Xero announced this week that it had hit the 400,000-customer mark on its mission to accumulate 1 million paying businesses.
The big question is whether Xero can maintain the stellar growth rate that saw it jump from 50,000 in 2012 to 370,000 this September. It is difficult to know because this most recent announcement, only a couple of months later, is before the main selling season in most markets. Xero also decided to “keep its powder dry” and not release country-specific tallies until next year.
One theory pushed by incumbent vendors is that Xero has hoovered up all the early adopters in the Australian market. The next chunk of the technology adoption curve, the early majority, may be less inclined to trust a new company and more loyal to their existing supplier.
This theory would be supported by a slowing rate of customer acquisition. I asked Xero’s managing director for Australia, Chris Ridd, whether Xero was on track to maintain its growth rates of about 80 percent.
Ridd’s response is that it depends on the market.
“In New Zealand we’ve been in longer and we are reaching more mature point in the cycle. The last numbers in New Zealand is 42 percent,” Ridd says. “That said, any business would give its right arm to have that growth.”
Australia is the canary in the coalmine. It managed 100 percent growth year on year and Xero now has over 160,000 Australian customers. In this time the early majority has opened up to idea of online accounting software, Ridd says, pointing to a global survey of 700 customers it released last week.
“Of the small business customers we surveyed in Australia who weren’t on the cloud, 46 percent said they would be moving to the cloud. That’s a huge number,” Ridd says.
“We still consider it early days. The survey is interesting because we’re seeing the cloud become mainstream. We will see that early majority kick in and we think it’s going to be a big year in 2015.”
Driving that uptake will be the network effect of 160,000 customers in Australia using Xero with their suppliers and customers. Xero is much more visible than a desktop accounting program. Each time a business sends an invoice through Xero, the recipient receives a link to an online version hosted on (and payable through) a Xero website. This will drive word of mouth and brand recognition.
Ridd acknowledges that Xero faces two new hurdles. The ability to grow off a big number becomes more difficult in established markets, and a “vastly more competitive” environment. However, Ridd still sees plenty of difference with his biggest rival locally.
“I’d still maintain that MYOB’s focus is on a hybrid model. We were talking about what is true cloud, that discussion is still as valid as it was 12 months ago,” Ridd says. “The thing that I’m enjoying seeing is customers becoming much more informed. They’re asking, why do you need to download software?”