Of late there has been a bunch of discussion about whether or not multi-currency functionality is important for SMBs. Some commentators came to this conversation from the perspective that if SaaS accounting vendors want to achieve scale, they have to provide for multi-currency. In a post discussing this AccMan says that;
As things stand today, I reckon that the current crop of pure play accounting vendors (for example) will need to have close on a million paying customers each before they become genuine leaders. Even at those levels they’d likely only be generating £120-140 million a year in revenue based upon today’s average selling prices achieved in the market…The players have always said the domestic market is large enough to support their offerings. I don’t believe that’s true because I don’t believe the market is going that way.
I believe that all of the current crop of SaaS accounting vendors who are gunning to be genuine leaders expect that they can convert a significant proportion of customers that the incumbent providers, MYOB, Sage and QuickBooks hold. In doing so I believe they should theoretically be able to build scale without needing a multi-currency play.
1000000 Customers is Plenty
In Australia/New Zealand, the incumbent accounting vendor, MYOB has around a million customers. This on a platform that is not only antiquated, but doesn’t allow for multi currency. Looking at the million or so businesses who use MYOB, anecdotal discussions suggest that a massive proportion are sole trader or micro-businesses in the service industries. These folks are only and likely will only sell into their home markets and hence have no need for multi-currency. Moving up a tier on the triangle we have exporting business such as one of my interests, Cactus Climbing. These organizations quite potentially sell internationally but have made decisions not to take on the foreign exchange volatility of selling in multiple currencies and instead trade in their own home currency. This is the approach we use at Cactus, selling globally but in New Zealand dollars. At the top of the pyramid are those businesses that need multiple currencies – the software businesses, international consultancies and the like who truly need a multiple currency solution. Again anecdotal evidence would suggest that this is a small proportion of total MYOB customers.
Interestingly, and coincidentally, Acclipse recently announced that they are rolling out a client-side application into the Australian and New Zealand market. This product looks to be a direct competitor to Xero (its UI looks very derivative) but at a much lower price point. While the product is not available to test yet, it appears that the major difference between it and Xero functionally is the fact that iBizz will not have multi-currency. While some of the reason for this may well be the complexities involved in creating a multi-currency platform, part of it is also a determination on investment versus return and a nod to the fact that multi-currency isn’t important, at least when you have a million customer strong incumbent product, and the vast majority of those customers don’t need to go multi.
There’s a World Outside of the US?
Who has bought software from a US-based company recently? Or, for that matter, from any vendor worldwide. The default currency for software companies, and the default currency for a huge number of companies regardless of the industry type, is US dollars. This being the case, one only needs to look at QuickBooks four million or so customers to see that a similar triangle occurs to that in MYOB’s home market. Of those four million customers, a massive proportion have no need for multiple currency functionality and, all things being equal, should be able to be moved from QuickBooks to a SaaS product regardless of the multi-currency functionality that product holds.
Micro != SMB
The vendors who currently serve the freelancer and micro end of the foodchain (FreeAgent, KashFlow, Xero, iBizz) serve customers who generally have relatively simple needs. Multi-currency is, I believe, an outlier requirement for these organizations. Moving up the stack into more mid sized businesses (and the term “mid sized” means different things in different countries) and multi-currency is critical – Intacct, TwinField, FinancialForce and others absolutely need to provide robust multi currency tools.
Does It Matter?
The existing Cloud vendors targeting the micro space are doing one of two things – either focusing heavily on their domestic market (Saasu, iBizz, FreeAgent, KashFlow) or expanding heavily internationally and trying to bulk up over time (Xero specifically) In the case of the latter strategy, multi-currency is more important and it must be noted that Xero has an elegant and robust approach towards multi-currency.
So it really is a case of horses for courses. For the strategy that Xero has chosen, yes multi-currency is important. But is multi-currency an imperative for all SaaS accounting vendors? Clearly not!
(Cross-posted @ The Diversity Blog – SaaS, Cloud & Business Strategy)