(Disclaimer:  I am part of the Small Business Accounting beta – but all information provided in this post is publicly available from both Microsoft’s web site & various technology ‘first looks’ reports)

If you haven’t already heard, Microsoft is prepping a new accounting package aimed at businesses with up to 25 employees.  Small Business Accounting as it is called will be a key part of a new Microsoft Office edition tentatively scheduled to be released later this year – Microsoft Office for Small Business Management

The SMB Accounting market is pretty fierce, with several key players releasing new versions annually.  With Microsoft being the new kid on the block coming into the small end of the market, you may initially wonder how they’re going to compete against entrenched products like Intuit’s QuickBooks & Best Software’s Peachtree Accounting.  Admittedly, Microsoft has an uphill battle in front of them in this aspect – but Small Business Accounting is going to be a much needed blast of fresh air into this market.

So just how is Microsoft going to win the battle for keeping small business’ books?  Well, there are actually two answers to this question.  First and foremost, they’re giving small business users something they aren’t used to having:  native ODBC access to their financial data.  No proprietary data format, no closed database schema, no having to spend extra money on a cumbersome 3rd party product to access their data.  Since Small Business Accounting uses Microsoft SQL Data Engine (MSDE) for its data store, users have the ability to access their financials from any ODBC compliant application, allowing for advanced reporting and analysis using the entire Office suite, including Excel, Word & Access.  IMHO this in itself is huge.

The second part to this answer is that Microsoft is giving Independent Software Vendors (ISVs) the tools necessary to quickly and easily build a wide array of 3rd party solutions for Small Business Accounting – from add-ins that operate within the Small Business Accounting application itself, to industry-specific LOB applications that directly integrate with Small Business Accounting – allowing the 3rd party solution to focus on the industry-specific stuff while depending on SBA for the accounting end.  So how does this compare to what is available on the market now?  It blows it away – plain and simple.  Sure, Intuit provides a Developer SDK – but it’s very low level, requiring the developer to code most of their own functions for manipulating the data.  Best doesn’t provide any sort of SDK for Peachtree, but MultiWare, Inc.’s PAWCOM has long since been considered the best solution available for accessing and integrating with Peachtree.  PAWCOM is a top-notch product, but the one major disadvantage it has compared to Small Business Accounting is that it is a 3rd party product.  Microsoft’s Small Business Accounting team has built extensibility & accessiblity into the product from the ground up, with a complete .net solution  – with key business logic functions exposed for developers and ISVs to leverage.

The combination of open data access and ease of integration for ISVs is going to be the primary catalyst for Small Business Accounting.  ISVs will be more likely to develop add-ons and vertical market solutions for SBA than other accounting applications because with SBA being based on open technologies such as .Net and SQL, ISVs will have a diminished learning curve.  That combined with the presence of already exposed business logic functions will result in a significantly shorter development time thus resulting in lower development costs which in turn makes their solution more profitable.   Users already familiar with Office will appreciate the familiar, intuitive interface.  Admittedly, many users may not realize the benefit of having and open data store, but I would think that most advisors (accountants and IT partners) would bring this to the small business owner’s attention.

One things remains certain:  whether you love or hate QuickBooks or Peachtree (or other SMB accounting applications), the introduction of Microsoft’s Small Business Accounting is going see a flurry of competition that the market hasn’t really seen in a very long time – which can only be good for the small business customer.

For more info on Microsoft’s Small Business Accounting / Microsoft Office for Small Business Management:

Office for Small Business Management:

PCWorld.com – First Look: Microsoft Small Business Accounting:

The .NET Show: Small Business Accounting Platform:

Microsoft Small Business Accounting: