[IMGCAP(1)]There was lots of vendor and consultant news over the past week, but overall we want to know what’s up with all the funding going into cloud accounting software, and where exactly does Intuit factor in? You’ll get my take on all of it, including excerpts from my brief one-on-one with Intuit chief executive Brad Smith.
First, the news which, again was all over the map but we’ll be focusing on all of the interest in financing companies like Xero, Kashoo and Aussie-based newcomer Gem Accounts.
News: Xero announced that it has raised $150 million to fund expansion in the United States and essentially help it compete against its primary rival, Intuit, and its QuickBooks product.
The publicly traded Xero said the funding round was led by Peter Theil-backed Valar Ventures of San Francisco, Matrix Capital Management of Waltham, Mass., and other investors in the U.S. and New Zealand. U.S. investors accounted for $123 million of the investment round.
Xero recently expanded its U.S. headquarters to a 28,000-square-foot space in San Francisco, where it has been since 2011, opened another office in Denver, and is working on an official New York office as well.
My Take: So bottom line here, Xero’s investors decided to put their money where the company’s mouth is. If you’ve followed Xero at all, you know how much they love to talk about the whole “David versus Goliath” matchup between themselves and Intuit –- QuickBooks in particular. Now, it looks like they are actually getting a good boost in order to do so.
Make no mistake, though, this is not just a startup company looking to take on a major competitor -- lest we forget, others have had QuickBooks in their sights as well but have since grown past them in terms of the market size they serve. I present Great Plains, MAS 90, Intacct, NetLedger (and even NetSuite, early on) to name a few. All were once touted as QuickBooks alternatives and, for the most part, have since gone upmarket
But back to Xero (ok, no pun intended) -- they are publicly traded, they’ve been around for several years and grown their user base to a considerable level for a company of their size. Not a giant, but not exactly a flash in the pan either. Also, they’ve make quite a name for themselves in their home country, as well as in Australia and the U.K. But all of these markets are not where Intuit really has much of a stake, yet. The U.S. market is a whole different ballgame and this money, while earmarked for “global expansion” is very much about getting more of a foothold in the U.S. and North America where, comparatively speaking, small businesses and the accounting community that serve them are only just becoming aware of who they are.
Make all the inferences you want to a coming cloud bubble, but if Xero is to have a real chance at truly taking on Intuit and QuickBooks as they claim they can, it is going to take and investment like this to get the product where it needs to be; get the awareness they need; and build the small empire it will require to see its enemy eye to eye. And hey, at the very least, it could help add some needed validity to the whole idea of cloud accounting.
News: Paychex has purchased a minority stake in and formed a strategic alliance with cloud accounting software provider Kashoo. As part of the partnership, Paychex senior vice president of information technology, product management and development, Michael E. Gioja, and vice president of marketing Andy Childs will join the Kashoo board of directors.
The deal also represents the first partnership with a U.S.-based payroll company for Kashoo, which up until now has only integrated with Canadian payroll services.
My Take: There’s a lot of different angles one can take from this news, the clearest is that Paychex -- while it apparently believes in Kashoo’s potential as a startup business cloud accounting product -- is looking to make certain Kashoo has no other payroll and human resources solutions partner here in the U.S. This deal may also apply to Kashoo not bothering to create its own payroll product, but the terms of the deal were not disclosed. Other cloud accounting players are either offering third-party payroll solutions, building their own or both. This deal is very much about ensuring Paychex is the payroll and human resources services provider for Kashoo users and they’ve even placed a couple of their executives on Kashoo’s board for good measure. Will they ultimately buy the startup company? Who knows, but Kashoo is a young, growing company and this again cements a symbiotic relationship.
News: Australia-based job management software maker simPRO Software has purchased a 30 percent stake in Gem Accounts publisher Gem Software Solutions, with plans to aid the product’s global rollout, including its recent foray into the U.S. market. Midmarket-focused cloud accounting software Gem Accounts officially entered the U.S. market last week and its new stakeholders plan to help staff its new San Francisco location, and ultimately acquire a larger share of the company.
My Take: I’m willing to go out on a limb and say before I wrote about these guys none of you knew who they were, and probably still don’t. That’s OK, they’ve only been around since late spring, but are making moves in just the past few months that other similar companies take a few years to do. They’ve got some money (as in not a lot, but enough to get going) behind them now and are even looking to show around $2.2 million in revenue for its first year. Now they have a $15 million company behind them willing to invest in the R&D to get the product where it needs to be and help them get to other markets they want to be in like the U.S. and U.K.
As of now they have a U.S. office location, but no staff there … yet. They are hoping to change that in the coming weeks, as well as opening a U.K. office. So what are they all about?
Well, to the best of my knowledge they are on par with the likes of Intacct, FinancialForce and a bit of NetSuite and Acumatica thrown in. They want a channel of accountants and resellers, and claim they don’t compete with the likes of MYOB’s “cloud” product, Xero, or even QuickBooks. In fact, Gem Accounts execs claim they want to be the transition off of those products when businesses have “outgrown” them. Hey, it’s no $150 million or a major payroll and human resources service company but we’ll see where they fit in to the cloud accounting market, if at all.
Other news: It’s not news, exactly, but last week I did have the opportunity to sit down -- for a few minutes anyway -- with Intuit chief executive Brad Smith during their Innovation Gallery Walk in New York. I’ve known him since his days at ADP and always found him to be relatively forthcoming and candid, as much as a top executive in a multi-billion-dollar company can be anyway. The few things we discussed are where he sees Intuit’s products going, the biggest challenge he sees right now, and his general view of their competition.
First to the more interesting point: competition. Right now Smith is hyperaware of who is knocking on Intuit’s door all around the globe. He didn’t call any one company out by name, as he has done before, but he did say something very telling in that while he is very confident in where the company and its products are going, he does “sleep with one eye open.” As for the products, like most vendors you can expect them to get more “cloudy.” Whether that means they will host more aspects of their own house products or have more functions of desktop products that you can access via the Web or integrate with Web products or services remains to be seen.
Another telling thing Smith said was on the prospect of moving away from the desktop. While on the one hand he said he tells users, “We’ll never abandon the desktop,” he was not shy about claiming 45 million of Inuit’s 60 million total product users “are now in the cloud.” This is without getting too far down the rabbit hole of what he or anyone thinks cloud really is.
Smith also noted that he expects Intuit and its accountant network to do more handholding of its desktop customers to “show them the benefits of cloud,” so that in a sense if and when the day comes where Intuit is no longer making desktop products they will at least have some comfort with the medium. And, in this sense, Inuit hasn’t really “abandoned” them.
Thoughts? Comments? Suggestions on any or all of what I’ve said above? Please feel free to send them to me and, if you wish, I’ll share them with our readers.
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