In Australia today we have two cloud accounting software products competing in the small business space; Xero from our New Zealand neighbour and QuickBooks Online (QBO) from US-based Intuit. Although these aren’t the only two products in the market, based on recent product developments these two look to be outpacing the rest of the field.
QBO has been around globally for close to six years but its introduction into Australia has been relatively recent. Xero has been active in Australia for some three years charming accountants and small businesses alike as it refreshingly engages and communicates with its customers. To date it has had a virtually untrammelled existence, year on year customer growth has been exponential and the many Xero evangelists are a testament to its value.
However the situation is ripe for change. Intuit has launched a new user interface for QBO (code named Harmony), added Australian localisations to the product, hired a number of staff and opened offices in Australia, certified partners (Pro Advisors) and is now geared up for an intensive campaign to gain the hearts and wallets of Australian small businesses.
The burning question is – how will Intuit achieve this goal? Something more subtle than using corporate muscle in a Goliath versus David encounter is required.
Although some accountants have not leapt on to the Xero bandwagon for a variety of reasons and are still looking for a suitable cloud product for their clients, Intuit will have an uphill battle to gain traction against an incumbent that continues to delight and satisfy customers. Intuit can point out that Xero has yet to deliver quotes and inventory, all of which are in QBO, but conversely QBO has a very weak BAS offering and is still a long way off having the comprehensive bank feed functionality of Xero – putting them roughly at parity from a functionality perspective. (It’s third-party payroll, also a handicap, was recently updated. I’ll review that shortly.)
Yet one thing is certain. Intuit is determined to break the stellar growth trend of Xero in Australia (and indeed the world). During my recent visit to the Intuit’s head office in Mountain View, California, I asked the “how” question of CEO Brad Smith and several vice presidents. The standard response was that Intuit marketed predominantly through accountants. Yes, but that is exactly what Xero has been doing over the last three years!
So although I believe that Intuit will use every weapon in its corporate arsenal to unseat Xero in Australia, I am still uncertain how they will do that, how long it will take, how much it will cost or even the measure of success. Intuit is very tight lipped on these specifics. (Interestingly, Intuit is not considering taking on Xero in its home country of New Zealand. I guess the numbers really don’t add up over there.)
While Intuit is taking on Xero here in Australia, at the same time a similar situation in reverse is being played out in the US, where Xero has started to spread its wings. The move started out fairly quietly with an office in San Francisco in late 2011, followed by New York in 2012 and then in 2013, Xero opened offices in Los Angeles and Denver, held its first Xerocon in San Francisco which was attended by 400 partners and has now embarked on its first roadshow. New Zealand gave the US a run for its money in the Americas Cup and this New Zealand company looks like it might do the same with cloud accounting software.
As well as dazzling customers and partners in the US, Xero has also been dazzling investors. Earlier this month Xero announced it had raised NZ$180 million of new capital. One of the sources was Matrix Capital Management, a fund that invests in companies it believes can disrupt markets – a strategy of which Xero has long been proud.
A third interesting point in the international Xero v QBO stoush is that it appears that Xero signalled its US intentions before Intuit signalled its Australian intentions. The first US-based Xero office opened in late 2011 but it was around mid-2012 before Intuit began beta testing its Australian version of QBO and the first executives appeared on our shores around August 2012. So did Xero rattle the cage of the American giant or was Australia already on Intuit’s radar screen?
But back to Australia; whilst Xero is still my product of choice from a software perspective there are other factors that work during the decision making process. Businesses migrate to cloud accounting software from one of three main sources:
An existing business unhappy with current software
A start up business
A business not previously using accounting software
Businesses in the first category are more discerning in terms of software functionality but businesses in the other two categories are much more likely to take a recommendation from their accountant, business colleagues or friends and relatives. Which is why developing relationships with accountants is recognised as the most important tactic to gain customers.
Brad Paterson, Intuit vice president of Asia Pacific, told me that many Australian QBO clients have not previously used accounting software – i.e. they are moving from Microsoft Excel or shoeboxes of receipts. But for sure Intuit will be targeting Australian accounting practices as well as customers on other software (read QuickBooks, now called Reckon Accounts).
In the US, realistically there is plenty of room for two major players. Xero is unlikely to dent Intuit’s bottom line for quite some time as right now it has about 3.5 percent of the number of US customers as QBO. It is probably as much an annoyance to the US corporate giant as anything else. In Australia, however, with a comparatively smaller market there is much less opportunity for the player coming second and Intuit is not used to being number two.
We can expect to see some interesting developments over the coming months as global giant Intuit steps up its efforts to achieve market share in Australia over the much smaller but popular incumbent, Xero.
This is an edited version of a post that appeared on the BusinessEeez blog.