Articles

August 5, 2013

The Impact of Technology Company Consolidation on CPA Firms

Whether you’re a larger CPA firm or sole practitioner, technology plays a pivotal role in running a successful practice. The past decade has seen considerable consolidation within the accounting technology industry, with the giants absorbing smaller companies to add to their product suites. While this should continue in the short run, over the long haul the rise of new transformative technologies, such as cloud/software as a service and mobility, may fundamentally change the way these technology companies, large and small, interact and compete. This change could have a profound impact on how CPA firms select and benefit from technology solutions.

Recent consolidation has left a small group of technology behemoths jockeying for position as the central accounting ecosystem. Larger accounting and tax technology companies continue to make acquisitions as they try to be a one-stop shop for all firm needs, from tax preparation to compliance to practice management.

The systems offered by these large tech companies, such as CCH and Thomson Reuters, have traditionally been closed systems making integration difficult. You must either use their products or face a difficult, uphill battle to try to integrate third-party offerings. For anybody to figure out how to hook into their systems, reverse engineering was considerable.
CPAs must choose to either go with the suite from one of the large vendors and use all of its products, even though it may not be ideal for their needs, or choose best-of-breed from multiple vendors and be prepared to spend much time and money to attempt to get them to work together.

CCH’s recent introduction of its Axcess platform, which is built on an open architecture, may signal a sea change in how large tech companies will do business going forward. Best-of-breed companies and innovative start-ups are always going to be acquisition targets. But this move toward an open architecture may indicate that the focus of these large conglomerates has shifted from obtaining the best-of-breed companies to partnering with them.

The industry majors’ appetites for building brand new applications or purchasing external ones and getting them to work within their platform may be waning. The large companies’ systems would certainly remain the central part of the overall ecosystem, but they would let the startup companies do the market research, develop the niche applications and build market share. They would then simply “join worlds” with third-party providers by allowing them to hook into their ecosystem – based on some sort of fee structure.

So what does all this mean for CPA firms going forward? Consolidation generally is often viewed as a negative by those buying the services. It leads to fewer provider choice, can potentially inhibit innovation and may limit the ability to access solutions that best fit firms’ needs if they won’t easily integrate into their main system. But the introduction of the new open architecture environment and the potential move away from the traditional acquisition mentality could mean the exact opposite for CPA firms.

Firms would now be free to choose the solution that best fits their needs and solves their problems, rather than being forced to put all of their eggs in one basket and simply select everything from a single provider. If they decide someone outside of the CCH suite or the Thomson Reuters suite does something better, they could go that route without worrying about the higher costs and headaches of system integration.

In the long run, that helps firms from an internal operations perspective and helps their clients. Being able to have things run more smoothly when collaborating with clients and delivering a better work product would be pluses for both firms and their clients.

Consolidation within the technology industry will always exist. But this move toward an open architecture environment may indicate a shift in the overall dynamics of the industry, from an acquisition mentality to a partnership model. In the end, that could be good news for CPA firms.