Other than the eye-watering fees my mother was being charged for SMSF accounting support, one of the catalysts for the launch of Mclowd was a blog post written by Dean Morel of Fusion Investing.

In his 2009 article Dean talked about the importance of net present value when calculating the true cost of accounting software (in this case SMSF), and while the world of cloud-computing and SMSF software has come along way in the interim, his comments are just as relevant today.

I was reminded of this when reading about the launch of the new BGL cloud product – SimpleFund 360.*

Evernote and the Simple Reality of Marginal Cost Pricing

I use a neat cloud-based tool called Evernote to manage receipts for incidental Mclowd expenses. I just take a photo with my phone, email it into Evernote, where it is picked up and processed by a crowdsourced accounting resource based in Jaipur using Dropbox and a free SME accounting package called Wave.

All of the technology is free, and as the labour involved attracts a fee of just US$8.25 per hour, the whole accounting workflow @ Mclowd is extremely cost-effective.

But this blog has nothing to do with the cost of bookkeeping and everything to do with subscription licensing models.

I recently received an email from Evernote advising me that multi-factor authentication (previously part of their ‘Premium’ offering) was now being made available to all users free of charge.

One of the reasons that Evernote is releasing this part of their offering for free is because the marginal cost of delivering multi-factor authentication in the cloud is $0.00, and under those circumstances it is very difficult to maintain a price above marginal cost.

BGL SimpleFund 360

BGL Corporate Solutions is currently in the process of releasing its new cloud-based SMSF product: SimpleFund 360.

While I would like to congratulate the BGL Team on setting the bar so high, I have some very bad news for BGL’s shareholders.

Irrespective of the scale of the investment, by launching itself into the Cloud BGL has inadvertently exposed the organisation to the economics of cloud computing: if the cost of adding a new user to an SMSF accounting system is $0.00, then the price of the product will inevitably fall to $0.00

But this outcome has nothing to do with Mclowd and everything to do with the economics of cloud computing and crowdsourcing.

This can be illustrated by comparing the net present value of developing an SMSF accounting system under several different models:

  • Incumbent models (BGL, Class, etc)
  • Mclowd
  • Development and maintenance by the SMSF Trustee Community themselves

Net Present Value – Incumbent Models

That BGL would choose a subscription licensing model for SimpleFund 360 is understandable, since this model has served the shareholders of BGL (and its peers) well for many many years.

However just as with the share market, past performance is no guarantee of future outcomes.

For much of the history of the software development industry intellectual property has been licensed to users, either in perpetuity or based on a periodic licence (monthly, annual, etc). This economic model supported the deployment of the initial capital and the operating expenditure associated with support. As mentioned this revenue model has worked extremely well for many vendors over many years.

Not so long ago software was delivered and licensed using mediums such as CD-ROM, and then online models evolved, using ‘private cloud’ technologies ( being a good example). used the change in the economics of software delivery to disrupt the CRM (customer relationship management) space dominated until that point by Siebel.

The advent of public cloud services (such as is changing the rules of software delivery yet again, allowing ‘lean’ start up enterprises such as Mclowd to launch new services based on business models that would not have been realistic even a few short years ago.

While I have found it difficult to confirm pricing for SimpleFund 360, this blog post on the BGL website indicates that a price of $100 per Fund per annum is being targetted.

In a recent article in the Self Managed Super Magazine BGL Managing Director Ron Lesh indicated that “by the middle of next year (2014) we expect to have between 50,000 and 75,000 funds on SimpleFund 360”.

From this publicly available information we can estimate the net present value of 75,000 Trustees paying $100 per annum to rent BGL’s intellectual property. (I have assumed a conservative discount rate of 20%).

(75,000 X $100) / 20% = $30 million

But of course 75,000 represents only 15% of the total SMSF population, so the NPV of licence fees across the sector can be estimated at north of $100 miilion.

In relying on a subscription revenue model these incumbents have failed to understand that they are actually competing with their own clients, who can now own rather than rent the same intellectual property, and they have at least 100 million reasons for doing so.

Net Present Value – The Mclowd Model

At the same time that public cloud infrastructure is transforming the economics of software delivery, crowdsourcing is driving fundamental change in the cost of developing software.

Mclowd’s weighted average cost of labour is just US$35 per hour, and as a consequence we can replicate incumbent intellectual property for a tiny fraction of its historical cost. (In a traditional organisational sense Mclowd does not exist – there is no office or full time staff, there is just the Cloud and the Crowd).

We have deployed just A$275K in capital to get the Mclowd SMSF accounting Platform to version 1.3.0, and while considerably more will need to be deployed to build out the software to the point at which it effectively replicates all of the incumbent IP, it provides a useful comparison in terms of the net present value of licence fees:

(75,000 X $0) / 20% = $0

(The economics of cloud computing and crowdsourcing have created such capital efficiency – both capex and opex – that Mclowd can make the accounting software available for free as part of a wider, ‘multi-sided’ business model).

Net Present Value – The DIY Model

While I am proud of what the Mclowd Team has achieved over the last 18 months, one of the key reasons that the Platform is free is that Australia’s 500,000 SMSF Trustees would eventually have figured out these economics themselves: all it would have taken to kick-start this process would be for a handful of tech-savvy Trustees to get together over a beer and then post a project on Elance. (You only need to trawl through the SMSF discussion boards to see numerous posts from individuals who had envisioned Mclowd long before it was built).

It must however be acknowledged that this model would have been much more difficult to execute (both in terms of technology and governance), and the cost would be considerably higher than what Mclowd has been able to deliver (since we already had a core competence in terms of both cloud computing and distributed workforce management).

While Mclowd will be able to deliver replication for approximately 1% of incumbent NPV ($1 million), I have been much more conservative in estimating the amount of capital and ongoing expenditure involved were the Trustee Community to do this themselves.

(@ US$35 per hour the $4 million figure I am suggesting is the equivalent of nearly 50 man years of effort, which provides an indication of the price deflation being triggered by crowdsourcing).

Comparing Models

However as the following table illustrates, the scale of the difference in NVP calculations is so vast that it really doesn’t matter how accurate my estimates are: when you are talking about savings in the tens of millions of dollars, development of a cloud-based, crowdsourced version of ‘Mclowd’ was inevitable.

Net Present Value$100 million+$4 million$0

Operating Expenditure

It must be acknowledged that this story is not just about capital, but also about operating expenditure.

Part of the licence fees for products such as BGL SimpleFund would be allocated to the provision of ongoing support for the product.

Again for historical reasons BGL and its peers have assumed that the market would be prepared to pay a fee for this support to be delivered via traditional organisational structures.

In contrast migration and ongoing support for the Mclowd Platform is being provided not by Mclowd, but by the Crowd (who will be sourced through the Marketplace at a globally-defined marginal cost).

This is one of the most elegant aspects of the Mclowd model – revenues are built into the migration process itself.


In building the new SimpleFund 360 website BGL chose to use WordPress, a free content management system.

As with Mclowd, WordPress is free because:

  • It was built by the Crowd in the Cloud
  • It cost WordPress nothing when BGL joined the WordPress user community

In seeking to charge Trustees and channel partners above marginal cost for its cloud-based product BGL is asking clients to be less economically rational than BGL itself was when it developed its own website.

This is approach is not sustainable.


While no doubt unwelcome to BGL and its peers, my comments are not competitive in nature – they are based on simple economics: where large user communities are involved, it is now up to 99% cheaper to build and own rather than rent generic, cloud-based software.

(Mclowd is not competing in the accounting software space, we are building a crowdsourcing services marketplace for the funds management industry, it just so happens that the provision of a free accounting and investment management Platform is part of that process).

* SimpleFund 360 is a trademark of BGL Corporate Solutions Pty Ltd.