Monday, October 14, 2013

Xero Intuit War Exploding

The thought provoking Mike Block for QuickBooks Xero Blog writes: The Xero Intuit accounting war is now exploding.
The stock market has been predicting that Xero will win big for five years. Xero stock rose 15 times faster (up 2400%) than Intuit stock. However, the Xero Intuit war will now explode.
Xero just raised $150 million, specifically to fund U.S. expansion. It came from some of the smartest and largest technology investors ($123 million from the U.S.), led by venture capital stars Peter Theil (Valar Ventures) and Matrix Capital Management. With all due respect to Rod Drury and the other outstanding speakers at the recent Xero conference, the highlight of my trip was a long conversation I had with a Matrix rep.
Xero rose 9.75% on the news. Intuit is down in early trading. Xero doubled employees and customers last year, but raised the extra money to increase its hyper-expansion and compete for 23 million possible U.S. customers. It has a new 28,000 square foot San Francisco U.S. headquarters (a few miles from Intuit headquarters) and may soon have more local U.S. offices than Intuit. It also has been doubling add-ons yearly, while QuickBooks lost 70% of add-on links in 21 months.
The Intuit Xero war also may reflect recent research: Intuit is effectively liquidating, having used $4.9 billion on stock buybacks (more than cumulative income). Instead of spending on expansion, Intuit will use $2.4 billion more on buybacks (more than 2012 adjusted stockholder equity or three years of recent earnings). Knowing this, insiders sold more than $4 billion of stock, while only buying and disposing of option stock.
Xero will win this war due to its professional accountant approach alone. Each new accountant brings it many new users quickly. This requires big money for programming, to create a better product, but cuts marketing costs. Xero has long outspent Intuit on programmers, relative to size. It now seems to be far outspending it on an absolute basis, though Intuit revenue is still many times larger. The different professional accountant approach made the head of the QuickBooks ProAdvisor program go to Xero. It also relates to having Intuit recently cut a third of its U.S.-based ProAdvisor support staff, so we spend a long time on hold. Other Intuit support does not speak English natively and read from help databases, without knowing related programs.
Intuit often embarrasses and angers professional accountants with ads saying users do not need us to do bookkeeping or taxes, while recruiting us to clean up many avoidable messes and lost deductions. It also runs the world’s biggest diploma mill, letting anyone buy so-called QuickBooks ProAdvisor titles. About 80% of ProAdvisors never pass Certified ProAdvisor tests, though surveys showed that complaints relate to untested advisors and average rates waste $1 billion a years for QuickBooks users. Intuit also undercuts us with lower retail prices than it gives us.
This war also relates to Inuit now giving accountants 50% off on QuickBooks Online clients, vs a prior 10%. Xero may increase the 15% it gives us, though Intuit temporarily gave away a QuickBooks version when fighting Microsoft.
Xero also will win because Intuit tends to limit advanced releases to times of serious competition. I was long a QuickBooks insider, with many Intuit-articles. Fellow insiders badly wanted Mint-like downloads for QuickBooks 8 years ago. Top Intuit executives thought it was a great idea, but did nothing until they had to buy Mint for $170 million. Then they killed QuickBooks Online without promised Mint imports (complicated for Intuit, not for a small competitor). Insiders also begged Intuit CEO Brad Smith and top assistants to make QuickBooks Online worth using originally. Brad later apologized to us for not following our advice.
Insiders also wanted an Intuit workflow product, linked to QuickBooks and Intuit tax products. Intuit disregarded what we needed and delayed, until it failed twice with expensive products. Xero bought and vastly improved a competing product, making it free to professional accountants. An Intuit employee admitted that this made Intuit buy a free workflow product, from a company that only had a website for 6 months and 13 days before Intuit bought them. However, Intuit now charges $99 a month for a slightly repackaged version. Is that rape or a sucker punch?
Xero has big web-only cost, reliability, simplicity, partnership and development speed advantages. It uses essentially the same code in more than 100 countries. Intuit has separate products in a few countries. That seems to be why Intuit just sent a top person to Australia, long after losing a local marketing and programming arm. The new Xero $150 million means that he failed in any unlikely Intuit buyout effort, but I otherwise wish him luck. He once called from Japan, where he was ending Intuit operations. Though very sick, he quickly arranged a 50-minute conference call with his northern and southern California security heads (I am in Florida). He did this so we could all talk about alleged security problems for my blog post.
If Intuit still had such relationships, we might not have one Intuit person in Australia, vs $150 million in extra Xero U.S. investment. However, one big Brad mistake was giving me a personal Intuit contact person, while limiting access to top Intuit personnel. He did this during a long call, during a championship football game. This was on the day he found out he would be the next Intuit CEO, two years after I told him that he would.
All this relates to Xero having reached a tipping point, which precedes very rapid adoption. The recent Xero San Francisco conference showed that many top QuickBooks stars are switching to Xero or have already done so. We were there despite the sudden staging of four Intuit conferences in the same area, at the same time. Some of the most prominent among us also were there despite repeated Intuit calls, asking us not to attend. Yes, this goes beyond war. It speaks of desperation. We live in interesting times, but the best is yet to come, regardless of who wins.
Personally, I would still rather spend an hour at the dentist than an hour using QuickBooks Online, but please contact us with any accounting and tax problem, with any of these products. 

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