MYOB takes battle to Xero, Intuit

Rob O'Niell for ZD Net writes: The global small business accounting wars between US giant Intuit, Australian incumbent MYOB and New Zealand challenger Xero are heating up.

MYOB today responded to threats to its business with a data conversion service and free offer - and took a few swipes at Xero in the process.

MYOB has launched the service through its partners to help and entice customers of rivals to convert to its AccountRight Live service.

MYOB said the offer comes in response to increasing demand for its cloud accounting solutions. It is sugaring the deal by offering six months’ free access to AccountRight Live for those who make the switch via the service before 31 December.

But Xero founder Rod Drury describes the offer as a "death rattle" from a company encumbered with nearly A$700 million in debt. He says Xero is converting thousands and thousands of MYOB customers to its cloud platform.

"We don't see them in the marketplace," he says.

The conversion service has been in pilot for the past quarter and is "receiving exceptional feedback in New Zealand and Australia", MYOB says in a statement.

MYOB's James Scollay

MYOB general manager, business division, James Scollay, says new clients are switching to MYOB cloud solutions to enjoy better value and to access a broader set of features through AccountRight Live which offers cloud-enabled accounting with a desktop interface.

Scollay touts the flexibility MYOB's system offers users who can choose to work on their accounts in the cloud or on the desktop and switch between the two.

But Drury says that is one of MYOB's weaknesses.

"What they did under private equity ownership is not invest in a full cloud platform. What they have is a hybrid," he says.

The feedback from users, Drury says, is it has been a disaster, He referred ZDNet to comments of various forums to back up that claim.

Scollay says over 50% of all new MYOB product registrations in New Zealand are for cloud solutions.

"We’re rapidly delivering on our vision and we’re pleased to help even more SMEs move to the cloud through our conversion services,” he says.

MYOB made a foray into Xero's home turf in May, buying Banklink, which provides feeds to New Zealand's banks, for NZ$136 million.

Xero, meanwhile, is pushing its own cloud bondaries, announcing new functionality called Files in Xero. While Xero has supported single file attachments on bills and receipts for a while, Files lets users attach multiple documents to almost anything in Xero for easy access.

Files can be associated with invoices, transactions, expense receipts, fixed assets, contacts, chart of accounts, bank accounts and manual journals, it says.

Xero isn't just targeting MYOB's base. Last week it raised a $180 million war chest to expand its US push, targeting Intuit especially.

Adding to the intensity of the fracas, software consultant and MYOB partner Maria Mullane of Aspire Solutions took a swipe at Xero in MYOB's release.

"Business owners who are used to using MYOB as a business management tool are often disappointed when they move to Xero because it lacks a lot of the reporting and functionality that MYOB has,” she says.

Cloud accounting developer Kashoo gets infusion from payroll giant Paychex

Heather Clancy for ZD Net writes: One of the biggest payroll and human resources services company for samll and midsize businesses, Paychex, is moving into the cloud accounting world with an equity investment in Kashoo, one of the 11 service providers I wrote about several months ago that are aiming to steal market share from Intuit.

The amount of the infusion wasn't disclosed, but it gives Paychex the right to place two executives on Vancouver-based Kashoo's board. An integrated solution many be in the offing, although no explicit details were released. For now, at least, you can expect Paychex to be talking up theKashoo service, which has an especially strong mobile component.

In a statement, Paychex President and CEO Martin Mucci said: "Paychex has a history of great partnership with the CPA community, and now offering our clients and CPAs a simple-to-use and effective cloud accounting solution that will be integrated with the leader in payroll and human resource offerings will be very powerful."

Kashoo supports approximately 100,000 small businesses in more than 180 countries; its iPad application ranks in the Top 10 Business Apps in 90 different countries.

Paychex, based in Rochester, N.Y., offers everything from payroll administration to time and attendance applications.

The announcement follows a flurry of activity in the SMB cloud accounting space. In September, Intuit announced a major overhaul of QuickBooks Online, one that we see it open its application programming interfaces to other major SMB management applications. Another upstart, Xero, just raised $150 million in venture capital last week with the explicit aim of taking on Intuit in the U.S. market.

Vanguard's Unusual Gripe: ETFs Overhyped on Taxes

Ian Salisbury for the Wall St Journal writes: Vanguard Group has an unusual message for potential investors: Tax advantages of exchange-traded funds, including its own fast-growing line, aren't nearly as significant as many think.

Exchange-traded funds, typically index mutual funds that trade on an exchange like a stock, have won fans among investors and collected nearly $1 trillion in U.S. assets. One of the key selling points is a special legal structure that helps funds avoid recognizing stock trading profits and thus triggering unwanted capital-gains tax bills for investors.

But to fund giant Vanguard, ETFs' structural advantages loom too large in many investors' minds. ETFs' tax efficiency stems more from a passive investing style than from unique legal attributes, the company contends.

"A lot of times the way the tax story is being told is: We are more tax-efficient than mutual funds," said Vanguard Principal Joel Dickson. That story is a kind of fiction, he said. "It's not that the ETF structure is obviously more tax-efficient. It's how you manage it."

As the fund firm often points out, its own conventional stock-index funds rarely pass out capital gains.

To a certain extent, the ETF industry has benefited by making an apples-to-oranges comparison, Mr. Dickson added. ETF firms are fond of comparing their vehicles with mutual funds broadly rather than making a more-precise comparison to index funds, which would make ETFs' advantages look much less impressive. "There is a wishy-washy picture being drawn," Mr. Dickson said.

Vanguard, the Malvern, Pa., company that pioneered passive investing a generation ago, has to walk a fine line. It has $650 billion in conventional index fund assets as well as $148 billion in ETF assets. In dollar terms, its ETF family was the fastest-growing in the U.S. last year, raking in $39 billion.

Mutual funds and ETFs risk generating tax bills for investors whenever they sell stocks in a fund's portfolio at a profit. Investors can be liable for taxes on those capital gains even though they themselves won't reap the benefit until they sell their fund shares. Index funds, both conventional index funds and ETFs, keep tax bills low in large part because they almost never trade.

ETFs do have an additional advantage. Because investors can trade ETF shares themselves, ETFs don't need to let small investors redeem fund shares for cash like conventional mutual funds do. Instead, ETFs deal with only large investors, and when these investors do redeem ETF shares, they get stocks in exchange for fund shares, not cash. Because of a quirk in the tax law, such exchanges don't prompt capital gains.

Yet as Vanguard likes to point out, conventional funds also can use this technique to unload shares, and sometimes do so with large investors like pension funds. Also, Vanguard's own ETFs and index funds are actually separate share classes of the same fund, so it can pass shares once bought by its index funds on to investors that are cashing out ETF shares. That means its conventional index funds can share any extra benefit enjoyed by its ETFs.

One recent study by fund researcher Morningstar Inc. found ETFs do have an edge in tax efficiency. Index funds that followed 27 different benchmarks across different stock-market categories distributed gains amounting to 2.5% of their value over a five-year span, compared with just 0.01% for ETFs, Morningstar found. Funds that tracked broad, turbulent areas of the stock market, such as small-company or emerging-markets stocks, were more likely to make distributions than funds that tracked large company U.S. stocks, said analyst Scott Burns.

Still Vanguard's own index funds are better than most. For instance, the $146 billion (trading symbol VTSMX) hasn't handed any capital gains to investors since 2000. The $55 billion (VEIEX) hasn't made a distribution since its inception in 1994.

"By and large, their index funds are as tax-efficient as ETFs," said Mr. Burns.