Go to market strategies are an intensely interesting topic of conversation. In the very early days of its existence, I was a little dubious with the strategy that Xero took – that is partnering with accounting practices and using them as the channel. I had several issues with that – the issues around revenue sharing, the conservatism of the accounting profession and doubt that many businesses take software advice from their accountants.
After this week we’ll have an excellent test case with which to see how valid my concerns where. On Friday Xero flicks the switch on one of their most requested features, integration with FreshBooks. What this lets us do is see the uptake in a market without channel partners, but with an integration with an offering that addresses hundreds of thousands of businesses.
I spoke with Xero CEO Rod Drury about this and he was pretty frank about the need for the company to learn from experience;
A big thing for us has been balancing building out the accountants network with being an ‘online product’. In the NZ, UK and Australia we’ve invested in an accountants channel which has been a great thing to do while we broaden out the product. With the richness of functionality we now have an interesting learning will be how much we can sell using an online channel before we build up the accountants network in the US. In theory the US should be more ready for it than other markets.
Xero is enabling this integration without any clear channel strategy in the US and hence will be able to test the validity of a direct to consumer, viral marketing approach. Leveraging the online network rather than the offline one.
Other commentators have urged Xero to be cautious in their US market entry approach – I believe this integration is an excellent way to test the waters without investing in people or marketing clout on the ground in the US. Xero has the ability to address a ready audience that falls nicely into their core demographic.
Xero seems to be taking a reasonably cautious approach to market entry. Those who have seen Rod speak know that confidence is something he’s not exactly lacking (which isn’t a bad thing) however on this front he’s a little more circumspect;
Lesson learned in this next phase will determine the speed we go in the US market. Again it’s balancing out our opportunity in existing markets with opening a new front.
Finally Rod gives FreshBooks a vote of confidence, saying;
We see Freshbooks as another leader in this space. We are both lean, internationally capable, customer centric and fast moving. As companies like Freshbooks and Xero start to connect together the real power of Web 2.0 against traditional vendors starts to play out. I think 2010 is looking like a step up in the industry as the collective benefit of what we’re doing surfaces.
It’ll be interesting to see…I’ve long thought it a little strange that FreshBooks don’t do full double-entry accounting (and yes I’ve heard the arguments about “just being an invoicing offering”). It seems (at least in my mind) more sensible to use one vendor for invoicing and accounting rather than two separate vendors – time will tell how much shift FreshBooks sees over to full service offerings once there are some with scale in the US.
Been waiting for over a year for this integration and can’t wait to use it. Concerning 2 vendors vs 1 vendor, I believe approaching it like front of the house and back of the house makes it a little more digestible. Freshbooks for client related items and Xero for everything else.
[..] While I am a serious Xero fan, I have to question the need to carry out a Freshbooks integration considering that Xero does it’s own invoicing and is a very strong double entry accounting system to boot. As suggested by Ben Kepes over atCloudAveperhaps this is a way for Xero to get it’s feet wet in the US market at a cheap price whilst trying to gauge the exact requirements of US based customers. The assumption is that Freshbook’s customer base is mainly based in the US and is an attractive target in terms of moving them over to a full accounting system. [..]
Xero’s invoicing is quite basic. It does not have built-in time tracking, online client account access, auto notifications for late payments, or independent contractor access. I find that Freshbooks specializes in invoicing and client interaction with their accounts. They don’t spend time dealing with accounting, just invoicing. That is why a marriage between Xero and Freshbooks is a very good fit. Just my 2cents.