Is Ben right?

by admin on August 3, 2009

in Marketing

I just jumped into my feed reader for the first time in ages and see that Ben Kepes is opining on the accounting market:

Of course what is most telling about both these vendors [Xero and Kashflow], is that their numbers over the past twelve months have been gained without the need to drop pricing – and this nicely ties back to one of my core tenets about SaaS. Simple substitution, and an attempt to merely be cheaper than either the incumbent offering or other competitors isn’t a viable strategy. Rather a focus on value, adherence to a smart channel/partnership strategy and great execution are the key drivers.

Given the timing of Ben’s post and my discussion about e-conomic retrenching it is worth examining this in more detail. Although I agree with the first part (sort of), that’s a seriously flawed thought stream. Sorry Ben.

There is a model where free or extremely low cost can work and be highly profitable. It just has not yet emerged. Mint provides a glimpse of what that might look like. The characteristics Ben identifies are very important. But of themselves – they don’t win. Even in combination.

Anyone remember BetaMax and VHS? How about Windows and MacOS? Today I could say Sharepoint and Mindtouch. What matter is marketing and marketing hard as hell. Salesforce.com is an on-demand sales force automation service with over $1 billion in sales. But more than 65% of its revenue goes to GS&A. And then I remember a conversation I had with Graham Wylie, the CEO who really kicked Sage into life and put it on the trajectory to its present position: “The first few years, we ploughed 75% of our revenues back into marketing.” Check how much Sage puts into marketing today.

Now reel back. Duane Jackson of Kashflow is a one-man no-prisoners taken marketing machine. Love or hate him, he appeals to the gut instincts of users and is winning customers as a result. He’s a PR dream because every time he opens his mouth, he’s likely to say something outrageous. And many people fall for that. It saves having to check the facts. Kashflow isn’t really an accounting system as a CA might define it but it’s doing good enough for end users to vote with their wallets.

Xero has a gorgeous UI that everyone loves. It doesn’t matter that some professionals in the UK think it is under powered, it appeals to the end user. The same goes for Freshbooks which is increasingly relying on third party additions. This is the age of marketing the consumer UI. It’s a market forces issue. Ergo – marketing to where the customer is at. It’s a viable and reasonable proposition.

There are something around 500,000 book-keepers and accoutants in the UK. There are 2.5 to 4.4 million end user small businesses (depending on which numbers you choose to take.) Going after the book-keepers when Sage is the monopoly play just doesn’t make sense. There has to be a much more compelling marketing message. Even then it has to be for that small sliver of professionals who are ready to ‘get’ the on-demand message.

Do you remember when email snuck in the back door of your accounting practice? Who brought it in? Tech savvy people. The same is happening in the on-demand accounting market. In the process, they’re by-passing the professional. So it is to them that the new players are appealing. That’s why e-conomic knows it has to do something about its UI – despite its product being functionally very rich. Its business model forces it to retrench in the process. Once the UI is resolved, it then has to focus on marketing the heck out of what its got. But for that it needs money. That’s why Xero has outpowered all the competitors in terms of UK growth. Well – there’s a bit more to it than that – but that’s the essence.

Yes – there have been a few pricing errors along the way by some providers – but they’re nothing to do with the real problem. They are a response – and clearly the wrong response. And just to be 100% clear – both Xero and Kashflow have made offers and/or adjusted pricing in the last 12 months.

Now who would have though you’d hear this writer say any of that?

Comments on this entry are closed.

Duane Jackson August 3, 2009 at 9:35 pm

I'm curious as to why you think KashFlow "isn’t really an accounting system as a CA might define it ". I think it is – but with a lot more additional and useful features that aren't in typical accounting systems.

Two of the top accounting franchises in the UK recommend it to their clients as the preferred accounting package. They don't do that lightly.

E-conomics problem isn't it's UI, it was it's strategy/business model. If the UI was pants it wouldn't have done so exceptionally well in other territories.

Dennis Howlett August 3, 2009 at 9:50 pm

Because I have CA's who have rejected Kashflow on that basis and see e-conomic as more complete.

You're making the classic error of not understanding the cultural issues of each market. SAP is the dominant player in Germany/Austria but elsewhere it's UI is regarded as gruesome. In Scandinavia, the e-conomic UI is regarded as OK. Twinfield has a similar problem.

I agree on the marketing model (part of business strategy) but that isn't all there is to it. Remember I've sold these styles of system as well and have a good degree of understanding of the issues on the ground. Your challenge will be to scale up your marketing. Xero is already doing that. As are others.

Duane Jackson August 3, 2009 at 10:13 pm

"Because I have CA’s who have rejected Kashflow on that basis and see e-conomic as more complete"

It's not one if the objections my sales guys ever hear from the accountants they deal with. I'm assuming they've not spoken to anyone here and seen it properly.

Dennis Howlett August 3, 2009 at 11:43 pm

No – it's not that. It's because accountants don't often tell vendors why they lost out

Duane Jackson August 4, 2009 at 1:39 am

They do when they're asked. And we always ask. Accountants aren't shy about telling us what they think.

Ben Kepes August 3, 2009 at 9:56 pm

Dennis – thanks (kind of) for the reference. For the record I actually knew about the e-conomic pull out but decided not to post about it for reasons of trust. Anyway… to your points

Re your Mint example, and the premise that there is a free model that works. I disagree – the "free" models all montize through other means – be it add supported or aggregate data mining. In this way they maybe "free" to the user but they're in no way free.

I'm a little confused – in your post about economic you say that "it is clear that the company was not able to source enough professional firms ready to make the online jump such that would support the business model" whereas in this post you seem to be saying the problem is lack of momentum with end users… just trying to clarify is all.

And yes – you're correct – Xero dropped prices in January (quite the subject of a difference of opinion between you and I as I recall) while KashFlow actually raised theres.

Dennis Howlett August 3, 2009 at 10:02 pm

Ok – nit: free/low cost to end user. That model exists but it is in its infancy.

The problem isn't end user momentum. Can't see how you get to that position. See the comment I made to Duane about failing to understand cultural differences and the need for kick ass marketing.

Ben Kepes August 3, 2009 at 10:05 pm

Maybe I misunderstood when you said "Going after the book-keepers when Sage is the monopoly play just doesn’t make sense. " – I took that as a suggestion that direct marketing was the correct strategy in the UK – that's my perception after reading what you say about Xero's fundraising and the clout it gives them in the marketplace…

Dennis Howlett August 3, 2009 at 10:04 pm

I'll say this one more time: e-conomic is NOT pulling out of the UK. And I don't know when you think you know what you do but it was not made public and the final decision regarding Mark Davies was only taken late Friday evening. Oh – maybe Duane told you on July 23rd.

Ben Kepes August 3, 2009 at 10:07 pm

Well for all intents and purposes it looks like e-conomic are pulling out… but as you say time will tell. Maybe their new UI and a new strategy will see them gain a toehold… good luck to 'em I say!

Dennis Howlett August 3, 2009 at 11:44 pm

@Ben – do your work – call original sources and always question why a 3rd party is telling you whatever they are. You have Anders number? If not I can give it to you.

Ben Kepes August 4, 2009 at 1:47 am

Thanks for the offer Dennis but I talked to Anders.

I made the decision, based on my (quite possibly warped) ethical standards to not break the news until e-conomic had done so publicly.

Dennnis Howlett August 4, 2009 at 2:14 am

Interesting – that makes your story – based on the press release – but apparently with knowledge of other acts somewhat odd don't you think? Haven't you in effect missed the point?

Ben Kepes August 4, 2009 at 2:18 am

Well not really… because the theme of the post was that all the high level features OR low prices in the world don't make up for market penetration. If that take Duane jumping up and down on the social media pedestal then so be it… if it takes Xero designing their product with a beautiful UI then so be it…

The post script to the story is that "even with the drop in prices, traction wasn't forthcoming"…

Dennnis Howlett August 4, 2009 at 2:21 am

@Ben- dang – I ran out of @replies (lol) – that was the point of my previous post. This post was about marketing…the very point everyone seems to have totally missed, including you.

Chris Tanner August 4, 2009 at 12:15 pm

Accountants just don't have the driving need to change. Sure, Saas vendors can wax lyrical about "benefits this" and "benefits that", but it's the small business owner that is feeling the pain and banging their head on the wall with information every evening after work. Give me a phone and an owner-manager and I can sell Pearl any day. Give me an accountant on the other hand …it takes months of work to bring them round to the idea, then they drip feed it out to one or two clients as a taster, then offer it passively as an alternative to Sage, then at the end of the day you get a few small subscriptions for just the bookkeeping functions. Anyone for coffee?

Ben Kepes August 4, 2009 at 12:17 pm

I'm with you on this one Chris….

Tony August 4, 2009 at 12:49 pm

"it takes months of work to bring them round to the idea, then they drip feed it out to one or two clients as a taster, then offer it passively as an alternative to Sage, then at the end of the day you get a few small subscriptions for just the bookkeeping functions. Anyone for coffee?"

But that is the nature of accounting for clients. The same can be said for any major change. I remember changing from manual to computerised records – that took years to become the norm. Why – because the consequences of the changes often take a while to become apparent.

Chris Tanner August 4, 2009 at 1:10 pm

Agreed. And the true value in a company like ours is a large user base which can realistically only be achieved via quality, educated and committed partners – a painful and expensive journey. Over the next few years we'll see which Saas vendors manage to jump the bridge from direct only sales to the maturity of an established partner network.

Emily Coltman August 4, 2009 at 1:21 pm

“it takes months of work to bring them round to the idea, then they drip feed it out to one or two clients as a taster, then offer it passively as an alternative to Sage, then at the end of the day you get a few small subscriptions for just the bookkeeping functions. Anyone for coffee?”

How true that is :-)

M

Anders Bjørns August 4, 2009 at 3:02 pm

Given the rumours and speculation here I feel we should set the record straight and confirm that e-conomic IS NOT pulling out of the UK market. Please see the announcement posted on our webiste at http://blog.e-conomic.co.uk/

Mark Davies is no longer with e-conomic, and I have taken over the role of UK Managing Director. Our service, product, strategy and targets for the UK market remains the same and we remain wholly committed to the UK market and our customers.

Dennis Howlett August 3, 2009 at 9:51 pm

Just knew you would say that ;)

Duane Jackson August 3, 2009 at 9:53 pm

It's not often you say something that I can twist and turn to make it sound almost like a compliment. Couldn't let the opportunity pass.

Dennis Howlett August 3, 2009 at 9:58 pm

I thought I'd give you an opportunity – I pulled out the reference to Larry Ellison, would have given you too much rope… :)

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