Monday, December 1, 2014

David Versus Goliath--Xero And Intuit Provide Enough Fireworks For A 4th Of July Show

Ben Kepes for Forbes writes:    A common refrain from young companies is that they’re set to disrupt an incumbent vendor. While this is an attractive and headline-grabbing statement to make, disruption is far more nuanced than that. Disruption occurs when a moribund industry or vendor is unable or unwilling to react to market and industry forces – AirBnb disrupting hotel chains, Uber disrupting taxi companies and Netflix NFLX -2.62% disrupting Blockbuster are all examples of this. Cloud accounting vendor Xero has pitched itself as a disruptor of US incumbent Intuit but a recent piece of analysis by Australian commentator Sholto Macpherson questions their ability to execute.

A quick summary of the status quo is in order here. Xero, a New Zealand headquartered but globally focused company, was founded back in 2006 and, unusually for a startup, immediately listed on theNew Zealand stock exchange. It quickly proceeded to make serious inroads in the New Zealand and Australian markets, primarily because the incumbent vendor in that region, MYOB was blind to the threat that cloud software created. Gaining a significant proportion of its home markets relatively rapidly, Xero always posited itself as the heir apparent in the US market as well.
Which is where things get interesting. Until a year or two ago, there was general acceptance that Intuit INTU +2.01% in general, and its QuickBooks small and medium sized business products in particular, lacked and real awareness of the cloud. They had made a few stumbled forays into building an ecosystem of third party partners, but nothing had really struck. Fast forward to today though and things are very different. Intuits 1st quarter reports told the story of a vendor that was starting to execute on a massive turnaround. From the release, Intuit:
  • Delivered total company revenue of $672 million, up 8 percent, driven by the ongoing acceleration to the cloud.
  • Grew total QuickBooks Online subscribers by 43 percent to 739,000, up from 40 percent growth in the previous quarter.
  • Increased QuickBooks Online subscribers outside of the U.S. by more than 170 percent, to 103,000, further accelerating from last quarter.
  • Finished the fiscal quarter with cash and investments of $1.6 billion
  • Small business online ecosystem revenue grew 30 percent, with customer acquisition continuing to drive growth. QuickBooks desktop ecosystem revenue declined 2 percent, in line with expectations, as the focus continues to shift to QuickBooks Online.
  • QuickBooks total paying customers grew 22 percent.
  • Online payments charge volume grew 22 percent, driven by an increase in charge volume per customer.
  • Online payroll customers grew 24 percent, and full-service payroll customers nearly doubled.
  • Demandforce customers grew 27 percent.


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