Highlights from Xero's AGM

by admin on July 28, 2009

in Cloud Computing/SaaS

It’s always a pleasure to see a company come into a market and do well. Even more so when that same company is prepared to sponsor your efforts. Yesterday, Xero posted an MP3 of their AGM and it’s all good news. I’m delighted with the company’s achievements but have comments on some of the points they’ve raised. If you don’t want to grind through the whole 43 minutes, here are the highlights from the chairman’s address:

  • 10,000 paying customers (x10 since March 2008)
  • Customers generate NZ$330K/month in revenue
  • At current costs, break even is around 30,000 customers, anticipated Q4 2011
  • More than 4,000 customers in the UK
  • Creating partnerships with telcos and banks to provide marketing leverage
  • Channels established with Telecom New Zealand, Telstra Australia and BT
  • BT partnership provides access to 1.7 million customers through applications portal
  • Four territory specific versions: Australia, New Zealand, UK and ‘global’
  • Real time multi-currency for 160 currencies now available
  • More front office services to come in the future
  • Raised $29 million in new capital, $18 million investment by Craig Winkler, ex-MYOB
  • 500,000 share buy back to fund employee share scheme
  • Intend entering US market
  • Appointed Andy Lark (Dell) as US advisor

From Hamish Edwards talking about the UK:

  • 4.4 million small businesses
  • 26,000 accounting practices
  • A lot of distractions
  • 5 credible competitors to Xero
  • Gained ICAEW accreditation
  • Bank feed with HSBC
  • Built a relationship with Salesforce.com and RIM (Blackberry)
  • In a great position to being a leading player in the UK online market
  • The first tranche of onboarding from the top 25 firms may only represent about 1% of clients at the moment so plenty of opportunity
  • Presented us with a way to learn about globalization of the Xero solution
  • Think we can replicate the model in the US

My one caveat with Xero’s strategy is the move to the US. Andy Lark will make a great advisor but I’ve seen too many EU software companies go to the US and find it is both a money sink and graveyard. With the exception of SAP and possibly Sage, no EU vendor in this market has successfully managed to establish much more than a small beachhead. The US is very different to the UK though it shares a lot of characteristics in the accounting market. Intuit is the dominant player and is progressing ahead in new ways that I believe are disruptive. Sage is there but has a slew of problems of its own. That despite a track record of good acquisitions.

Freshbooks is the exception, having gained 800,000 new users since 2004. Freshbooks has taken a novel approach to market entry, riding the ‘viral marketing’ trend to kick start its efforts before moving to more traditional ways of coming to market. Freshbooks has successfully ridden into the SME end of the consulting, freelance and design markets. It therefore represents a formidable competitor to Xero which attracts users in that market. However, I have seen pockets of firms that are understanding the way the general accounting market is changing. They will be attractive to Xero but will require careful picking.

Let’s not forget Intacct which has received endorsement from AICPA and will doubtless be on many firms’ radar.

In summary, I agree there is genuine opportunity but Xero will find that it is necessary to comply with a welter of state and Federal tax issues, it will have the problems of scaling across a vast country plus the inevitable problem of figuring out where to strike first. Silicon Valley might be the most obvious target, especially as it has so many small innovation shops. But that might not be the best place to start. I have my own views on this which I am not putting into the public domain at this time.

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Stuart Jones July 29, 2009 at 8:27 pm

I'm always wary when the figure for "small businesses" in the UK is bandied about as an opportunity. Too many are one man outfits who are little more than self employed employees (if that's possible!) with very little interest in "running" a business. Accounting, if it features at all, is a long way down their list of priorities.

Having said that I'm going to review those clients who already use SAAS for their accounts to see if all the recent market changes have resulted in their initial choice becoming the wrong choice. I'm also going to push the other clients into SAAS so I can base my advice on facts rather than crystal-ball gazing. But first two weeks holidays.

Dennis Howlett July 29, 2009 at 8:31 pm

Elsewhere, I've said the opp is more likely 2.5 million. But then there are some definitional issues I've considered in thinking about the market which don't fall neatly into 'accounting.' In any event, if saas gets clients off shoeboxes and spreadsheets then, I'm definitely up for that.

Jason Rutlidge June 2, 2010 at 10:45 pm

Xero has teamed up with ANZ here in Australia, looks like they are giving a real go a becoming global.

Jason Rutlidge June 2, 2010 at 10:45 pm

Xero has teamed up with ANZ here in Australia, looks like they are giving a real go a becoming global.

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