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?