Mexico, the Middle East, South Africa, Southeast Asia and the UK, ACCPAC was acquired by Computer Associates (CA) in 1985. In 1996, it was established as an independent business unit of CA, and it has had its own executives managing its business ever since. The fact that it has neither been divested by CA like a number of former interBiz products (see CA Unloads interBiz Collection Into SSA GT's Sanctuary) nor it has lost its brand recognition amid CA's naming convention might speak favorably about the vendor's viable independent value proposition. On the other hand, the ability to leverage its giant parent's numerous (and sometimes advanced and/or emerging) technologies, sales channel and partnerships, has certainly helped so far.

Still, after more than two decades of prominence mainly within core financial/accounting solutions for the lower-end of the market, ACCPAC has lately been making big strides to extend its reach and turn into a full-fledged comprehensive e-business software provider for small and medium enterprises (SMEs). To that end, during the past few years, the vendor has added many new solutions in the areas like CRM, warehouse management, e-commerce, point of sale (POS), and human capital management (HCM).

As a result, its product arsenal now includes ACCPAC Advantage Series, ACCPAC Pro Series, ACCPAC HR Series, ACCPAC Business Analysis Suite, ACCPAC eTransact, ACCPAC Exchange, ACCPAC eCRM, ACCPAC Warehouse Management System, ACCPAC ePOS, Simply Accounting, FAXserve and ACCPAC Messenger products. Further, through its ACCPAC Online hosting service, which was launched in 2000 and which is based on CA's Unicenter TNG infrastructure, the company also offers applications using an applications service provider (ASP) model, giving its solution providers more options as they look to tailor solutions that best fit customers' needs.

The ACCPAC Online Preferred Accountant Subscription Services (PASS) program was thus designed to enable its accounting VARs to become virtual ASPs (VASPs), with ACCPAC being the ASP in the shadow'. In addition to possibly unique deployment flexibility (i.e., there is a possibility of selecting which individual applications will be run on premises and/or hosted), ACCPAC is likely the only vendor amongst its peers that is an ASP as well. While the other vendors also provide hosting alternative, they have to do it through third ASP parties, which often may mean some additional licensing and/or implementation, service & support intricacies to the end user. This could make an order winning difference to some customers who prefer to deal solely with one vendor.

On the other hand, the difficult economy has created a situation where the customers, particularly those with multiple dispersed locations worldwide, too seem to prefer the subscription model, as capital budgets have been slashed, and everyone would prefer to avoid one up-front lump payment and stretch it over a prolonged period of time. Although the move from software as a standalone, or pre-packaged, solution to software as a service will not happen overnight, given unsustainable financial model of many early applications service providers' (ASPs) and due to many hosting snafus of the recent past (see Hosting Horrors!) , in a few year's time, gigantic IT providers such as IBM, EDS, Microsoft, Oracle, Accenture and the likes will likely be competing with CA in the ASPs market, giving thereby hosting another fresh breath of air. Thus, ACCPAC's plan is to expand on the foundation it built during the past two years and help partners move into this more predictable revenue generating area of hosted services.

ACCPAC Strengths

ACCPAC targets small and medium enterprises (SMEs) with up to $250 million in annual revenues and with up to 1,000 employees that are in need of enterprise application solutions that are intuitive and, consequently, easy to use and implement. The company has indeed often met this market's requirements of competitively and scalable priced, functional products, ease of modification, relatively short implementations, and dependable service and support. ACCPAC has traditionally been offering its customers just needed (neither overwhelmingly comprehensive nor meager & insufficient) functionality they can easily digest but still deploy to its beneficial use. The modules can be implemented in a gradual fashion to tackle the most burning issues first. Also, the simplicity and flexibility of the product, bundled with the experience within financials and accounting, often do not impose serious business process reengineering (BPR) but still produce benefits like pervasive information sharing and process efficiency.

End users of smaller enterprises have also been impressed with the product's intuitive rich-client Windows user interface (UI), which provides ease of system navigation and of information retrieval and analysis. While functionally, there has been ever-diminishing difference from one general ledger (GL) or accounts payable (AP) product to another at the enterprise level of products, ACCPAC might have still be leading the pack in delivering multicurrency/multinational and inter/intra-company consolidation capabilities and in built-in financial report writers that provides flexible query and report creation without programming.

For instance, the Pro Series has over 60 reports and report formats that may be customized from a rich matrix of user-selected options, and that can be viewed, printed, exported to spreadsheet software, sent via e-mail or saved on disk. Reporting options can even be significantly increased by the use of Crystal Reports, which offer users a DHTML-based reporting option. Another sleek feature is "DataDriller", which is a flexible, all-purpose query tool used to search and display record information from any data file (even non-ACCPAC) with instant data drill-down capability. Each view is a grid/spreadsheet list of database records using defined columns. Recent enhancements to the DataDriller feature include the ability to sort data views by clicking on the column header, a CopyFrom option to create customized pick lists for an individual user ID, and incremental search capabilities with automatic filtering and the option of using temporary tables as source tables for creating a data view. As for the Advantage Series, it also offers extensive cross-module drill-down facility, but through different means. Reporting options are extensive within both product lines, with a sizable number of standard canned reports, in addition to financial reporting via Excel, ad-hoc reports via Crystal Reports and via own ACCPAC Query product among others.

As mentioned earlier, in addition to its SOHO offering called Simply Accounting, ACCPAC offers two flagship core accounting product suites, both being a foundation to its more complete set of the above-mentioned newly released enterprise applications beyond core ERP scope. Its chief original product would be the ACCPAC Advantage Series, formerly ACCPAC for Windows, whereas the ACCPAC Pro Series is the product suite formerly provided by Software Business Technologies (SBT), which ACCPAC acquired in 2000. Given the product had been branded as Pro Series even while with SBT, ACCPAC has retained that brand name, and has thereby likely gained an additional visibility in a market catering to light manufacturing and warehousing companies. This should be further boosted by the new ACCPAC WMS radio frequency (RF)-based warehouse management product that also integrates a wireless bar code reader and web-based remote management to streamline the picking, packing, and shipping process. As mentioned earlier, recently, the vendor has also added to its offering the suite of manufacturing products originally developed by Lahey Software to integrate with Pro Series.

Both Advantage Series and Pro Series are positioned for the small to mid-size enterprises. One of the key products' positioning differences lies in source code access, as the Pro Series has always provided full source code availability for code modification throughout the suite. To that end, complete Microsoft Visual FoxPro source code allows professional programmers to make unlimited extensions and enhancements to address unique business-specific needs or interfaces. Additionally, the Customization Manager' module enables users to customize screen forms as sub-classes of existing forms and make custom screens available to specific users or companies, without changing the code. The above provision of source code might be attractive particularly against the background of ever increasing market awareness of the following facts: 1) that almost every business changes, and software must change with the business, 2) that even small businesses are really unique one size can never fit all, and 3) that custom software is a requirement for many enterprises, even for the smaller ones.

Although the Advantage Series does not provide source code per se, it offers many entry points for other applications to integrate, even to the degree that core business logic is accessible to be leveraged by the third party product. Further, Advantage Series is web-based and Simple Object Access Protocol (SOAP) compliant, fully accessible without intermediate web-enabling technology such as Citrix or Microsoft Terminal Server (MTS), while the Pro Series is not yet web-based. Transaction data and other processes can now be performed using an Internet browser via the company intranet or the Internet. Several extended-ERP applications, including eCRM and eTransact bring additional wireless and web-based functionality to the module suite. Advantage Series also has much stronger international features in terms of languages, taxation support, and currency handling than its Pro Series counterpart. Still, both product suites can be built upon to form a full suite of integrated web-based business applications. To that end, accounting, HR, CRM, POS, and WMS are tightly integrated with Advantage Series, while the manufacturing functionality is tightly integrated and available through selected third party products (e.g., COSS Systems and EMR Innovations' ProcessPro 2K3 product). With Pro Series, however, accounting, CRM, manufacturing and WMS are tightly integrated, while the HR integration is still in progress.

Applications Geared For Growth

Additionally, ACCPAC applications are geared for growth since virtually all the major product lines are tiered into graded editions that share the same design and technology despite differing levels of functionality, aimed at enabling customers to select a product with features, and at a price point, that best suits their current needs. As the company grows, it should then move up to more advanced functionality without re-learning software or rebuilding databases. Although its competitors also offer scalability and migration options to more advanced functionality at the later stage as well, most of them still offer it via more disparate products leveraging disparate technologies, which often have to be relearned from scratch, and, consequently, often the migration is not much easier than an implementation anew. Conversely, ACCPAC editions within a product suite (i.e. Advantage Series or eCRM) share similar functionality and screens, but differ in terms of maximum number of users supported and related pricing.

For instance, the ACCPAC Pro Series is available in two basic editions: Enterprise and Small Business, which differ in the specific set of features and modules included but share the same user interface (UI). For instance, the Small Business Edition includes the System Manager, General Ledger (GL), Accounts Receivable (AR), Accounts Payable (AP), Purchase Orders, Order Entry, Inventory Control, Payroll and, optionally, Job Cost, Customization Manager, Report Writer, and Serial Number and Lot Number Tracking. The Enterprise Edition includes all optional modules from the Small Business Edition, plus customizable source code, Warehouse Management and Multicurrency. A Manufacturing Edition is also available that offers Production Entry, Work Orders, Shop Control, Project Accounting, Customer Connect and Bills of Lading.

Likewise, the Advantage Series is available in four editions in descending order of complexity: Enterprise, Corporate, Small Business and Discovery. The above facts might point out the ACCPAC's ability to serve the smallest business with an economical but still functional package, while providing a seamless growth path without the need to change the product or even the software provider and/or to learn new unfamiliar screens.

Responding To Its Market

Thus, having a broad impeccably integrated horizontal offering with selected vertical enhancements, on top of nurturing resellers network, providing well-attuned pricing, as well as catering for evolving scalability & migration needs of customers through upward compatibility of products are all necessary tenets of the success in the market segment that ACCPAC will have grasped.

SME customers continue to increasingly realize the importance of seamless integration between front-office and back-office applications, and to consequently look for one strategic vendor (i.e., one throat to choke') to fulfill and be solely accountable for the vast majority of their business application needs, particularly in the lower end of the segment. Also, many of them have long outgrown their entry-level accounting solutions a la QuickBooks, DacEasy, Peachtree or Simply Accounting, and are looking to its original provider for functional expansion opportunities in contact management/sales force automation (SFA), CRM, HR/Payroll, EDI, WMS, all of which ACCPAC has tackled. Often in that quest, they turn to a trusted adviser (e.g., their accountant) for an advice, where ACCPAC has also been making strides to increase its clout and to entice the accountant referral program.

To the end of web-based access to important back-office data, for instance, ACCPAC eTransact is the web storefront solution that integrates with Advantage accounting modules. Information entered into the back office modules (i.e., Inventory Management) flows to the web store interface, while information entered through the web store (i.e., Order Entry), flows to the accounting modules like AP or AR.

Owing to the ability to expose its business logic, the company has been able to tightly integrate ACCPAC eCRM with Advantage Series — for example, the Order Entry screens from Advantage Series are invoked from within the eCRM interface, enabling telephone sales reps to e.g., both review customer sales prospecting information and order information from one point. The Order Entry screen has not had to be re-written, since it is called up as a functional object.

Moreover, contrary to its archrivals, ACCPAC has embraced the support for multiple platforms, touting it as a competitive strength rather than a weakness within truly an international market. While no one disputes Microsoft's dominance in the market segment, in Europe a notable percentage of servers already run on Linux, while IBM DB2 and Oracle database still have strength and appeal in many parts of the world. Thus, the vendor supports all the above platforms, and because of the Advantage system's architecture (i.e. separate business logic from database), it does not require an excruciating work to update drivers for ACCPAC to produce new platform supporting versions. Consequently, Both Pro and Advantage Series run on Windows and Linux, and both run on Microsoft SQL database. Differing however, Pro Series also runs on Microsoft FoxPro, while Advantage Series also runs on IBM DB2, Oracle, and Pervasive. This selection has yet to be seen from any other vendor within this tier of enterprise application providers.

True Global Nature Is A Competitve Advantage

Another important strength against most of its competitors ACCPAC would have is its true global nature. Unlike Sage/Best Software, Softline, and Microsoft Business Solutions (MBS), ACCPAC's Advantage Series is a single product line that operates on an international basis, whereas the others have multiple product lines through acquisitions, that they have attempted to paste together around the world but unable to work with one another.

Conversely, Intuit or NetLedger still largely operate within the North American market and have been recruiting their fledgling channel. Sage and MBS are not exactly uniformly global companies, as their product offerings differ for different markets. Also, these vendors are still in a quandary about which of their numerous ERP products to integrate to — SalesLogix or Microsoft CRM, respectively.

Not many customers can integrate the UK Sage product lines (e.g. Line 500) with the US Best Software counterparts (e.g., MAS 500), and the same would hold for MBS' Great Plains, Solomon, Axapta and Navision product lines. While these vendors could produce a spin that separate products in separate countries is a necessity to provide a best-of-breed localized approach, still, it might be perceived as a lame excuse for the result of a market share increase opportunity buying binge.

ACCPAC, on the other hand, has developed its Advantage Series from the ground up as an international product. To that end, a company in the UK can for instance have a subsidiary in the US, South Africa or Canada running on the same software due to a large number of currencies including the Euro, currency gains/losses, GL transactions, check writing and support of a Goods and Services Tax (GST) and Value Added Tax (VAT) available features. The users can also leverage ACCPAC eCRM and other non-core accounting business applications.

Like its competitors, ACCPAC has long made a conscious decision to go for product distribution solely through partners/value added resellers (VARs). This has often proven to be advantageous to the SME's for keeping costs down, and, as selling through partners requires a higher quality of product support, and accompanying documentation. Also, direct and indirect channel that have already been built in targeted countries has helped the company with product translation and localization issues, which has resulted with solid multi-national capabilities of the product.

As a good example, the company has become an undisputed leader in Canadian, South African and ASEAN (South East Asia) accounting markets, with high positions in many other both established and emerging markets. Again, regarding the Advantage Series product, the VAR channel is truly global, since international companies can easily find ACCPAC VARs capable of supporting their needs across multiple countries, contrary to competitors whose channels have expertise that typically focus on specific products by local region and offer limited cross product support.

To further bolster its channel's loyalty, during a time when almost everybody is cutting margins, ACCPAC's channel strategy has been to keep margins high, meaning the average VAR could earn up to 50% on products sold, and up to 55% if it achieves the Master-level status. Also, to help VARs that are new to the fold, the company guarantees margins for their first year, regardless of sales volume. It has also increased marketing efforts, providing hands-free marketing, telemarketing, advertising and direct-mail support to partners, while on the technology side, the vendors has put together a professional services group to help resellers implement its various product lines, and it has set up an online support center.

This concludes Part Three of a four-part note.

Parts One and Two detailed recent announcements.

Part Four will cover Challenges and make User Recommendations.