On Hockey Sticks and Sporting Teams

Xero today announced it’s interim 31 March year end results (and as an aside, the fact that they can announce on the same day as the end of the reporting period indicates the strength of the SaaS model – immediacy and accuracy). They’re understandably proud of their user metrics (graph reproduced below);

There are a few interesting factors in the report. Firstly that Xero has exceeded 6000 paying customers, up from 950 customers at 31 March 2008 and that this figure includes over 2000 customers in the United Kingdom. I’ve always been pretty positive about Xero’s chances in their home market, but a little anxious about how that translates to an overseas market, especially one where Xero has the double whammy of being somewhat unknown, and not having banks come on board with automated feeds. This result however is a clear indication that these negatives are not huge barriers to adoption.

I would have to sound a note of cautions however in saying that even 2000 customers (while an undeniably impressive result) is still a drop in the ocean and that the slope of the curve cannot necessarily be extrapolated onwards over time. There is no doubt a pool of early adopters that Xero and the other SaaS players are mopping up – the question in my mind is how quickly will that pool run out, and whether once it does SaaS accounting will be sufficiently mainstream to move onto mass market. Some metrics around industry types would be really helpful here – I’d love to see how many Ma and Pa traditional businesses Xero (and the other players for that matter) have managed to on-board.

Also very interesting was that Xero doubled customer numbers in the last three months and now has paying customers in 25 countries – clearly having fully customised offerings in only three jurisdictions (NZ, Aus, UK) hasn’t been a major impediment to other customers jumping in – again it’d be great to see some geographical breakdown to see whether this 25 country figure is indicative or more of an aberration. Given that Xero is a fully fledged accounting system I would have thought that regional customisation was important – if this isn’t the case the that is an interesting statement about the use case for the product.

Also of interest was the information that;

Xero has been selected as the standard accounting system for organisations such as the Royal New Zealand Coastguard; franchise leaders New Zealand Brands; Surf Life Saving New Zealand; Touch New Zealand and; the Royal New Zealand Plunket Society. [and that] SmartBusiness Live Ltd, a major provider of accounting and payroll software, has selected Xero to power their next generation accounting services

Both of these statements are interesting – the first because all of these organisations are on-to-many instances, whereby Xero, with one sales cycle can convert many, many customers and the second because relationships like this, where businesses take a software offering and package it up with a service bundle, should greatly lessen the cost of sales that Xero faces. Given their significant burn rate, reducing marginal cost is important – increasing customer numbers will go some of the way but these sort of channel partnerships are also of real value.

All in all it’s an impressive result – the graph is pointed strongly in the right direction and this sort of result is, at least in part, to Xero’s strategy from the outset of building a full capability team from the outset – those IPO generated millions being put to good use!