Sunday, March 9, 2014

Xero and Intuit : Its more than just the numbers

Posted on 9:09 AM by Unknown

Margaret Carey for Cloud Accounting Buzz writes:   The numbers make for interesting reading. On February 20th Intuit announced its second quarter results which showed that there are now 561,000 paying customers worldwide using QuickBooksOnline (QBO) cloud accounting software and that 45,000 of those were added in the last quarter. Meanwhile Xero has announced that globally it has 250,000 customers, approximately 100,000 or 40% of these are in Australia – the remainder mainly in New Zealand (its birthpace), US or UK. Xero also advised that it is adding 200-300 new customers a day which equates to around 78,000 a year. So Intuit is out[pacing Xero in both the total number of customers and the acquisition rate.
Chris Repetto Director of Corporate Communications at Intuit provided additional breakdown of QBO new customers – approximately 70% of these came from outside the world of Intuit – i.e. start-up businesses, businesses migrating from a shoe box/spreadsheet system, or migrating from another software product. The remaining 30% migrated from the QuickBooks desktop software. Further review of Intuit’s published figures indicate that around 90% of its customers are US-based and the remaining 10% mostly from Canada, UK, Australia and India. Extrapolating this out, it means that of the 45,000 new QBO customers last quarter some 28,000 of them were new US-based customers. So even excluding the customers converting from desktop – QBO is outpacing Xero in the US.
There is more to it than just numbers. Intuit has long been a dominant player in the small business accounting software world in the US and has both a high level of brand awareness and accountant participation giving it an edge over Xero there.
Xero arrived unknown to the shores of Australia some six years ago and using the disruptive marketing techniques for which it is now well known, caught the dominant Australian software company, MYOB off guard. MYOB was not ready to launch a major cloud offensive (although MYOB Live Accounts made a small splash) and Xero was able to effectively woo accountants by selling the benefits of a cloud solution with its collaboration and single ledger and take market share from MYOB.
Having refined these techniques in Australia, Xero was ready to make a move on the US market. However, this time the dominant player was not caught napping. Intuit quickly recognised the threat from Xero and virtually disrupted itself before Xero could do so. QBO had been on the US market for around 10 years before Xero came along  and as there were many similarities with the desktop product transition was relatively easy making it a possible option. However the user interface was cumbersome, inconsistent, disorganised and out dated. You had to be really committed to want to use it. Intuit quickly recognised these issues could be exploited by Xero and set about overhauling the interface and last October, released the new user interface which overnight transformed the product into being easy to use, vibrant and interesting.
So last quarter with the release of the new interface, about 13,500 existing Intuit customers who could well have migrated to Xero, instead migrated from QuickBooks desktop to the revitalised QBO and a further 31,500 new Intuit customers started to use QBO – validating the strategy. So whilst there is some robbing of Peter to pay Paul, it means that overall not only do existing customers stay with Intuit but it also confirms that Intuit can attract new customers at an increasing rate  . (Previous quarters the increase in QBO customers had been around 28,000 -29,000 per quarter) Just as an aside, there wasn’t a commensurate increase in QBO revenue in the last quarter – the increase was pretty much the same as previous quarters – maybe due to price discounting in a period when Xero generally increased its subscription costs
It doesn’t look as though Xero will make the same waves in the US as it has in Australia partly because Intuit met the challenge there much more quickly than MYOB did in Australia but also because of the size of the US market where there is a lot more scope for multiple players. Intuit is now firmly entrenched in Australia. I don’t know how the numbers of QBO users here compare with Xero’s 100,000 but it QBO certainly gaining traction here (partly at least due to extensive price discounting.) It will be interesting to see if Australia is ready for another round of disruption or if Intuit will use other techniques here where brand awareness and product familiarity is limited.
I am off on holiday for five weeks – (roadtesting the anywhere concept of cloud accounting while I am visiting  Ethiopia) so I will be off the air for a few weeks but hopefully keeping up with developments. [END] 
You can Follow Margaret Carey on Twitter:  @margaretcarey and @CloudAcctsToday
COMMENTS - To Comment Visit Margaret Carey's Site, a sampling of the comments are below


“Margaret,
Love the article, loved meeting you last fall, and hope I get to see you again soon!
You mention that the QB desktop to QBO migration is “robbing Peter to pay Paul”. I’ve seen it described in other articles and online comments as “cannibalizing” the desktop customers. I have to respectfully disagree with this, and here’s why.
I’ve had a bookkeeping/payroll/consulting practice for 10 years now, and I work solely with QuickBooks clients. I support the windows versions: Pro/Premier/Enterprise as well as Mac and QBO. What I see so much is businesses that buy QB Pro for about $150 USD. Many of these businesses will keep that software as long as they can – which can be well beyond the time Intuit sunsets that year version. (Case in point, I upgraded a client in 2012 from QB 2001 to Enterprise 2012).
Intuit’s income from this customer between 2001-2011: $150 USD
If that client had been using QBO, at the highest subscription (we’ll use today’s option, QBO Plus at $39.95 USD/mo), Intuit’s income from this customer between 2001-2011 would have been $4794 USD.
If were Intuit, I’d want EVERY QuickBooks desktop client to convert to QBO.
Well, even though I’m not, I still want that!!”
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“Its interesting though (to me at least) to also note the continued strong growth of QBES (around 20%) albeit from a much smaller base – QBO (and QB Pro for that matter if that’s the close equivalent) does not meet every ones needs and for many Intuit customers – particularly the larger, more complex SMBs – moving to “the cloud” is not an easy option when all the required functionality is considered. In many cases, the “the rise of the virtual machine” aka private hosted VMs is a way people, reliant on QB Desktop can get many of the benefits of being “cloud based” without migrating to a true SaaS product such as QBO or Xero.
IMO, Intuit is focussed on growing the business and as a part of that – the lifetime value (& longevity) of a customer. You’re quite correct in that QBO delivers higher LTV than Pro to Intuit and its apparent that they prefer as a business model, stable recurring revenue streams and this is easier to achieve with a SaaS product. In the case of QBES, the FSP delivers this to some degree though not all customers subscribe to this of course. To some degree I think a simple analogy to the cloud/desktop cannibalization debate is like a car maker who introduces a new hybrid option alongside the traditional gas model. Sure there will be customers who buy the Hybrid and maybe gas model sales growth declines but the car maker probably cares more about total model sales and less about the split until such time as it makes no sense to continue to sell & support the gas model. For both gas powered vehicles and QB desktop – I reckon (no pun intended) that time is a long way off.”
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“Major error, acquisition rate of 200-300 is for Australian xero only ! Xero are growing at 70 percent plus per annum .globally….. Do the math and correct this article. It’s neck and neck on customer acquisition rates”.
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