Xero’s brand new CEO, Steve Vamos, has just marked off his first Xerocon in the big seat. The one question on everyone’s mind: How would Vamos compare to founder Rod Drury, the charismatic technologist who created a global brand in seven short years from Wellington, New Zealand?
There was keen interest among 3700 attendees to find out what this unknown outsider had to say.
While he may be unfamiliar to accountants, Vamos is a legend in Australian technology circles. Vamos cut his teeth at IBM for 14 years moving from sales to general management before working with Steve Jobs in the earliest part of Apple’s late 90s comeback. Vamos ran Australia and New Zealand and was managing director of Apple Computer Asia Pacific.
Vamos then led a joint venture between Microsoft and Australian media giant PBL called ninemsn, a media portal similar to Yahoo that pioneered online advertising. He left to be CEO at Microsoft Australia for four years before stepping up to vice president, worldwide sales and international operations for Microsoft’s Online Services Group. In that role Vamos was responsible for Microsoft’s operations in 30 countries.
This latter experience was one of the reasons Xero’s board gave for picking him to be CEO of Xero. To paraphrase, the company needed to switch from product-focused startup to a global juggernaut managing growth in multiple markets. This, at least, was the official reason.
If Drury has a Jobsian fascination with technology, Vamos’ passion is people and culture. The Xero corporate value #human was mentioned a lot of times in keynotes and clearly has already affected decisions on the tech roadmap (more on that next week).
I had a brief interview with Vamos. In it he revealed a useful empathy for accountants in their journey to advisors; Vamos has worked as a business consultant for several years and states that domain knowledge isn’t necessary to providing effective advice.
And we also had a little chat about Xero’s pricing too…
Digital First: I know from your time with Microsoft that you know the conventional IT distribution channel, resellers as a channel and so on. And you know how far away accountants are from acting as SME software resellers – 99 percent of them, anyway. That top 1 percent who do recommend and install apps, do you think they’re representative of the future of accountants? Is it necessary for them to become solution providers to small businesses, just because the software ecosystem connects to accounting software now?
Vamos: I think accountants are solution providers. The question is, how does their scope of involvement evolve to provide more? The more connected small business becomes through technology, and the more we take out a lot of the grunt work involved in connecting things, does it make (setting up software) seamless?
I think that it is inevitable, but not for any other reason than it will emerge that (accountants will say), “I’ve got more time, look at what the information’s telling us. Why is your business doing this? How are you doing things?”
And so I do see a phenomenal future for accountants in evolving more into coaches for small business. I’ve done business coaching over the last ten years. I can tell you, it’s not about the domain. It’s about asking basic questions about how you’re working and how you’re thinking. So I do see that happening. And it is happening.
There’s some great videos that I started watching the other day of accountants talking about this. About the impact they’re having on small business. I should provide you the name of the accounting firm that’s speech it is. A kiwi firm. But I think there’s more. And these guys are almost tearing up, around how they just asked a small business that they were working with, do you think you can do better? Or more? He said, well, maybe. They said, well, what about this target? Why don’t you go for that? And he did, and he exceeded that target. So I do think it’s going to happen. And it’s happening.
Digital First: I’ve had some business coaches, some terrible ones and a few good ones. How can you ensure that you can help accountants become good coaches?
Vamos: Well, first we have to be clear about what do you mean by coaching? Coaching is so well defined in sport and other endeavours but it’s not well-defined in business. So sometimes people get coaching for personal stuff such as, “How am I thinking?” The kind of coaching I’m talking about is an objective outsider asking you the basic questions about why you are doing what you’re doing and how you’re doing it. And how you think you could be better.
I’ve actually done this for a living, for part of my portfolio life. It’s fascinating. I’ll give you an example, I’m going to use this in my keynote tomorrow. The question is – how do you rate, out of ten, the performance of your organisation? Usually I ask the leaders, so it might be only a couple of people, but you ask them, out of ten, rate your performance to your potential, with what you have today.
The score you get back is usually six, six and a half. You go, what’s stopping you being better? 80 percent of the time it has nothing to do with what business they’re in. It’s, we don’t communicate well. We’re doing too many things. We haven’t got the right systems in place. We’ve got the wrong person in the role. And you say, which one is the one you want to tackle this month? So you say, let’s put an action plan in, just fix that. Let’s have another meeting next month. Did you do it?
So to me, it’s coaching about the why and the how, not coaching about your life journey. That’s a very different sphere.
Digital First: Moving on to the software itself. Recent changes around Xero Expenses prompted a lot of concern that Xero’s looking for ways to increase the average revenue per user (ARPU) by monetizing standard features. From the comments I read on various places, Xero Expenses took some of the native expenses functions and put it into a separately paid app.
Vamos: Yeah.
Digital First: What assurances can you give people that Xero’s not going to spin off every part of it, say invoices, will this become Xero Invoices with an extra per user price? And also with paying subscriptions every year, Xero needs to do more to justify it being paid the same price. Xero’s obviously doing that, but the price is still going up. We are seeing elements becoming commoditized. When AI machine lending, when that came out, that was something magical and new. And now it’s as a service on AWS, which you guys are on.
Vamos: Yeah.
Digital First: So what assurances can you give around price?
Vamos: Yeah, look, I’ll give you a few principles and we can maybe just touch on a couple of things to do with expenses. This has been a new thing for me, I’m not as proficient as others on some of this stuff.
Principle wise, the biggest asset Xero has on its balance sheet is one you can’t see. It’s the word-of-mouth love customers and partners have for us. Every time we do something that upsets them, we pay for it, whether we see it or not. I genuine believe everything we do should be about building that community and love for Xero. And that’s a philosophy, that’s a principle we have. For me, when we look at how we evolve, we have to make sure that the value equation is one that our customers appreciate and accept and understand. So that’s the bigger principle.
Now, at the most basic level, it then comes down to what’s your approach to pricing and packaging. I think we learned a lot with the roll-out of Expenses. We actually ended up rectifying a couple of things that we thought, after the fact, that we could have done better. For example, the old version is now going to be around longer, because we felt that the transition we provided was not as effective as it should have been. I think we also included some basic functionality in New Zealand, because in different markets we’re doing slightly different things. In New Zealand we’re bundling Xero Expenses into our (standard) offering. In Australia, we’re giving a certain number of free or included Expense usages into the product.
We learn a lot, and we listened a lot to what people said. At the end of the day, though, the measure is do they feel they’re getting value for money. That’s the focus we have to have, is make sure the customer feels good about that.
Digital First: If you look at the desktop accounting software, which will always remain a point of comparison, invoices, expenses, inventory, was included as part of the price. And that was when MYOB only had a customer base in Australia, whereas you’ve got 1.3 million customers around the world. So net revenue is much bigger, so…
Vamos: Well, I would hope we don’t end up doing things that are cute. I mean, we should do things that are done for the reasons they’re intended, and they should stack up. We have a very active community, and when they don’t like what we do, they tell us. I think there are basic functions – I’m not going to go charge you extra for invoicing as a feature. But the whole point here is that as we evolve and our app ecosystem grows and what we provide grows, there’ll be a whole range of variations on what we price and package in different forms. That would be silly of us not to develop that and evolve that.
Digital First: But how do you justify, I mean Australia and New Zealand are in many ways part of the same country, really. How do you say Expenses are free for you but that you’ve got to pay for them on the other side?
Vamos: You can justify differences in different countries – as long as the customers in those countries feel they’re getting value. Like in the US, we’ve stopped building US payroll, we’ve got a partnership with Gusto, we’re going to market with Gusto. Why? Because that market is different. So, there will be differences from market to market. But the principle at the end of the day is, are customers getting value?
If you look at the ARPU Xero has, versus many of our app partners, you think, Xero’s pretty reasonably priced.
Digital First: Yes, but there’s a big “But” to that. When I started covering Xero in 2011, the promise from Rod was to all these developers, you can ride our coattails. We’ll be building a great market for you, and this is how you get rich, is by tapping into our market. And Rod’s (Drury) advice, a couple of years later was, you need to start charging more with ARPUs as a reflection of a much smaller customer base.
Vamos: You know, that’s true. And I’m happy for them, I think it’s great. But I think again, and the only thing it comes down to is, are customers getting value for money.
Do they feel that? And do you treat them in a way that demonstrates their importance to you? And they’re the principles. I think we know with Expenses we could have done better. We acknowledge that and we changed it to reflect that.
Digital First: Even with partners, this is a really interesting point that you bring up, because there was an initiative to start charging the top 10 partners in the ecosystem for API access. And that quickly fell over due to blow-back from partners and so on.
So there’s a concern that Xero has encouraged this ecosystem and is working out which ones it wants to bring in-house and bring in that ARPU for itself. Like Expenses, HubDoc and Receipt Bank probably has some pretty strong feelings about that. And some interest would be this move to a global API. Is there going to be some kind of charge on that, where there wasn’t before?
Vamos: That’s a good question. I’m not sure exactly how Ben’s thinking about that, but Ben Styles is the guy to talk to about how we’re going to go there. First of all, app ecosystem partners versus other commercial relationships we’ve formed can be quite different.
Digital First: Okay.
Vamos: You don’t look at everything the same way. It comes down to, what is the commercial outcome of what you’re doing? We have to balance, there’s always balance. The thing is, unfortunately the world is not altogether black and white. You’ve got to trade off between a whole bunch of different dynamics. What do you build, what do you buy, who do you partner with? It might be all one thing. It’s managing those subtleties. And fundamentally, managing those subtleties just means really caring about the people that you affect, your customers and your partners, and what you do, in being able to stand behind the decisions you make as being fair. It’s about growing up and maturing.
So, things will change. And we’re going to be extremely open. We’ll stay open as a platform. We want that, because we know the energy that comes to us through that. I could imagine that when they did the numbers (to charge for the API) they said, why would we suddenly disincent people to become our app partners when it adds to our overall business? So there could be some commercial things that we do down the track with other partners where we’re all benefiting financially. And how we allocate that revenue is secondary to (whether) this new thing we’re doing together, is it representative of more value to the customer we’re serving?
Digital First: So last question on this new global API. It feels like the financial web, Rod’s been talking about it for a couple of years. It hasn’t actually given a big return to the business as much as it could. And you see other business models out there where the software is free, and they make money on interactions with various lenders and so on. How much will this global API enable Xero to pursue those relationships, and say in three years time, what’s your idea of where revenue will be in terms of subscriptions versus …
Vamos: That’s a good point. If you look at fiscal year 18, we saw what we call new revenue streams and platform revenues around 3 percent of our total revenue. And it grew by 90 percent.
Digital First: And what did that consist of?
Vamos: It consisted of a few things. There was payments, lending, and probably payroll, in a few markets. If you look at the journey we’re on with the financial web, I think bank feeds is almost like the platform. And what we’ve seen is that we’ve got the bank feeds to over 100 banks. And what we want to do is accelerate that because once you get through that process where you’re linked, then there’s a whole bunch of conversations that we can initiate. But also they’re (asking) how they can get better access to the information that’s in Xero so that they can speed up the process of lending for small business, and improving that process.
And then payments on the platform, we’ve got relationships with Square and PayPal and others where, you know we’re still taking payments on the Xero platform. And there’s commercial relationships around that. I think it’ll be small for a while, but it’ll grow fast. And exactly how big and how fast, I couldn’t tell you today.
Digital First: The global API’s a key part of that.
Vamos: Oh yeah, because at the end of the day, the critical thing is to get those feeds, get those connections, and then from there you’ve got a discussion. Relationships that you can start to build on.
Digital First: Fantastic, Steve. Thank you very much.
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