Xero recently announced that they raised $150 million (with $123 million of it coming from US investors) in funding as part of their effort to win the US market from Intuit.
In his blog article, Xero CEO Rod Drury stated:
For our accounting and bookkeeping partners, Xero has become the safe bet for your practice needs and will continue to deliver a wall of innovation to improve your productivity and profitability.
To me, the statement above is significant. Do they need that $150 million right now? Probably not. Talking with the Xero President of US Operations, Jamie Sutherland, the money will be used to accelerate growth. There is no major shift in Xero’s current strategy, but instead they will be able to do more of the same of what they’ve been doing (which, by looking at their growth rates, seems to be a decent strategy). I think the $150 million simply signals to potential users (accounting professionals and small businesses) as well as developers that Xero means business.
One of the hesitations that businesses have when considering using new software is they don’t know how long it’ll be around and how well it will be supported. I think that this new round of funding clearly indicates that Xero (who isn’t necessarily new, having been in business for 7 years) will be around to seriously battle in the US and global markets in the years to come. I’m impressed with what Xero has done so far and I think the funds will allows accounting professionals, small businesses, and developers to feel all the more confident in working with Xero.
Tracking US Growth
One of Xero’s undeniable strategies is to compete directly with Intuit and QuickBooks on US soil. Here’s a bit of a US timeline for Xero:
- 2011 (Late) – Opened up San Francisco office
- 2012 December – Launched 1099 reporting
- 2013 August – Opened up New York office
- 2013 February – New permanent San Francisco location
- 2013 April – Opened up Los Angeles office
- 2013 September – First US Xerocon (conference where 400 partners attended)
- 2013 October – Opened up Denver office (for local customer support)
- 2013 October – A move to a bigger San Francisco office (25,000 square feet)
- 2013 October – US conversion tool (we’ll be reporting on this in an upcoming article)
- 2013 October / November – First US Xero Roadshow
- 2013 December – Launching US payroll
When questioned, Sutherland stated that they have good traction with US accountants and hope to leverage that partnership for growth in the US. Xero believes that many accountants have become disenfranchised with QuickBooks and they want to re-enfranchise them with Xero.
If you don’t know what Xero offers to accountants, here’s a run-down of what all certified partners can get (go here for the complete listing):
- Free membership
- Free Xero Partner Edition (similar concept as QuickBooks Online Accountant)
- Free Xero Business Edition – large plan (your account for your own business, like the QuickBooks Online account Intuit gives to ProAdvisors)
- A “dedicated account manager”, your Xero contact for any kind of issues you need help with
- An “enablement specialist” to help you with conversions and technical accounting queries
- Free email support
- Free training (basic training, “introduction” and “essentials”)
- Free marketing resource guide
- Free quarterly forums
In other words, a lot of free. Intuit must have taken notice, since they are now offering their free Cloud ProAdvisor program.
After looking at user forums, blogs, and attending Xerocon, I can say that there’s definitely a lot of buzz around Xero in accounting circles.
So there’s a lot of momentum with Xero, but what do the numbers say?
How Does Xero Match up to QuickBooks Online?
I’ve built some tables for you.
|QBO vs Xero||QuickBooks Online – Jul 31 2013||Xero – Sep 30 2013|
|Global (including US)||487,000||211,000|
|Global Year over Year growth Subscribers||107000||99500|
|Global Year over Year growth %||28%||89%|
* Xero has a category called United States/Rest of World, so I couldn’t get US only numbers
As you can see, QuickBooks Online is clearly trouncing Xero in terms of US based subscribers (455,000 vs. 16,600). However, on a global level, both software’s growth over the past year has been fairly even with both Xero and QuickBooks Online gaining roughly 100,000 subscribers.
Keep in mind this is cloud vs. cloud numbers. QuickBooks has many more users as seen below:
|Some QuickBooks Numbers|
|QuickBooks Online||487,000 subscribers|
|QuickBooks Enterprise||92,000 subscribers|
|QuickBooks Desktop||185,000 subscribers|
|QuickBooks Desktop||1,246,000 unit sales|
What Accounting Tools is Xero Developing With Those $$?
Xero has many accounting tools available in non-US countries, all wrapped into their Practice Studio. Xero plans on bringing the Work Papers, Practice Manager, and Reporting components of Practice Studio to the US in 2013. Practice Studio (in select non-US countries) includes:
- Practice Manager: “Allows you and your staff to track time, manage jobs, manage expenses and manage invoicing”.
- Work Papers: Allows you to manage client data and communication, which “makes processing compliance faster and smarter than ever before”. See this Xero blog post on what exactly work papers are.
- Reporting: “Highly customized financial and management reports. Easily create reports for multiple clients in no time using report templates.”
- Tax (Income Tax): “Tax forms are pre-populated using data from Xero so you can
prep returns in no time. Once they’re done you can file directly with the tax department.” This is listed as “coming soon” in Australia, so I have no inkling of when something like this may come to the US.
A Few Other Comparison Points
Ecosystem / API
Xero’s strategy with accountants is similar to their strategy they have with developers – free education, support, and tools. There is no cost to develop or to be included in Xero’s add-on directory.
Currently, Xero has about 300 add-ons while QuickBooks Online has about 40. This isn’t really comparing apples to apples, since not all of Xero’s add-ons are available in the US. We’ll be covering this in a future article, but Xero’s developer friendly strategy is helped it to get ahead of Intuit in this area. Building out the ecosystem of business apps will be a key part of becoming a dominant player in the online accounting space.
Sales tax in the US is still a huge issue for Xero, so it would be nice to see if they build out the functionality to calculate, collect, accrue, report, remit, and prepare sales tax returns. This is an issue that a very large percentage of US businesses need a solution to.
Purchase Orders, Quotes, Inventory
As demo’ed at Xerocon USA, these features are actively being worked on and are well into development. These things are currently lacking in Xero, things that QuickBooks Online has.
Xero’s Non-QuickBooks Competitors
It’s interesting talking to Xero, as they want to be acknowledged as the alternative to QuickBooks, as if they’re the only ones in the room. Jamie said that the market for small business accounting software is “white hot” and there’s not a lot of competition that’s born in the cloud (Update: Jamie clarified that in terms of the amount of capital raised, there’s not a lot of competition, which I would have to agree with). I wouldn’t say I entirely agree with the statement, given the number of online accounting software companies out there.
I should also note that there has been two other investment stories happening in the microbusiness / solopreneur side of small business online accounting software (wow, that’s a mouthful!).
- Clearbooks (UK) is crowdfunding their next stage of development (right now they are at £200,00, which is roughly $320,000 US dollars)
- Kashoo has received investment from Paychex (a 14 billion dollar company with 570,000 payroll clients)
But yeah, I will say that in the online world, Xero is the biggest threat to QuickBooks.
I’m loving the new-found competition that Intuit is finding both in Xero and in the other online accounting software providers. While Intuit may have been caught flat footed online, I think the new QuickBooks “Harmony” update is a great step in the right direction. Development is happening at a rapid pace and I think that in the end it’s the small businesses that are winning.