Xero posted recently detailing the result of a customers survey looking at what accounting solutions were used prior to the move to Xero. Now all companies are entitled to do a little bit of chest-beating (last week it was KashFlow's turn). Looking beyond the spin however builds some insights for the individual company, and the industry as a whole.

The graph Xero provided is below;

Apparently of the 3000 existing customers, 45%, or 1350, responded to the survey.

So let’s break this down a little. I’ll lump the respondents into three groups;

1. Those either using manual or no accounting systems – 47% of respondents or around 650 customers
2. Those using desktop apps – roughly 50%
3. Those using other web apps – roughly 3%

The third figure makes sense – SaaS is sufficiently new that it would be a surprise to see any real degree of churn from one SaaS player to another.

The other two figures however are interesting. Given the difficulty involved in moving accounting systems (really it’s hard work and a barrier to a shift) it’s a bit of a surprise that the number of customers are walking away from installed applications (particularly MYOB in Xero’s home market). Potentially a number of respondents are only using a small part of the application functionality, making a change less difficult than for more embedded users, but notwithstanding that we’re seeing hundreds of desktop software customers jump ship.

In his post, Rod says that;

For 47% of our customers we are their first accounting system. We’re really proud of that as we must be making accounting software that is easy enough for people to use

Clearly the fact that Xero is gaining customers at all indicates that their software is easy for people to use – heck Xero is praised by customers, competitors and analysts alike as the best model in SaaS accounting software however I take a slightly different, yet still positive, perspective on these figures. The fact that Xero is able to poach the number of customers of traditional applications that they can, is indicative that they’re doing more than just providing a SaaS/s solution – maybe it’s the live bank feeds, maybe its the ability to have real time advice – something in their offering is giving customers a value add that makes them prepared to put up with the hassle of converting.

With the massive customer base that traditional software has – between the royal triumvirate of Sage, MYOB and Intuit we’re talking hundreds of millions of customers – the proven ability to flick these customers en masse is huge and a validation of both SaaS in general and Xero’s approach in particular.

The challenge now is to ramp up both sides of the equation – the “new entrants” who currently use no software. Xero will make inroads with these customers through the word-of-mouth exposure they’re getting, especially as they enter the all-important US market.

In terms of the more established businesses, ramping up the conversion ate will take a combination of continuing partnerships with accountants/advisers, more vertical market targeting and further functionality to satisfy the deeper requirements of these businesses.

In what is arguably an example of both sides of the equation being dealt with, it’s is really interesting to see examples like the newsletter from a local CPA firm that is offering the cashbook version of Xero to its customers for free, as well as pushing the half prices Xero accounts that it, as an accounting partner, is able to pass on to its customers.

Up until now Xero has been adamant that they're very much in product and market validation mode and their numbers would seem to validate this claim. What will be exceedingly interesting to see is when this product mode switches into scale marketing mode, then we'll se what the long tail can reall deliver.