The Worst-Kept Secret About QuickBooks Online

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(This post originally appeared on Forbes)

Once upon a time, not very long ago, it was a different experience buying software. Take QuickBooks, the popular small business accounting system, for example.

Back in the day, you would go to the office supply store, or order the software online and it would be delivered to you in a box. You would install the software on your desktop computer or on your server. Maybe you’d need some assistance. Sometimes you’d ask for training. But other than that the software was up and running. You can still do that today, if you want. You could purchase QuickBooks Premier for about $300 and install it on just about any Windows 7 or 8 machine. But that’s getting tougher and tougher to do. Like Intuit’s other desktop products,  QuickBooks Premier is now all the way at the bottom of the products page, overshadowed by its QuickBooks Online offerings.

Can you blame Intuit? Of course not. QuickBooks is a fine product and Intuit is a fine company.  Intuit is no different than any other large software manufacturer intent on growing profits. It’s pushing the cloud to its customers. And small businesses, like it or not, are definitely migrating to the cloud.According to Steve King, a partner at Emergent Research, which tracks technology use by small firms “…almost 37% of small businesses are ‘fully adapted’ to cloud-based applications.” He expects that to increase to 78% of small businesses by 2020.

There are certainly sound reasons why so many small businesses can benefit from the cloud. It relieves us of the burden of maintaining a network or an IT guy, we’re told. Cloud applications allow us to access our data now from anywhere, using just about any mobile device. Cloud applications are easier to setup and get operational. Support for the software can be offered more economically because everything’s being maintained by the manufacturer. Security is better. Integration with other cloud based applications is easier. And, we’re told, monthly software payments help us with our cash flow.

But that’s not the real reason why so many small businesses are moving to cloud based applications. The real reason is also the worst-kept secret about the cloud: software companies like Intuit make lots more money from cloud applications. And they’re making it at the expense of their customers. You, me, my clients.

In the long term, cloud applications are significantly more expensive for small businesses. A monthly subscription for QuickBooks Online Essentials (the most popular choice, according to Intuit) lists for $26.95 per month. The application compares closely to the $300 version of QuickBooks Premier. Doing the math? In just one year you’re paying $323 for QuickBooks Online Essentials. That’s every year. Compared to the one-time $300 payment you would’ve made for QuickBooks Premier.

But the cost benefits of the cloud significantly outweigh these costs, right?  Using my firm’s 600+ clients as a basis, I’m not so sure. Even with cloud applications, all of my clients still need IT support because they still have desktops, servers, routers and networks and will likely have this type of infrastructure for the foreseeable future. They all use applications like remote desktop, Citrix, GoToMyPC, LogMeIn or other similar products which gives them access to their network from any device they choose.

Installing QuickBooks Premier desktop has never really been a problem and support was never much of an issue because the application works pretty darn well – most of my clients didn’t even purchase support plans from Intuit because they weren’t using them. And most of them wouldn’t upgrade for years because it wasn’t really necessary. I agree that security is better – I’d trust Intuit’s security team to any IT guy supporting my small business clients. And integrations with other cloud based applications are easier because the eco-system created by the cloud is attracting great tech companies financed with billions from Silicon Valley who are also eager to jump on the cloud money train.  As for “cash flow” who can’t afford a one-time $300 for QuickBooks Premier?  And for those clients spending more on higher end systems, there are dozens of leasing firms we use that enable them to spread out their cash flow.

Intuit, like every other cloud based software maker, earns way more money when you subscribe to its online products. It gives the company a continuous, almost-guaranteed revenue stream which not only boosts their recurring cash flow but also its market valuation which can now be more accurately determined using a similar multiplier formula used to value cable companies, utilities, accounting firms and any other business with a recurring revenue stream. And it gives software companies the ability to control their future revenues too. What stops Intuit from raising the monthly price of QuickBooks Online Essentials to $36.95 per month? Sure, you can yell but how far will that get you? You’re stuck. You’re not going to go the cost and disruption to move your entire accounting system just to save another measly $10 per month, right? Now multiply that $10 per month by Intuit’s millions of customers. Ka-ching!

Look for the continued growth of small business cloud applications. Look for more PR from the software industry telling us of all the benefits of the cloud. But just remember that you’re not choosing a cloud application. That choice is being made for you.

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