If anyone needs proof that the SaaS/cloud model is working then Xero’s first half results (PDF) should be a compulsory reading. From the blurbs:
- Near tripling of half year operating revenues from NZ$1.3m to NZ$3.7m. This compares with 2010 full year revenues of NZ$3.4m. Annualised subscriptions are running at approximately $9.0m.
- Successful recruitment to resource our operating model in New Zealand, Australia and the UK lifted headcount from 73 to 101 and therefore a planned rise in operating costs to NZ$7.9m – up 59%.
- Net loss of NZ$4.7m – an increase of 24%, is expected to be the maximum loss incurred as the company drives toward break-even.
- Cash at bank of $16.6m as at 30 September 2010 – excludes $4m additional monies raised by the Peter Thiel strategic placement in October. Xero anticipates having significant cash reserves at its planned break-even point.
Xero says all other previously stated goals are on target to being reached. Xero’s performance is demonstrating that even as the new cloud players start to scale up, they are continuing to see a doubling of revenue numbers on a year-over-year basis. How long this trend continues remains to be seen but with huge market opportunity, it is difficult to see an end in sight any time soon. That is despite the fact the market is highly fragmented.
A couple of other key indicators. The number of paying customers now stands at 27,000, equating to annual revenue per customer at the stated NZ$9 million run rate of NZ$333 pa or NZ$27 pm. Referring to growth in its home market compared to the incumbents, Xero says:
This disruption is already evident in the New Zealand market where Xero’s strategic accountant channel grew significantly over the period – up 63% to 1500 compared with the six months to 31 March 2010. More than half the accountants in New Zealand have Xero customers. A growing number of early adopter accountants are 100% Xero and mainstream firms are preparing for the transition over the next two years.
This last point is interesting. New Zeland has a tiny population in comparison to the UK so it is relatively easy for it to make a big splash. That however would belie the difficulty in getting professional accountants to make the shift from one technology to another. Unquestionably, the continuing stream of good user experiences is playing a significant role in helping the company further its goals. I’d also argue that the emergence of non-traditional practices as an alternative is making a big difference. These practices do not have the kind of baggage that weigh down other firms. They can afford to be disruptive in their approach to the market. The following video demonstrates how that works in the UK.
The problem comes in how the incumbent professional practices will react. This is something I will be addressing at an upcoming client meeting.