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;
- Those either using manual or no accounting systems – 47% of respondents or around 650 customers
- Those using desktop apps – roughly 50%
- 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.
I don’t share your surprise that so many customers come from existing desktop based apps (mainly Sage, QB and MYOB for us).
You’d find that most of these people have been “struggling” with Sage, etc (some times for years) rather than “using” them.
They take a look at products like Xero in NZ or KashFlow in UK because they’re told they’re easy to use.
We get lots of emails from people that are relieved to have found an accounting app that takes away the pain. I’m sure Xero gets the same.
It’s no surprise at all that small business owners are walking away from desktop applications.
Sage – too expensive – £1300 for a 2-user system of Line 50 Pro is pretty hilarious. Maybe Instant Accounts+ would do the job for me but I can’t find a comparative feature table anyhere and Sage’s promise to email one was not fulfilled. In the end I got bored and started looking elsewhere.
Intuit – removed foreign currency support from Quickbooks when it implemented the 2008 version. In any case, that version attractd contemptuous customer feedback which Intuit, bizarrely, publishes on its own website. The 2009 version of the software has been on the market in the US for some time but has not not been released in the UK. When, and if, it is it won’t support foreign currency. Intuit told me yesterday that foreign curreny support will not happen in 2009. Meanwhile they have withdrawn support from the 2002 and 2006 versions whilst urging foreign currency users to continue using 2006 until further notice selling it for more than £200 per licence to those users in the know who insist on it. How you can get away with selling software at a premium price even after you’ve announced it is no longer supported is beyond me. Could they be walking away from the UK market? Or perhaps all their developers are working on SaaS. They certainly treat their UK customers with contempt (I am one).
Microsoft – no one trusts MS to support its product long term in the UK. All that coding for VAT is a bit hard and the market is pretty small compared to the US. There have already been rumours of a planned withdrawal. Actually, no one trusts MS at all to produce a stable product that won’t crash every 10 minutes.
All of which leaves a few very small players and the SaaS providers.
Actually, I take back what I said about Microsoft, having just bought Microsoft Accounting Professional 2009. Early days yet but so far it is by far the most stable MS product I have ever used (and I’ve been using them for a long time). It’s also the most comprehensive package I have found for SMEs and the most cost effective. So far it beats Quickbooks hands down. In the end I rejected SAAS mainly on cost grounds – the difference is huge.
No I don’t! Microsoft have just withdrawn support for MOA from the UK market. No new releases ever, no notice. If I ever look as though I am going buy Microsoft software again can someone please restrain me.
Michael Bryant