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Mom-and-pop shops fly to the cloud

Erik Khalitov | iStock / 360 | Getty Images

The winners in the cloud-computing revolution so far have been vendors catering to big business. Salesforce.com, NetSuite, Workday and ServiceNow built multibillion-dollar companies by shifting massive enterprise applications to the Web, uprooting traditional software suppliers in the process.

A new crop of emerging cloud players is creating software for the millions of mom-and-pop shops, pulling some into the digital world for the first time. Goodbye paper spreadsheets and time punch machines.

Tough Pups in Corning, New York, is the quintessential new buyer. Founded a decade ago by Leo Sanders, Tough Pups is a pet day care and training facility with six employees and less than $1 million in revenue.

In the past year, Sanders' job as owner and "top dog" has gotten a lot easier. He's transferred his customer support to an automated offering from Zendesk, moved his physical punch clock to software from Deputy, implemented Bench's bookkeeping program and swapped out payroll tools from Intuit's QuickBooks in favor of ZenPayroll.

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Recently, while on a dog walk, Sanders received an email on his iPhone alerting him that payroll was due. He quickly paid all his employees from his device using one hand, while holding a leash in the other. His provider, ZenPayroll, charges $25 a month, plus a small fee per user. Sanders spends a total of around $300 a month on his cloud suite.

"I don't have a lot of time to sit down and dedicate specific blocks of time to do certain tasks—it can be very disruptive to my day," said Sanders, 38, in an interview between appointments. "When it comes to companies that almost automate tasks like this, it levels the playing field."

Businesses like Tough Pups now have more resources available to discover and use the services that fit their needs. ZenPayroll, a San Francisco-based start-up that's processing more than $1.1 billion in annual payroll by focusing on clients with fewer than 100 employees, announced partnerships Wednesday with more than a dozen companies that are similarly attempting to simplify the back office.

Whether it's payroll (ZenPayroll, Zenefits), expense reports and receipts (Expensify, Receipt Bank), time tracking (TSheets, When I Work), accounting (Xero, FreshBooks) or scheduling (Deputy), this loose consortium of start-ups has built integrations so that data going into one program can sync with the others.

How Zenefits ties benefits together

Welcome to a new era of computing, where silos are giving way to standards. Rather than having to worry about how software from Oracle or SAP will talk to other programs from Microsoft or IBM, businesses can buy cloud products that were created to work together. Small shops with little to no money to spend on technology can subscribe to modern software for a few bucks a month without the need for a separate consulting budget.

"It's a language around how software is built," said Joshua Reeves, ZenPayroll's chief executive officer and co-founder. Reeves said about one-third of the company's customers have switched from an enterprise provider like Automatic Data Processing or Paychex, with many of the rest scrapping paper and pencil and adopting the Web.

The new vendors are joining a land grab that's years in the making. Gartner predicts that by 2017, 33 percent of organizations worldwide (excluding India and China) using office systems will adopt cloud technology, up from 8 percent at the time of the report in June 2013. By 2022, that number will grow to 60 percent, representing 695 million users, according to Gartner. With more than $400 billion spent annually on software, even a tiny sliver of the market can create a big business.

"Technology options have never been more accessible to the small business," said Tim Herbert, vice president of research at industry association CompTIA.

The cloud is no cure-all. A reminder of its flaws came over the weekend with reports that hackers tapped into accounts of celebrities, including actress Jennifer Lawrence, who were storing photos with Apple iCloud. While Apple denied the photo thefts were the result of a breach in its systems, such high-profile incidents bring out the naysayers, concerned about the security of the hyper-connected cloud. When dealing with highly sensitive financial data, even start-ups typically employ bank level protection before releasing their products.

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Secure or not, the move to the paperless office is still in its early days. A recent survey from CompTIA showed that 55 percent of U.S. offices have either very high or moderately high levels of printed documents.

For accounting software provider Xero, that's a big roster of potential customers. Xero and FreshBooks are vying for sales in the cloud finance and accounting market and both are part of the ZenPayroll collaborative.

Xero, founded eight years ago in New Zealand, has gotten so much traction of late that it raised $150 million in October from investors including Facebook backer Peter Thiel and Matrix Capital, moved to San Francisco and is now planning a U.S. IPO. Xero is pulling customers from the paper world as well as users of programs like Microsoft Excel and QuickBooks (also part of the consortium).

"You have to ask: Why are these companies using paper? Because the desktop software they had access to wasn't better than paper solutions," said Peter Karpas, CEO of Xero's North America business. "You're seeing massively better experiences and better functionality for small businesses." Xero's premium product costs $70 a month for up to 10 employees.

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Among its customers is XShot, a seller of stands and holders for GoPro cameras. Since buying XShot with a group of friends last year, Michael Shepard has gone pure cloud. In addition to Xero and ZenPayroll, he uses a program for customer relationships called Nimble, and for inventory management he turned to Unleashed Software. Revenue at his four-person company, based in Santa Barbara, California, is up 400 percent in the past year, a feat that would've likely been impossible even a few years earlier, when the resources needed to get off the ground were prohibitive.

"These services allow us to scale the business up pretty easily and quickly without massive outlays into infrastructure," said Shepard, 36, who was previously a global marketing manager for a division of Johnson & Johnson. "We can offer full electronic payroll systems, direct deposit, etc., without having to have a full accounting department or even a bookkeeper."

By CNBC's Ari Levy

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