Professional partnerships

Xero announced today that they have partnered with Acclipse, the Australasian vendor of Accounting practice software.

Acclipse sells software that does all the back office work for accounting practices – managing their own workflows as well as managing data from their clients. It is to this second part of the Acclipse offering that Xero will bring value.

Currently many solutions require manual data transfer between client side software and the practice software – naturally this is both inefficient and a potential source of error and omission – this partnership should provide for seamless, quick and accurate dataflow.

I have to say that I’m a little skeptical about Xero’s strategy of putting lots of effort into accountants. Xero’s expectation is that this will lead to high levels of adoption of their offering – due to their perception that accountants are in a position to recommend Xero to their clients. My perception – garnered through 15 or so years working in, on and for SMEs and doing a fair amount of advisory work with them, is that the biggest factors influencing the choice of accounting software for a SME are;

  • cost
  • what they can pirate
  • what their mates recommend

As such I think there are better go-to-market strategies for accounting apps than spending time and effort on conservative, risk averse, technophobic and busy accountants. That said we are starting to see some traction gain for Xero – so their early stage strategy must be paying off.

Notwithstanding my views on partnering with accountants, this deal with Acclipse is a smart move for a number of reasons;

New markets

Two heads (and marketing budgets) are better than one. Acclipse is ambitious and obviously wants to spread beyond Australasia. Going into new markets with an integrated offering that supports both client side and accountant side needs is a much more attractive proposition. It’s also easier as they can both leverage off each others resources and connections.

The power of connectedness

There much bigger benefits to SaaS than just it’s online availability. It really starts to add some value when you use it as an aggregator of data from around the ecosystem. Things like benchmarking, industry dashboarding and the like are super valuable and super easy with SaaS products. The one hitch is that clients are likely to feel anxious about their accounting software also being the party who aggregates their data with their competitors. Which is where someone like Acclipse can come in – they can be the arms length, yet trusted, party who provides the mining service that feeds back into the client side information.

It’s obviously a strategy for growth – it gives Xero an entre into Australia (Acclipse are already there), gives Acclipse and entre into the UK (Xero are there but not really gaining much traction) and gives the both of them more clout everywhere else.

9 Comments
  • Hi Ben, You’re being very harsh and are wrong calling accountants “conservative, risk averse, technophobic and busy”. MYOB’s real growth and success came from developing a distribution channel through accountants. No matter what software a small business owner uses they all end up working with their accountant to get compliance accounts completed and filed with tax returns. The accountants influence in what the business owner uses is huge. I wonder if you know what the most used software for SME’s in NZ is?

    I know that working with the team at Xero and Rod we can together make a real impact in eliminating the integration pain and bring further efficiencies and benefits to both the accountant and the business owner.

  • Cheers Mike – appreciate the thoughts.

    You state that MYOB’s success came from professional partnerships but the whole essence of SaaS is that it disrupts and disintermediates – I’m not sure if using the incumbents model for go-to-market is appropriate.

    As to my claims about accountants – I’ve spent time with many in the past decade or two and I’m afraid my description has to stand – I’ve (admittedly not very scientifically) polled a number of professionals about Xero specifically and SaaS accounting generally – the knowledge level, desire to experiment and time to invest are generally very low. What is high however is the fear of the threat.

    A comment I heard from an accountant the other day is sadly indicative;

    “there’s no point going with Xero because we always manually enter transactions into our system to make sure you’ve done it right. Don’t bother spending time doing your own accounting…”

    Very sad, but very true

    Cheers

    Ben

  • Morning Ben,

    You state that Xero in the UK is “not rally gaining much traction”. I’d be interested to hear on what figures this opinion is based on and what your own expectations were with the UK launch.

    Regards,

    Paul.

  • Hi Paul

    I was wondering if I’d get a bite out of you.

    Has Xero got a bank signed up in the UK yet? It’s their secret sauce and until they do I don’t believe much traction will be gained

    More than happy to be proved wrong though

  • Happy to oblige. It’ll only take one bank and the UK floodgates will open (one decent global bank and the UK would soon be a relatively small slice of the business anyway….)

    Re the accountant strategy I can draw comparisons with our own business which deals with many SME’s. With SmartFreight our accountant equivalents are freight carriers, whom we require to accept data generated from our freight management system.

    All major carriers have their own FMS which they’d prefer their clients to use as it locks them in, but customer “heat” has meant we have now all major carriers on board bar one. Accountants are no different to Freight companies in this respect – if the client noise is loud enough they will listen, and the forward thinking ones will get in early to avoid being left out.

    This is probably why I am so passionate about Xero. I can see similar strategies in place (interface partnerships etc) but at a global level and with a bigger budget. It is working for me and it is working for them also.

  • Ben, great post, thanks.

    Our experience at FreeAgent Central has been that disintermediating power of the SaaS accounting model puts the accountants interest in direct conflict with the SaaS vendor – it’s them we’re disintermediating! Not the value they add from their experience and advice, but for the number crunching which in truth makes up a large percentage of their costs and fees. Why would they embrace a model that saw their revenues go down until they truly have no choice?

    We also await news of Xero’s success with UK banks with interest. Banks over here never fail to depress me with levels of paranoia which they attain and I’m not sure they can’t be seen to back down from that. Are direct bank links essential to Xero’s success in the UK? I’d say not…

  • 1. My accountant only cares about increasing my profits. He doesn’t have a computer in his office but thinks Xero is super awesome. I therefore think you are both right about accountants.

    2. Yay! I love having shares in companies that I don’t have to actually make profitable! Although, yes banks are difficult.

    3. Before Xero was invented, we only had the option of MYOB or a shoebox. I don’t think we really have a model for how people choose accounting software because we didn’t have any viable option before now. I will listen to whoever I trust who tells me the best accounting system. I trust my accountant.

  • @Nat – thanks for your comment but you’re actually way wrong. Before Xero, and apart from MYOB, there was excel, MoneyWorks, MS Money and a bunch of other products

  • Hi Ben,

    Yup, you’re right. I suppose that MYOB was just dominant, I was aware the others existed but thought they had little market share in NZ?

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