I agree with you completely on XERO and have no second opinion. You might also want to check out another online accounting framework ‘COAST’ being used by a few accounting firms in UK and Ireland. This framework helps the user create his contract/placement, timesheets, invoices and interfaces with almost any payroll and accounting software in the world. I sincerely feel that COAST clubbed with XERO will be a deadly combination. I wish XERO a complete success in its quest.

Kelvin has an excellent commentary on Xero, NZs own online accounting provider. I suspect Xero will have some very big problems this financial year, but all power to them! My major concern is simply the burn rate, and the fact that the Xero model relie…

furthering the Xero chat we started in Waiheke, I think the major risk for Xero is simply the reality of running out of cash. I think Xero is a great product, and I am sure there is a ready market for it. However, I think reaching and selling to that market will take more resources than Xero currently has. It will not be a simple sell, and I think its too soon in the game for network and other effects to have a significant impact.

I’d love to see Xero do well. Im not sure the other SaaS competitors are Xeros significant problem, I think it is simply a cashflow issue. I expect Xero in some form will go back to the market for cash, but it will be a hard sell in this climate.

Disclosure: I also own Xero shares and am a enthusiastic user!

Concerning the land-grab and product pricing, I’m not sure I agree that there will be flight towards zero. I think sufficient potential differentiation exists, especially geographical, to avoid the commoditisation of functionality. However, I think there could well be an argument for multiple versions of the product, with some of the commodity functionality being provided in a ‘lite’ version at little or no cost. The differentiated functionality can then be available in the complete version at the regular price.

The more interesting question is whether or not the land grab is causing a flight towards zero – where downwards price pressure will see vendors cut subscription rates in an ever descending spiral…

Interesting thoughts. I currently use Xero for my personal finances since they offer a $10 a month option for a non-GST registered entity, as long as you’re an existing customer. It is a bit of overkill though since I’m not doing accrual accounting for my personal finances.

In my opinion, I think the personal finances market is quite different to the SME market. As you point out, the personal finances market is very price-sensitive, though people don’t require much functionality. The SME market is less price-sensitive and are often time-poor, but have very specific requirements. For example tax compliance is important such as GST and provisional tax calculations. They also rely heavily on their financial advisor for recommendations. So I think they are quite different markets.

There are already a number of companies offering services for personal finance. For example, have a look at Mint. I personally would prefer to see Xero maintain their focus on the SME market for the moment.

Yes, will be interesting to see their conversion rate at the 31 March 2009 cross-over point.

Cheers,
Kelvin.

Thanks for the insightful and informative comment. I agree, there is already significant competition from other similar start-up companies, some of which are offering similar services and some of which are free. You bring up a good point too about the pricing of these products and how there is already pricing pressure occurring. However the online offerings offered by MYOB and Sage currently seem to be a poor comparison to Xero, though being a sustaining innovation I imagine that Xero will be faced with far more competition going forward.

I do see some competitive advantages that Xero can benefit from, and despite the significant competition this will be an extremely fast-growing market; a fast growing market usually results in less direct competition. I suspect there will be enough varying requirements and potential product differentiation for a number of the online accounting products to have a place in the market. Also, the resources that Xero have will give it competitive strength against the 1 or 2-man bands that make up the majority of the competitors, so I’m more concerned about MYOB, Sage, and Intuit than some of the offerings. I’ll need to think through and structure my ideas a bit more before I articulate them, and I’ll post these to the blog in the next few weeks.

Thanks again for your thought-provoking comment.

Cheers,
Kelvin.

Probably best for them to stick with SMB for the mean time, but something I would definitely use…(although its not something that I would pay much for, maybe its something that they could sell to banks as a value-add for the banks customers)

I think Xeros’ potential is going to come to light on the 1st of April when they are next ‘due’ to report progress. I believe that their latest announcement re:customer numbers is only going to be the tip of the iceberg