Accounting firms have been facing higher technology costs as connecting with and using certain cloud-based applications grows more expensive.
The rising costs are connected with application programming interfaces, a type of software interface enabling computer programs to communicate with each other, enabling direct passage of data. For example, when someone uses an app on their phone to check the weather, it sends a request or “call” to the API connected to the remote server where the data is stored. The server processes the request and sends back information, which the app then displays in a way humans understand. Any software integration depends on API access to function.
While many APIs — like Wikipedia’s and NASA’s — are free to access, many more are not, and there are just as many pricing models as there are companies. Some charge flat-fee subscriptions, others charge by data volume, others charge per call, and others do something else entirely. If a firm’s solution is connected directly with a vendor’s API, it could be charged through any one of these pricing conventions; if the solution connects to another API that charges the vendor, the vendor often will pass the costs onto the end user.
Regardless of method, firm leaders are saying the cost to access these APIs has been growing, which has necessitated increased spending. Avani Desai, CEO of Top 50 Firm Schellman, noted that this is not specific to accounting solutions.
“API costs have skyrocketed over the past few years, primarily because of supply and demand, in all different industries, not just the accounting profession. Even though the tech sector is witnessing uncertainty, the API economy hasn’t,” she said.
Patrick Camuso, head of digital asset specialist firm Camuso CPA, also reported technology fees getting more expensive, sometimes dramatically. Rising API charges have contributed to applications becoming, at the lowest, 5 to 6% more costly over the past year, though for certain solutions the price tag has grown 10 to 15%. This has been the case especially for specialized crypto software, which can get expensive, as more clients means more charges.
Randy Johnston, executive vice president at accounting technology consulting firm K2 Enterprises, noted that while individual cost increases might seem innocuous, accounting firms use a lot of different solutions. Taken together, firms could be facing eyebrow-raising cost increases. While not devastating, he said, they’re certainly material. “I don’t think it will be a crushing cost … But I think it will be notable. My guess right now is it could add 10 to 20% to the cost,” he said.
Many firms, he said, don’t want to pay 10 to 20% more for their software, and so will likely respond by passing the costs down to their clients. This is actually what Camuso had to do, though he conceded there are questions about long-term sustainability.
“On the accounting side, for the most part right now, they’re being passed through to clients. But I would say, particularly for smaller startups getting off the ground, there does become an inflection point. There is only so much a company really should invest into their accounting,” he said.
Desai, on the other hand, said her (much larger) firm has chosen to absorb the fees for now, framing them more as a strategic investment in future technology, as well as client satisfaction. While access is growing pricier, she feels the extra spending is worthwhile, as it has enabled greater service capacity.
“Our firm absorbs the increased API costs as part of our commitment to delivering top-notch service. We believe in investing in efficiency and providing a seamless experience for our clients,” she said.
Supply and demand and costs
This speaks to a point raised by Danielle Supkis Cheek, vice president of strategy and industry relations at financial risk discovery platform MindBridge AI: Clients are demanding more from their accountants, who must turn to technology to meet those demands, which almost inevitably involves APIs. The sheer volume of data that firms must now process makes it almost impossible to get by without them. Handling such data, then, means much heavier use of APIs.
“Think of when Excel caps out at 1 million rows of data. That is not a lot these days. Data sets, even for small CPA firms, break Excel on a regular basis, and being able to move larger volumes of data without having to go through a less secure email system without the other steps — which are very human intense and prone to breaking — I think you will see that those that plan well for their APIs do a little better,” she said.
Ellen Choi, co-founder and chief operating officer of automation solutions provider Aiwyn — whose software has a heavy emphasis on integrations — made a similar point in saying that API access is what enables the solutions that have been boosting firms’ productivity, particularly where it comes to automation and operational scaling. Such connectivity can offer a clear value proposition with a quantifiable return on investment.
“With API connectivity, we can have a better view into the business so they can run it profitably — financials, all those workflows, resource allocation. And all of this is enabled only by connecting multiple systems together. … You need to automate, you need more capacity, and APIs can directly connect different systems and eliminate manual repetitive tasks. That is a very concrete thing,” she said.
Another reason prices are rising for firms is that many vendors themselves face higher costs. Raju Vegesna, chief evangelist at practice management software company Zoho, noted that the majority of companies in general run their applications off major cloud vendors such as Google, Microsoft or Amazon, who tend to charge based on usage. As they themselves use cloud servers more, costs increase, which they then pass on to customers. This has been particularly relevant for companies that charge per-call.
“And so a majority — 80 to 90% — of these cloud companies run their infrastructure on these public clouds. So that is one of the reasons they are incurring expenses,” he said, adding that Zoho opted to run its own cloud, which lets them avoid these fees.
Jonathan Lupa, chief technology officer at accounting-focused cloud hosting and solutions company Rightworks, concurred, saying many of the charges are more about cost sharing, including per-call charges.
“I know there are partnerships built on open APIs where they have begun doing per-transaction charges, but to me that is just cost-sharing on the high cost of cloud infrastructure. It’s very expensive and they’re not trying to price people out,” he said.
Apart from cloud costs, Choi from Aiwyn noted that APIs in general are expensive to run.
“It absolutely takes not-insignificant resources from engineering and the like to have APIs that are usable, so it is absolutely a cost,” she said.
Monetization strategies
Another factor might be companies pursuing a strategy of API monetization. As API access becomes more valuable, companies are treating it not just as a way to access their products but as a product unto itself. K2 Enterprises’ Johnston, who has broad contacts in the accounting solutions space, said companies are doing this partially as a hedge against inflation, and partially because “the perception is they can right now, [because] everyone’s still kind of thinking inflation.”
“I don’t think I’ve had a third-party supplier or a mainstream supplier that hasn’t had some sort of discussion about monetizing APIs,” said Johnston, who added that the markups tend to be in excess of inflation. “It might be attractive because they just pass on the costs marked up, right? So it’s just an opportunity to make some more dollars.”
Vegesna, from Zoho, added that a lot of software vendors in general are not actually profitable, so they will look to monetize whatever can bring them money. “Why is that happening? At a macro level, companies don’t make money… The majority, I would say maybe even 90%, are not profitable. So they will take money in whatever way it comes. And APIs being one of those sources, if they can make money through APIs, they’ll make money through APIs and it becomes yet another channel through which they make money,” he said. He criticized this practice as “nickel and diming” the customer, something he said they tend to dislike. But he said this reflects that end users aren’t always “the real customer,” as these decisions aren’t made with them in mind, but other parties, such as shareholders or private investors.
Johnston advocated for what he called “API neutrality,” especially if it involves getting data one already owns out of the server. He finds it “a little odd” that he would have to pay to get his out, “because after all, it is my data,” especially if he is not a heavy user.
“I’m kind of on the side of API neutrality,” he said, explicitly referencing the earlier movement for
However, Rightworks’ Lupa wasn’t convinced that these rising costs are connected to revenue generation strategies versus tactical cost-sharing, at least in the case of open APIs.
“I have not seen a single case where they raised prices to achieve revenue inside accountancy,” he said.
Business model changes
The shift to monetization is informed at least in part by wider business model changes within the accounting solutions world. Cheek, from MindBridge, noted that we’re long past the days when professional-grade accounting software could be bought at an office supply store and installed from a CD. With the shift to the cloud, a lot of software acts like subscriptions, which on the one hand allows more consistent revenue from customers and, on the other, creates incentives for continually improving the product.
“We’ve seen a shift in the software market space making sure the money coming in to pay for the software is aligning with the ongoing usage of the software, because that is creating better-aligned business models … making sure companies are incentivized to keep creating value for their customers and aligning that value,” she said.
Digital assets specialist Camuso has noticed this shift over the years as a practitioner.
“More of these companies are following a model of trying to be like a service provider as well as a software provider, or at least moving in that direction. I’ve even had some [software vendors offering to] pay us monthly to basically be a contractor for them and for clients just using their software as an API service and bringing their transactions in,” he said, adding that it can lend some potential for price negotiations if a lot of clients are on the software.
Juha Haroken, vice president of partner ecosystem and marketplace strategy for business and accounting solutions provider Sage, noted that what’s happening in the accounting field is a microcosm of what’s happening with software in general.
“When companies monetize APIs, they are not only thinking of infrastructure cost recovery but also the shifting of value. Accounting is no different. Functional areas being automated through APIs include data entry, invoice processing, reconciliations, expense management, reporting, audit management, tax compliance, budgeting and forecasting, accounts payable and receivable, transactional coding, intercompany transactions and more,” he said.
Schellman’s Desai said this model carries many benefits for firms, adding that her own firm has created an API marketplace “to provide our clients a frictionless assessment process.”
“We don’t charge for it currently, but as it becomes more mature, that could be a revenue-generating strategy for us. Companies recognize the inherent value of their data and services — and being able to offer access through APIs is very valuable: It cuts the need for additional work and time … Being able to do something quicker, better, faster is worth paying for,” she said.
For some, however, it has become important to maintain an open platform, particularly those who have a lot of contact with third-party developers who integrate with their solutions, such as Intuit. Aravind Kannan, director of product management for developers and partners at Intuit QuickBooks, noted that he is not outright against API monetization. If it’s done thoughtfully and methodically, it can foster stronger relationships with the developer community, he noted, and it’s important that Intuit’s remains open.
“Intuit is firmly committed to being an open platform and empowering third-party developers to integrate with our products to meet customers where they are with tailored solutions. Access to our API is fundamental to our open platform strategy and plays a critical role in the success of our customers and the growth of our ecosystem. Today, access to our API is free,” he said.
Laura Redmond, co-founder and partner of workflow automation solutions provider Aero, holds a similar view, as her company’s API is free to access and can be integrated for no charge (but to actually access data, a subscription is needed, she added). “We believe that having an open API enables some customers to extend Aero on their own timetable as opposed to waiting for new features on our roadmap. Many of our competitors do not have an open API. This feature of Aero improves our flexibility, especially for larger firms that have an IT department,” she said.
She doesn’t see herself as bucking a trend. Aero’s revenue strategy revolves around subscriptions, and she has found having an open API encourages more subscribers. In this respect, it’s a strategy that aligns with Aero’s specific business model.
Third-party impacts
Since many third-party vendors need API access to create effective integrations, Zoho’s Vegesna is concerned about what the broad trend of monetization will do to the independent developer community. He talked about how Twitter last year enacted a monetization strategy that led to a closed API, and the number of third-party clients collapsed.
“Everything else is licensed and you have to pay a premium to get all of that, and so the ecosystem will die down and move elsewhere,” he said, adding that this is partly why he does not see monetization as a smart strategy for his company.
Mindbridge’s Cheek acknowledged that with any major change there will be some displacement, but felt that API monetization could actually help independent developers in the long run. With data flowing in and out much more efficiently, there will be more opportunities for integrations. This might actually deepen relationships between vendors, not fray them, as it could encourage more exclusive agreements.
“You start to see even more need for, ‘OK, I’ve got all this data, but I need this very bespoke solution’ and maybe the third-party developer doesn’t work in the app marketplace but maybe [someone] commissions them to make something bespoke,” she said.
Choi went further and said monetization would be more boom than doom for indie developers. Everyone has finite time to do things, and as more companies monetize their APIs, the opportunity for independent developers to find other ways to provide value will grow. A broad trend toward monetization could lead to developers making more money, not less, as demand for their services rises in pace with monetization trends.
“Many times small businesses, small indie developers, are very focused on delivering product value but don’t always capture all of it for themselves … Indie developers could actually make more money when they discover [relative to] the value that they’ve been providing they have been undercharging,” she said.
She feels excited about the possibilities, saying it’s only recently that technology got to the point where people could seriously consider monetization in the first place.
“It’s interesting to see the building blocks weren’t even there, the technology wasn’t even there, so [we went from] wrapping our heads around APIs to ‘let’s make APIs’ and now ‘let’s monetize APIs.’ It’s a crawl-walk-run, and we’re in the crawl phase right now, so there is so much room for us to expand on this as vendors and as ecosystem players,” she said.
Vegesna, from Zoho, raised similar points about technological development and predicted the monetization trend is likely to continue, both in the accounting solutions space and overall. The pressures that lead companies to monetize are still there and, indeed, are getting stronger, so there is no reason to believe things will reverse.
“If anything, I expect this to accelerate,” he said.
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