Xero Rolls Out Some More Network Effects and Faces Some Criticism. Some Lessons on Viral Strategies

Xero (disclosure – I’ve done a tiny bit of consulting for Xero and am co-founder of LiveMigrate, a service that migrates businesses from desktop accounting applications to Xero) rolled out a new update this week which included some interesting and valuable features. The introduction of online invoicing is a bit of a watershed, rather than opening emailed PDF’s, customers whose suppliers use Xero can click on a URL which takes them to an online invoice. SO far so good – saves paper, saves printing and drives efficiencies.

An added part of the roll out however was the introduction of a link at the top of online invoices which takes customers to a customer portal where they can see their invoicing history and amounts outstanding. Again a super valuable addition to the product. Things got a little unstuck however due to Xero’s understandable desire to track an audit trail around who is opening these invoices. The “link to other invoices” button takes end customers (ie the customers of Xero users) to a page which allows them to either login to Xero (if they’re already a user) or set up a free Xero login that gives them access to their invoice history.

This is a seemingly innocuous step, and one which, after the small hurdle of registering, will drive some real efficiencies for businesses. The problem, as shown from the large number of comments on the Xero blog post is that this is the first time that the customers of Xero users have been presented with anything that specifies the origination of the invoice. Previously emailed or printed invoices came in a fairly generic format that could have come from any number of accounting solutions (or a word template for that matter).

A number of commenters then saw this move as an attempt by Xero to utilize their business (ie the business that is a Xero customer) as a business development and sales channel. The account setup requires end users to create a Xero account – in this day and age when customer loyalty and customer data is sacrosanct, a number of people balked at the suggestion that Xero would, in essence, have a direct relationship with the customer. Xero justified this step by saying that:

The reason we require a login to view outstanding invoices is to give you an audit trail of exactly who has viewed those invoices and when they were viewed.

I’m not completely convinced the audit requirement argument is valid, if full audit trail was required then Xero wouldn’t be happy to email an invoice which can be forwarded ad infinitum. As it is, invoices are insecure and I would be surprised at any concerns from Xero customer in the event that the link to invoice history didn’t require a login.

In hindsight (and isn’t it always a great thing?) Xero would probably have been wise to have the “link to all online invoices” and hence the invitation to setup an account with Xero deselected by default – as it is removing the link from all invoices is a fairly complex and convoluted process that is likely more than many Xero customers really want to contend with.

Kudos to Xero head of design Phil Fierlinger who quickly wrote a post that detailed some of the thinking behind the functionality. There’s an interesting thing to look at here though, Xero now has over 100000 customers but has ambitions to service millions of customers – as they look for new ways to grow, introducing these sorts of viral features becomes attractive. In fact this is the way that their competitor FreshBooks has grown to its massive size. The difference is that a huge number of FreshBooks customers are using a free service, they expect that FreshBooks will, to a degree, leverage their networks to grow. The technique sits uncomfortably with Xero’s customer who are paying for the service. As one commenter said:

We pay a monthly fee – so in my view it’s not reasonable to use us to advertise your service. I think the online invoice should be on an unbranded domain without Xero links unless I choose to add them.

The bottom line is that online invoicing is an immensely useful tool and will be seen as the default way to do things in the future. But introducing new functionality like this needs to be done with a lot of thought, and vendors should always err on the side of caution, especially when attempting to leverage their customer’s customers. I suspect Xero will look at this release and think about the way it approaches these sorts of changes in the future.

A video of the workflow is embedded below

Sales Invoices from Xero on Vimeo.

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