Downwards Price Pressure, Saasu Drops Prices but is Zero the New Destination?

Disclosure – I’ve worked with a number of different accounting software vendors, for full information see my disclosure page.

In any industry where large numbers of sellers exist, economics force prices downwards – it’s an undeniable economic fact that many a high school student has heard in the context of market gardeners and consumers. However the same theories hold true for software, albeit in slightly different ways. This week Saasu is trying to give us a lesson in economics 101. Saasu, the Australian SaaS accounting application, this week announced a new pricing plan that sees them unashamedly declare a price war on their higher-profile competitors, MYOB and Xero. In a press release that from the get go leaves no one in any doubt that this war is going to turn ugly, Saasu announces that they are:

ramping up the battle with Xero and MYOB for dominance in the online accounting software market with the launch of a new version of its most popular product… Weighing in at almost half the cost of its nearest competitor, the $16.50 per month ‘Accountants Edition’ version provides access from anywhere in the world to Saasu’s powerful automation tools, extensive reports, and contact management system.

It’s an interesting approach, both Xero and MYOB have a lightweight version of an online accounting product. The details of those are as follows:

  • MYOB LiveAccounts – $25 per month with unlimited application use but a relatively narrowly featured product
  • Xero – $29 per month with application limits of 5 Accounts Receivable and 5 Accounts Payable invoices per month and 20 reconciled bank statement lines per month

The Saasu product both beats these two on price, but does so with reasonably high application limits (50 accounts receivable invoices, 50 accounts payable invoices, and 200 reconciled bank statement lines). In commenting on the pricing of competing products, Saasu CEO Marc Lehmann says that:

To limit activity to 5 invoices a month is restricting for some businesses, and to charge as much as Saasu charges for its full-featured product for this limited service is extortion. Saasu is focused on providing affordable time-saving solutions for businesses and their advisors, and now we’re making a stand against these prices.

It’s a pretty gutsy move from Saasu and is indicative of their recently adopted approach to aggressively take the fight to other vendors – this was first evident in the marketing of their partner Acclipse and is accelerated in this announcement. I reached out to both MYOB and Xero for their reaction to the move. At the time of publication Xero hadn’t responded but Julian Smith, MYOB General Manager was upbeat saying that:

We think it’s great that Aussie and Kiwi businesses have a broad range of options available to them in terms of how they manage their books.

It’s interesting to look at this in relation to the launch of Wave Accounting that I covered last week – you’ll recall that Wave is following a free to user model not unlike that taken by Mint.com, offering users services from third parties that are in keeping with their business habits. I reached out to Wave founder Kirk Simpson to get his take on this – after all they’ve taken the “price war” to a whole new level. Simpson’s response was interesting;

At Wave, we don’t think that small business owners are looking to save 20% or 40% off the cost of accounting applications or software. Bringing the cost down to $200 per year from $350 per year doesn’t address the flaw of existing business models. We see a paradigm shift that’s greater than that. As the online app world keeps evolving, free services are the natural end point and, frankly, the only end point.  Small business owners don’t want to be doing accounting in the first place, and they certainly don’t want to be paying for the privilege, which is why the majority of them are using shoeboxes and spreadsheets to “organize” their finances. This is a trend across all applications, and we’ve positioned Wave to capitalize on this. The market evolution is greater than price, too. Rather than looking at the ceiling that some apps put on functionality and moving that ceiling upwards, we decided to remove limits and ceilings altogether. We provide all of our tools for free so that the business owner doesn’t have to compare the limitations of one app to those of another.

I’m not sure that “free” is a natural endpoint for all application – Google apps, long the exemplar for a free-to-the-customer approach is, after all, a paid product (albeit at a very low price point). However, at the very small end of the market, free products that monetize through some third party approach would seem to be an increasingly popular alternative for consumers, what will be interesting in all of this is the pressure that vendors like MYOB, Xero and Saasu come under from the ongoing trend towards zero.

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