In the move from desktop accounting software to the cloud one question has recurred among business owners, accountants and bookkeepers. How much should I pay for software to track a company that doesn’t trade?
Xero’s rivals have always contended that Xero was too expensive. “Today if you run Xero with two databases you’re paying $1,200 a year. (Xero’s high price) is what’s going to be dealt with in the market,” Reckon group CEO Clive Rabie told BoxFreeIT last year.
Xero CEO Rod Drury hotly rejects that his program is too expensive. “We have little pushback on price because we provide so much value, no servers, free support, free bank feeds, free mobile app and we save small businesses a lot of time and money. And we’re now adding payroll at no additional cost,” Drury said.
But the truth is that Xero has faced some heat over price. Some Xero customers were unhappy at paying $29 a month, the lowest plan, to keep track of non-trading entities, when they were used to a free file in the desktop world.
MYOB and Reckon have typically sold five company files with each desktop software licence so a business owner can track a trust or holding company as well as the trading company.
When MYOB decided to reduce the number of company files in AccountRight 2011 from five to one it began to run into the same resistance as faced by Xero.
“Xero will be all over this,” said Trevor Schoenmaekers, a Xero accountant, when MYOB announced what was effectively a price rise. “That’s one big thing we have with clients. They say they don’t want to have three subscriptions (with Xero) because they have three entities,” Schoenmaekers said.
Acclipse, now owned by CCH Australia, was the first to announce online accounting competitor that would undercut Xero substantially at $5 a month. Bank feeds were extra, but for non-trading entities the few transactions could be manually uploaded once a quarter.
Reckon’s forthcoming Reckon One cloud program also has a $5 a month starting price.
But Xero already sells a $5 accounting software program, it’s just not advertised on its website.
The $5 version is just the general ledger and only Xero partners (bookkeepers and accountants) have access to it.
So it looks like $5 a month is the new baseline when it comes to accounting in the cloud.
This has interesting consequences for the accounting software companies. Reckon is the latest to the party and clearly it expects businesses to pay a lot more than $5 a month for a high-trading business with staff (payroll) and products (inventory). You pay for what you use.
But it will be interesting to see whether the $5 accounting program slowly adds more features and expands its appeal beyond non-trading entities.
If Xero is forced to cut its prices – and as competition grows this becomes more likely – it will obviously reduce revenues and possibly its share price. Publicly listed Reckon will be looking to Reckon One to replace revenue lost in desktop accounting sales.
And MYOB, whose re-listing is rumoured to be imminent, needs to put a strong forecast to attract mum and dad investors.
The Australian accounting software market was once divided between two main players. Depending on how you count it, the market will be split five or six ways.
Scale is crucial because the simple truth is you can’t make a lot of money selling software for $5 a month.