by Mark Wilsdorf
Flagship Technologies, Inc.
QuickBooks™ Add-Ons and Solutions You Can Use
www.goflagship.com

Like most long-time QuickBooks users, and as a developer of QuickBooks add-ons, I have a perspective on the tension between Intuit's cloud-based initiatives—the QuickBooks Online (QBO) products—and the QuickBooks desktop editions. The question many of us are asking, is "Will Intuit continue a healthy level of development (new features) and support for the desktop editions? Or do they intend to marginalize and slowly suffocate the desktop editions so that at some point—as features and capabilities are added to QBO—switching to QBO will be the slam-dunk choice?

I'd like to make the case that the desktop editions of QuickBooks won't go away any time soon; not as quickly as Intuit may have hoped/predicted a couple years ago, nor as quickly as I might have predicted back then, when I felt the desktop editions were being treated like "the red-headed step child in Intuit's basement" (to quote Honali Austin).

An obvious reason is market demand:  Intuit certainly doesn't want to give away their QuickBooks desktop users to competing products by failing to support their strong preference for a desktop accounting product (speaking of users who absolutely don't yet want to move to a cloud-based product yet). Another reason is more subtle and related to Intuit's market strategies—a realization on Intuit's part that the QuickBooks desktop user base which they currently "own" is at some risk of being siphoned off by other products if desktop users are pushed out of the nest—and into the cloud—too soon.

Anyway, here are reasons I think the desktop editions will be around for a while longer than I might once have predicted.

Some of the more obvious reasons why QuickBooks desktop users will continue to resist moving to QBO for a while, are widely discussed elsewhere and don't contribute much to my main point, so I won't spend much time on them. But as significant factors in market demand for the desktop editions they at least deserve a quick mention.

Feature differences. Most people understand that QBO and the desktop editions of QuickBooks are different. They work differently and have lots of minor (and some major) feature differences. The desktop editions in general have a larger set of features (at the time this is being written), but that's changing and QBO editions have some features which are unique to them. Regardless of that, QuickBooks desktop users who switch to QBO often have trouble focusing on the positive parts of the change and fret about what's missing or what works differently than they expected (slower response time, different window management techniques required, etc.)^*

*Stacy Kildal at Radio Free QuickBooks maintains an excellent feature matrix for current QuickBooks desktop and online editions, here: http://bit.ly/RFQMatrix

General objection to change. QuickBooks professionals who spend time in both QuickBooks environments (desktop and online) often forget that resistance to change is not always due to someone beng an "old fuddy-duddy". Rather, that resistance can come from an understanding the full costs of change; most significant of which are employee (or self) retraining costs and reduced work efficiency while new features are being learned and used. And anyone who has run a business knows that there simply times when change of any kind is a bad idea—like during your busy season, or when you're understaffed, etc.

Our collective giddiness at rushing to the cloud is fueled by the convenience of "anywhere" data access plus all the other ancillary benefits enumerated ad nauseum elsewhere. Let's face it, right now everything to do with the cloud is "sexy". Like teenagers in love, most of us are so enamoured with the idea and newness of cloud-based services that we're oblivious to glaring faults where they exist. I won't say that cloud-based services aren't ready for prime time—clearly they are ready. But the newer the technology, the more wrinkles and warts it likely has which remain to be discovered and dealt with, especially from the perspective of a small business owner or manager.

Take Intuit's QBO service outages, for instance. Back in 2011, Scott Gregory wrote in his blog that QBO users "suffered two multi-day service outages in the last year and several multi-hour outages during that time as well." Those of us involved with Information Technology (IT) for any length of time might say "What? No redundant server mirroring? No automatic fail-over? No mirrored server at a physically separate location?" I cannot imagine serving customers so ineptly and still having customers! While it's true that sometimes things "just go wrong", QBO customers shouldn't have experienced more than a brief hiccup in service, not be dead in the water for hours or an entire day.

To the small business owner who needs to use QuickBooks for point-of-sale invoice entry, apologies and explanations are mostly irrelevant. Part of the problem is psychological—a matter of the perception. Small business owners tend to be problem solvers: when something is wrong, they either fix it or are responsible for seeing that it gets fixed. But with an online accounting service outage, they experience the helplessness of not being able to do anything to remedy the situation. There's no one to call, not even anyone to complain to in a way that will lead to a solution. With desktop QuickBooks, on the other hand, they could call in their "computer repair guy" to fix some hardware, reinstall the software, install the software on a laptop and run it from there, or whatever. Even in an electrical blackout, with generators they could be back up and running in an hour or two, tops.^*

*Our company uses sine wave uninterruptible power supplies, so we can run computers on generator power when necessary.

I should point out that there is a significant difference here, between what I will call "casual QuickBooks users" and "mission-critical QuickBooks users". The casual user is someone who may enter a few checks and deposits every day or two, and if they can't access QBO "today" it's no big deal...they'll put off working with it until "tomorrow". The mission-critical user, on the other hand, depends on QuickBooks several times a day or maybe continuously for running his business. He cannot easily take orders, or prepare packing slips, or ship orders, or create invoices unless the accounting system is up and running.

Note: As I write this, a QuickBooks professional on the East Coast has just posted a message on LinkedIn reporting a QBO service outage. Other users have replied to his message post, saying QBO is up and running fine in their locations. So is his problem due to QBO? Or his Internet Service Provider? Or...well, does it matter? A small business owner faced with a service outage while trying to run payroll at 4:00 pm. on a Friday doesn't care what the reason for the outage is; she only knows that the problem is significantly outside of her control.

I don't mean to pick on Intuit alone, because the same thing can happen with any cloud-based service. Unfortunately, as a consumer you don't really know what the company's safeguards and redundancies are; you can't assess how vulnerable their online service is to downtime.

One problem is that the entire infrastructure of the cloud is based on layer upon layer of supplier relationships. Instead of vertical integration, where one company owns most of the supply chain for services it provides, the cloud is based on lateral integration, where many products and services are built upon other purchased services. Your online accounting software provider might have part of their server space rented from Amazon.com, part of it rented from someone else, specialized database or data integration services provided by yet another vendor, and so on. In short, there are a lot of links in the chain, and if anyone goofs up at one of those links, something will fail.^*

*Profit potential is not the sole reason for Intuit to buy up cloud-based services which they plan to integrate with QuickBooks. Another reason is the reliability benefits of vertical integration. With ownership of these different companies comes management control. And that allows changes in service features and interfaces (the specifications for how various software services communicate and trade data with each other) to be better managed for reliability. Vertical integration can prevent the problems of a "cowboy coder" mentality at one of the service providers causing new features or interface changes to be released before they've been adequately tested.

As I write this, Intuit advertises a cumulative (since January 2007) uptime for QBO of 99.81%. That's good, right? Well, maybe. For a mission-critical QuickBooks user, total uptime is a fairly worthless number. What's important is the distribution of the downtime that has occurred.

Suppose the online accounting service you use experienced random 20-minute downtimes throughout the year on 42 different days. Let's see...that's 20 minutes per outage * 42 days = 840 minutes of downtime / 60 = 14 hours total downtime for the year. In a 365-day year there are 365 * 24 = 8760 total hours, so the uptime would be figured as: (8760 - 14) = 8746, divided by 8760 = 99.84% uptime.

If the outages truly occurred randomly, 2/3 of them likely would have happened during off-business hours and most of those wouldn't have been noticed. The remaining few which happened during business hours would be an annoyance but not a deal breaker—they wouldn't keep you from getting most of your work done (invoices entered, payroll processed, etc.). 

But what if the same 14 hours of downtime was spread over just two days and occurred during business hours? That is, 7 hours each day on two different days? This latter scenario better characterizes some of the downtime QBO users have experienced in the past (though not very recently, so let's hope those episodes are behind us).

Maybe this downtime illustration has diverged a bit from my main point, but it also bolsters my point, which is that erratic service or long outages aren't merely disappointing. If and when they happen, they create a sense of helplessness that is much more objectionable to mission-critical QuickBooks users than it may be to casual users or the public at large.

You've probably observed that the generation reared on Facebook, Twitter, and MySpace is, as a group, not very concerned about who may have access to their data. They grew up in a social context where exposing every intimate detail of their daily lives to (potentially) anyone was the norm and a risk are comfortable with. People who are 20 years older though, more often have a healthy skepticism about claims that their data is being "stored with the highest level of security, under 128-bit encryption in a high-security data center".*

*First question.  Maybe you can decide which group you belong to by answering this:  Did you really believe your credit card data was secure at Target stores? (My answer was "No".)

What you may not have heard or thought about, is that the reason "40-something" QuickBooks users tend to be more wary of cloud-based accounting than are their younger counterparts is not entirely generational. The "40-somethings" have more life experience:  they have seen all the scams, heard a lifetime of news stories about data and identity theft, and heard all the hollow promises of politicians—oh wait, I'm repeating myself...I already mentioned that they've seen all the scams. They also may have more to lose:  maybe a business or reputation or customer good will they've spent the last 20 years building. In many cases their data really is more critical to their daily existence than is true for a 20-year-old.^*

*Second question.  Do you believe your online accounting data—in QBO or any other product—is secure from access by the NSA? Or—if you're a Tea Party group out of favor with the current political regime—is your online accounting data secure from access by the IRS via contacts inside the NSA? (No I'm not a "conspiracy nut", just trying to provoke thought.)

The point is that using the cloud for storing critical data requires trust. While the level of trust among users likely differs generationally it also depends heavily on our current view of security in the cloud in general, and that's influenced by news events as well as life experience. (I posed the NSA question, above, to emphasize how fickle individual views of data security in the cloud may be.) Users with a lower level of trust in the data security offered by cloud-based services are more likely to want to maintain physical control over their data.

Understand that I'm not suggesting data is more secure when stored privately, on computer hardware owned and operated within a small business. In fact, many small businesses have abysmally lax security procedures. But what they do have is control. They have the power to secure their data if they want to be vigilant about it, and they don't have to trust that someone else—over whom they have very limited influence—will follow through with guarantees of data security.

Consider QuickBooks Enterprise license holders for a moment. As a group, many of them have spent lots of time and money on either dedicated or part-time IT personnel to make, and keep, their network environment secure. Good confidence in their home-grown security procedures and protocols can be a reason to prefer desktop accounting software, installed locally. Again, it's often mostly about control.

While QBO is growing by leaps and bounds, the fact that Intuit chose to leave behind 3rd-party application developers when it moved to QBO is significant. They could have provided a better/simpler/easier path for converting existing apps to work with QBO, but they didn't bother with doing that. Why? Some would say it was because they needed to make a clean break with old technology to move to a new design paradigm, but for me that theory doesn't hold much water.

My take is that when you're "king of the mountain" (or think that you are) you may get the idea that you can do whatever you want and everyone else will follow, regardless of the cost or peril involved. If you fail to provide a simple upgrade path for hundreds of existing apps, well, not to worry: developers will bite the bullet and follow you anyway because, after all, you are the king of the mountain.

Or, as king of the mountain, maybe you simply don't care about those developers who aren't serving a mass market user base. I've always had the feeling that Intuit actively courted large-market developers (Bill.com, Expensify, etc.) but considered small-market and custom application developers with indifference at best. Or maybe more like gnats or annoying pests than as a valuable part of securing QuickBooks' dominance in the small business accounting market.^*

*Chuck Vigeant wrote an excellent blog post about the trials and tribulations of being a QuickBooks add-on developer, here: www.sleeter.com/blog/2013/05/the-demise-of-the-quickbooks-third-party-developer/

Maybe Intuit's thought was "If small-market developers don't follow our lead it's no big deal...we still 'own' the parts of this market that are important to us." But if you ignore small-market developers, what you're really doing is ignoring that part of your own user base which depends on those developers for products and services! In the past week we have actually had a customer tell us he had tried QBO briefly but stayed with his desktop edition once they found out that our add-on product—one he depends on daily—was not yet available for QBO.

And what about custom applications? QuickBooks users who spent a couple thousand dollars having a custom application developed for their business have a significant investment in the desktop QuickBooks environment. Most could ill afford the costs of moving their custom application to QBO, even if Intuit supported that.^*

*As this is being written, Intuit does not yet support access to custom applications from QBO. Their application hosting plan supports applications that are for sale to all QBO users, but not ones developed privately for a single user or small number of users.

Many small-market and custom QuickBooks add-ons are mission critical, not merely time-saving "convenience apps". While those mission-critical add-ons exist and the cost of converting them to work with QBO remains high, a significant group of QuickBooks users will continue to be tied to the desktop editions.

To sum up what I've said so far...

Everything I've said up to this point is about things which support continued demand for QuickBooks desktop editions in preference to cloud-based products. For some users, having more direct control over things like system uptime, service reliability, and data security is very important. For others, demand stems from their dependence on mission-critical 3rd-party or custom QuickBooks add-ons which currently work only with desktop editions. Intuit would ignore this demand only at their own peril—the risk of losing a part of their customer base to other products. (How many users this might be is only speculative. You may or may not think it significant.) 

With that said, let's next turn our attention away from product demand and look at the supply side; i.e., reasons why Intuit may want to continue strong support for desktop editions even as it puts on its best full-court press to secure their QBO's place among cloud-based accounting services.

QuickBooks users have a longstanding love/hate relationship with Intuit. I'm not talking about casual users or new users but about the core user base for QuickBooks products: people who've used QuickBooks for 5 or 10 or 15 years. A number of Intuit's marketing policies, including sunsetting of prior versions and services related to prior versions (such as payroll support), has left a bad taste in the mouths of many. It has resulted in a customer base that is much less loyal than it might have been.^*

*This subject is one of strong disagreement among QuickBooks users, supporters, and detractors. But you can't successfully argue that subpar loyalty among QuickBooks' customers is a factor Intuit can ignore in developing its marketing strategies.

Software product loyalty comes in two forms, and both are exhibited with QuickBooks: the majority of QuickBooks users love the software, but many fewer have as positive a feeling toward Intuit, the company. This distinction is important. It implies that if people found a competitive product with the accounting features they want, offered by a company they view positively, and if that company made converting from QuickBooks to their product easy, Intuit's lock on the small business accounting universe would be much less secure than it appears to be today. I mention all this mainly because it supports my next point...

I believe sometime in 2013 Intuit's management realized that trying to push its hard-earned, longtime QuickBooks desktop user base out of the woods (off the QuickBooks desktop) and into the open clearing (the cloud; specifically, QBO), was not such a good idea after all. In fact, I think they realized that pushing desktop users toward QBO was exposing them to "predators" which might pick off those users, one by one, by luring them to other cloud-based accounting products. I think this is a much bigger deal than you might, the first time you consider it, and I believe it is a significant reason for Intuit's subtle shift back toward supporting the desktop editions—keeping them alive and healthy for a while longer.

Think about it. If desktop users see switching to QBO as involving significant costs (data conversion effort, time, and retraining costs) because its features and operation are different from what they are used to, might that be the time to consider other options? The thing that kept you in the fold as a QuickBooks user—the familiar, comfortable desktop edition you've used for years—is about to be replaced with something new and different. And if you aren't a fan of Intuit, now's the time to consider cutting those apron strings. I mean, if some re-learning and effort is required for switching to QBO anyway, isn't that the time to take a serious look at other cloud-based alternatives like Xero, or WorkingPoint, or LessAccounting? The amount of retraining and effort required for switching to them might not be much more than for switching to QBO.

What evidence is there for such a shift?

I wasn't at the Sleeter Accounting Solutions Conference in the fall of 2013, but Charlie Russell was, and his blog article about Intuit's comments at that meeting (www.sleeter.com/blog/2013/11/quickbooks-software-integration/) holds some clues—things that for me are "smoking gun" evidence of a change in Intuit's thinking. Only a year before had Intuit essentially announced they were stopping development of the interfaces that 3rd-party applications use for accessing desktop edition QuickBooks data. But suddenly here they were, stating just the opposite—that they would be continuing support and development in that area.

I believe their focus on everything-cloud was premature and short-sighted, predicated on the idea that because they "owned" the small business accounting market they would still own it once they pushed users off of the desktop products and into the cloud—to QBO. But with mushy customer loyalty, a QBO product that is missing desktop edition features and works a bit differently, and other factors I've mentioned, that ownership of the small business accounting market appeared to be less secure. Better to keep a firm grip on the QuickBooks user base by keeping the desktop editions alive and healthy than to risk losing part of them.

This places Intuit in a position which requires a deft hand, now. They may not be pushing desktop users toward the cloud as hard as they appeared to be during the past couple years. But the myriad services and possibilities available in the cloud—and in competing cloud-based accounting products—will require that they deliver a similar range of cloud-based services to desktop users as well as to QBO. At least that will be true for a while, until the features and services offered in QBO surpass those of the desktop editions and make it the clear choice for most users.

Finally, I'm not suggesting Intuit will shift advertising dollars away from QBO to spend on promoting desktop products. Why? Because they won't have to. Demand for desktop editions will maintain itself for the reasons I've mentioned earlier, while new growth will be mostly in numbers of QBO users.

I'm not an Intuit insider. These ideas are not based on some "inside scoop" whispered in my ear by someone privy to Intuit's marketing discussions. They are my own observations based on the subtle but strong clues I see, and they may be completely off the mark. I know that some who read this will consider my ideas to be either wrong or irrelevant. That doesn't bother me: the world is a big place, with room for lots of ideas and thought pieces like this one.

Prediction: QBO and other leading cloud-based products like Xero will keep the low- to mid-range segment of the small business accounting market interesting and very, very competitive over the next couple years. All of these companies are scrambling to expand services and features and offer users the biggest bang for the buck. But Intuit will continue to own the mid- to upper-range of that market by keeping the Premier- and Enterprise-level editions healthy. That will mean added features and expanding access to cloud-based services from the desktop. Eventually though, the desktop products will "go away". How long before that happens is anyone's guess.

Mark Wilsdorf is President and Senior Software Developer at Flagship Technologies, Inc., and the author of two books about using QuickBooks. His most significant recent project Flagship Technologies' FormCalc SST for QuickBooks product, the first spreadsheet-based add-on for doing calculations on QuickBooks forms (invoices, sales receipts, purchase orders, etc.), released in December.