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The Tech Take

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I am choosing this week to focus on yet another warrior in the growing cloud accounting battle that you may or may not have heard of, but after attending its first U.S. partner conference I have a better sense of who Xero is and what challenges they have in the U.S. market.

But why should they matter to the average accountant and how do I know they’ll still be around in a few years? Right now these are the questions any firm looking to expand their services with a cloud offering is asking and at the company made an attempt at answering them at their recent Xerocon event.

First off, the company’s name starts with an ‘X’ and is supposed to be synonymous with zero-entry accounting, among other things. They’ve had a physical presence here in the U.S. for about two years now, but they’re not exactly a start-up or a ‘foreign’ company these days, in fact I’d consider them fairly global.

Granted, the company started several years ago in New Zealand, and now claims to have over 500 employees in its home base as well as Australia, the UK, and the U.S, as well as 200K+ users and 7,400 accountant partners. So that’s the basic DNA and with the amount of planned marketing and attendance at trade and industry events you’ll be hearing about them before long.

Xero recognizes that here in the U.S. in particular, it needs to do a better job of branding and letting accountants know who they are and why they matter. CEO and co-founder Rod Drury even said as much in his keynote, but what was more telling is what he said their greatest challenge is, and it’s a pretty big one: “it isn’t building software, it’s transforming the accounting profession,” said Drury.

So right now anyone that knows who Xero is has become well aware that the company has its crosshairs dead set at Intuit and QuickBooks in particular. This is despite the fact there are easily a dozen or so companies right now playing in the exact same space as Xero – being cloud accounting software.

But as for its designated arch enemy, Xero believes it has a product that can perform enough of the key functions small businesses and accountants use QuickBooks for and is more collaborative, easier to use, scalable, and more intuitive.

Xero realizes it does not have nearly the money, user base, or awareness that QuickBooks has behind it in the U.S., but from a product perspective there are several enhancements that it rolled out to aid in that battle.

The two strongest offerings -- I felt -- were when it unveiled its own integrated payroll product for Xero users as well as the ability to provision accounting feeds to online banking as well as batch payment uploads. Bank feeds were available in New Zealand and Xero is beginning to roll out the capabilities in the U.S. market, announcing today that City National Bank in Los Angeles is working with Xero to integrate its online banking site for small-business customers with Xero's technology.

Overall, Xero – like the growing number of small business-focused cloud accounting players – has to do a lot of work to not only cause a serious disruption to QuickBooks, but sway the minds of accountants and the businesses they advise.

One thing Xero does have on its side though is timing. Right now more than ever, accountants are giving very serious thought (and some action, but mostly thought) to how they can evolve and better serve their clients. There’s increased pressure to do so on all fronts: from their clients, their competitors, the press, and even messaging from their own state societies and the AICPA itself. The message of “change” is everywhere and Xero knows it, and if they remain laser focused on not just trying to overthrow QuickBooks, but on the needs – the specific needs – of accountants and CPAs, they may just stand a chance but it’s a tough road. Attempting to transform the accounting profession or even pry practitioners and the businesses advised by them away from what they know -- regardless of how often they may complain about the familiar – is a steep hill to climb.

You see, if you’ve watched any nature programs – particularly those focused on life in the savannahs of Africa – you will have an understanding of the accountant’s behavior. I’m referring specifically to how wildebeest cross a river, one they need to cross because not only is their food and watering holes on the other side, but there are thousands pushing behind them moving towards the same goal. The problem is, not only don’t they know how deep the river is, but there are often crocodiles lurking in the water that would love nothing more than a wildebeest lunch.

What happens is that a few hundred of the thousands marching towards this river stand there for a while, until a few make a move, then more do and the rest follow and hope to make it.

In short, accountants are by nature cautious and their moves measured. Pressure helps to make a move, some are more into taking risks than others but eventually they all do get there – just as they did with the PC, so it will go with the cloud/mobile or whatever else you want to call the next technology revolution. Some just may be in a better position to eat or drink than the rest once they arrive. I think Xero is hoping to change enough minds in the profession to get enough of the heard to follow and make a difference.

1 Comment

LOVED your article - Xero are fantastic pioneers. We (SMEasy) are a cloud-based accounting solutions developed in South Africa www.SMEasy.co.za. Our differentiator to Xero and Quickbooks is our innovation of single entry input by the small business with the system then doing the double entry conversion seamlessly in the system backend to automatically produce the financials. Xero, Quickbooks and the other cloud Accounting systems are conventional double entry systems. The real challenge for the Accountant is the addressing the cost and ease of client data collection; as well as being able to provide accounting-illiterate small business owners with information they understand (real time) in order to manage their business. SMEasy addresses this challenge - the small business is able to capture their own data in a way they understand (no accounting knowledge needed)and then use this info to manage their business) while the Accountant is able to access the financials via the web. One of the benefits of coming in behind Xero in places like the USA and UK in the future is that, as you say, they are out there doing the hard work of changing Accountants mind-set as far as cloud-computing is concerned. We are thankfully going to reap the benefit of their efforts.

Posted by: darlene@SMEasy.co.za | September 24, 2013 11:36 AM

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