The Today Show asks "What is 'The Cloud?'", Intuit sells its data center and plans to move everything to Amazon Web Services, Xero dumps its own U.S. payroll product in favor of a strategic partnership and deep integration with Gusto, and Certify adds Abacus to its portfolio of expense management applications.
Stories in this episode:
Blake Oliver: Welcome to The Cloud Accounting Podcast, a show for accountants using technology to make their jobs more strategic, and impactful. I'm Blake Oliver-
David Leary: And I'm David Leary.
Blake Oliver: David, I was watching the Today Show, today, because I'm working at home. I was sitting on the couch with my iPad, catching up on the news, getting ready for our podcast, and what comes on, but a story, on the Today Show, entitled "What is Cloud Computing?" Actually- [00:00:30]
David Leary: No way!
Blake Oliver: I misspoke. It was "What is the 'Cloud'?" in quotes. One of their reporters took a tour of a Microsoft facility in an undisclosed location, I think, in Virginia, somewhere, and the Today-Show audience learned where their data is, in the cloud.
David Leary: Amazing. It's in a physical place, in a building somewhere.
Blake Oliver: I just had to share that with you, because it's so funny, coming [00:01:00] probably 10 years after it should have; but, to be fair, it's taken a while for the cloud to gain mass-market appeal, or knowledge. The quote that I loved the best came from Savannah Guthrie, at the end of the segment. She said, "Ah, so the cloud is basically a big file cabinet that's not actually in the cloud."
David Leary: Amazing, amazing. What we could do is ... We have a distribution strategy here, right? I [00:01:30] think, when you put this up online, we'll tag the Today Show, and then they could have their follow-up ... They could like, "Hey, remember we talked about the cloud? Guess what? We got two guys here to talk about it even more," and they could bring us on.
Blake Oliver: That'd be great. I'm looking forward to that. You have to get up really early to be on the Today Show, though.
David Leary: East Coast ... I get up early. I'm a morning guy, now.
Blake Oliver: We'll do it if they ask us. Hey, actually, you have a story that you sent to me that is about the cloud, and Intuit. What's that?
David Leary: Yeah. I'll read the headline. This [00:02:00] is a U.K. tech journal, but I'll read the headline, because the verbiage is very interesting. It says, "Accounting software business Intuit flogging bit barn to throw its lot in with AWS." It's a little confusing for the title-
Blake Oliver: The first sentence is my favorite. It says, "financial software flinger Intuit is binning its biggest data centre and plonking its corporate backends onto AWS - in another win [00:02:30] for the public cloud's biggest player." Definitely a frustrated literature, or English major working at that site, but, David, what is the news here?
David Leary: Essentially, the news is Intuit ... Years ago, when things first started moving to the cloud, and big data started coming on, we built data centers. We had a huge data center we built in Quincy Washington. As times moved on ... It started [00:03:00] out very small. Years ago, we started putting just Help, Turbo Tax Help, up on the Amazon servers, because you could spin up ... One night, you'd need 45 servers; the next day, you'd need one. You couldn't really do that in your own data center very well, or cost-effectively, but you could with Amazon Stash. Over time, more, and more stuff just keeps moving to Amazon's web servers, to the Amazon cloud. Even QuickBooks Online, now, is all on [00:03:30] Amazon web servers. I think even Xero's on Amazon web servers. Us having our own data center doesn't make a lotta sense, so we've, Intuit, sold the data center.
Blake Oliver: Wow, that's big news, but not unexpected.
David Leary: Not really unexpected, and it's interesting, because we always talk about desktop versus cloud. If companies like Intuit aren't running their own data servers does it make sense for somebody to have a server in the back room of their office anymore?
Blake Oliver: No, absolutely [00:04:00] not.
David Leary: I think that's kind of the direction things are headed. The other thing that just reminded me of a story I had, early on in our platform, we started building Apps.com, and we were gonna build an app marketplace, and a platform. We were gonna host the apps.
David Leary: Early on, and this is when I used to have an app on the platform, ViewMyPaycheck, we hosted all the apps-
Blake Oliver: Oh, wow. I didn't know that.
David Leary: -and we decided, "We're not gonna do this. We are not going to do this." I remember one of the engineers explaining the why behind the decision, [00:04:30] when we decided that this wasn't a good idea. He said, "The simple way to think about it is we had three engineers working on something that Amazon had 2,000. It was kind of like, okay, they're obviously going to build this way better, and faster than we ever could." It's really specializing your skills, right? They're really good at that. We're really good at small business.
Blake Oliver: Yep. Intuit is going to take a charge for selling [00:05:00] its data center, or actually, rather, transferring all the data to AWS. It's going to cost between 75 million and 85 million. It's a huge undertaking, so, probably, it will take, I would guess, at least a year to make that full switch happen, or maybe Intuit'll do it faster than Xero. Hey, speaking of impairment charges, or switching costs, or binning ideas, there's some news outta has Xero, big news, that broke recently [00:05:30] that Xero is ditching its U.S. payroll product, and they are partnering with Gusto, which will now provide the deeply integrated payroll solution that Xero had previously developed, in-house.
A lotta talk about this on the boards for Xero users, accountants using Xero. Is it a good move? I'm gonna say, my personal feeling is, as a Xero user, I'm a bit disappointed that they didn't follow [00:06:00] through on building out payroll, but I can understand why they would give it up, when payroll is so darned complicated in the United States. I don't think that the folks in New Zealand, or Australia had any idea just how difficult it is to build payroll in the U.S. Probably, long term, a good move. I think they're going to take an impairment charge of, looks like,16.2 million in the first half of the March 2019 fiscal year to do it.
I love Gusto, so [00:06:30] I'm happy about that. Only problem is that ... The question, the big question, is how much is this going to cost, because that hasn't been released yet? One of the great things about Xero's built-in payroll product was that it was free on their standard plan, for up to five employees. If you're a small shop, and you're just paying yourself, and a couple of employees, you could actually use their payroll for no extra charge. Now, it was self-service; it was not full-service, like Gusto, but that was a nice little [00:07:00] feature. I do think it is better to have full-service, in the end, but it is going to be another monthly payment.
David Leary: With your knowledge of Gusto, did Gusto ... I'm sorry, not Gusto, my bad, but Xero's payroll, did Xero's payroll ever do all 50 states?
Blake Oliver: They never quite got there. The problem, of course, being that some states still don't even allow you to file electronically, I think.
David Leary: Got it, so they just ... I get that, and Gusto, I think, went through that when they ... They just went for the big states, first, and then, you eventually catch all the states. I kinda have two [00:07:30] interesting dots on this.
David Leary: One, it's kind of not surprising, at some level. It's similar strategy Intuit used with QuickBooks, in Canada. We partner, and Wagepoint's the payroll provider, there. In Australia, KeyPay. As you take an accounting system global, even though the accounting's kinda the same everywhere, and even the sales-tax, and use-tax models are kind of very similar, everywhere, payroll's not. For [00:08:00] a company like Intuit, or Xero, or anybody to build one payroll that works in every single country around the globe is really, really difficult. This could be an indicator of lots of announcements like this going forward, I think-
Blake Oliver: Yeah, and I would say this is also really good for the concept of the cloud-accounting ecosystem. It proves that it's really, really hard to build all-in-one products, and it's very expensive to do so, and [00:08:30] that a better approach in the small-business segment is to partner with other developers to integrate your products, so that you can both focus on what you're really good at. Xero is not good at payroll. They are good at accounting. Gusto is really good at payroll, and benefits. Work together. Deeply integrate your product, so that it's a seamless user experience. I hope that's what comes out of this.
David Leary: Hopefully, everything stays an open marketplace, because the way ... The small business is a win, because, if they [00:09:00] wanna use Gusto, great. I think, two months ago, Xero was all happy about how Paychex ... I think we talked about Paychex integrating with Xero, right? Then it's QuickBooks ... ADP integrates, Paychex integrates, Gusto integrates. Intuit does their own payroll. It's good for the small-business owner. Patriot payroll's out there ... To pick the payroll product that's the right fit for them.
Blake Oliver: Ideally, all of those products would be deeply integrated, or it would be an open path to do that, so I could choose whichever payroll system I want, and it would work just as well. That is the dream. [00:09:30]
David Leary: I think I saw a tweet the other day that ... It was one of the- an ADP location, and 50 ADP employees were all wearing TSheets shirts. I think we all are ... Everybody's moved on from that closed mindset of "My way or the highway" and you can be an ADP customer, but you can also be a good TSheets customer, and maybe a good QuickBooks customer. I think everybody's a little bit more mature now in the marketplace, when it comes to ecosystem.
Blake Oliver: Yeah, absolutely. Hey, I think this is gonna be a short episode, today, [00:10:00] but we do have one more piece of news. What's that?
David Leary: Certify, who, if you guys remember, maybe 19 months ago, they merged with Nexonia, and then, a couple months after that, it was ExpenseWatcher, and Tallie. They took four expense apps, and they're merged together as one big company. Now, they've just announced they're acquiring Abacus, which is now a fifth expense app. They basically built an umbrella, or suite of five apps to go from huge [00:10:30] enterprise, all the way down to teeny small business sole-tracking of expense reports, and all the people, and [big slices] in between.
Blake Oliver: This is really interesting, because I didn't know what to make of it, when the first few acquisitions happened. Now there's five of them. As a marketing guy - or, well, since this year, I've been a marketing guy - I can't imagine having to do marketing for five separate brands. It's hard enough with one. Is this a good move? Is the [00:11:00] ultimate plan to consolidate the user bases on to one or two applications? I feel like that has to be the end game, because how can you scale running five separate expense applications? Maybe the idea is just to see which one does the best, and then-
David Leary: Pre-merger, I've been to an accounting conference, and seen all five of these with their own five separate booths. If they have a separate brand, and they go forward with separate booths, it's [00:11:30] just gonna cause market fatigue, for somebody shopping, even, like, "Well, I don't know which one I should choose." It's not obvious, like, Coke is very distinct, and Sprite is very distinct, and Snapple is very distinct, but all these products are very, very similar. How they communicate that is gonna be interesting.
Blake Oliver: With soft drinks, there's two soft drink companies that make 90 percent of the soft drinks out there, but it's easier to do separate branding, I think, for soft [00:12:00] drinks. Especially with software, you've got a whole back end that you've gotta maintain that are separate systems, and all that stuff. It's not just like a recipe. Curious to see how this all works out.
David Leary: Yeah, I think that's it. A short one, today. If anybody wants to send us some articles for next week, or just say, "Hey, you two are great,” how’s the best way for them to reach out to you?
Blake Oliver: They should tweet at me. I'm @BlakeTOliver.
David Leary: Twitter works for me. I'm @DavidLeary, and-
Blake Oliver: Thanks [00:12:30] for listening.
David Leary: Keep your eyes open. I think have some boring episodes coming out here soon.
Blake Oliver: Yep, we've got Ed Kless coming up real soon. That'll be a fun interview.
David Leary: Awesome. Perfect. Later, Blake.
Blake Oliver: Thanks, everyone.
David Leary: All right, bye.
Blake Oliver: Have a good one.