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Thanks Richard - really balanced and informative article.
For me, as indicated above, the biggest mystery in the user number wars is whether we are comparing like with like and certainly, in recent years, bulk discount deals for accountants, or the users of "lite"versions has made comparisons almost impossible. This is not new though, Iris would proclaim that it had tens of thousands of users of its commercial products, but I suspected this was fed by it buying up payroll providers and their users. Didn't mean it could service them or keep innovating.
Concentration on user numbers as a badge of success is lazy , after all I can put on weight very easily, it doesn't guarantee I'm fitter. It also generates a sheep-like response from potential customers, eg "Xero/QBO are the ones on the telly and tube, they must be the market leaders".
Accountants are not immune from this behaviour, especially if they have left it too long before getting involved. Not only have they been too busy to see what's up front, they have failed to see that Sage has been milking them for 30 years as the market leader.
Market leaders get there by using one or both of; 1. having a excellent (beautiful?) product and 2. spending loads on marketing. As many will know I have long accused Xero of getting where it has by concentrating on option 2.
I can't be the only one that sees it as perverse that for several years perhaps 70% of what I paid Xero went straight out the door on sales & marketing spend, so presumably (and sometimes obviously) not a lot on product development.
What compounds this perversity is that UK users represent only 17%-18% of the Xero empire, in other words it's likely that the majority of my money was splashed up a wall in another country?
I was a keen Xero user until I realised I was paying for this, although in those days it was their workshops to teach me (a 30 years practicing accountant) how to keep books, and then have to take a test, and then have to pile on users to get some discount and be awarded my bling bronze, silver etc badge and Xero "marketing collateral" all for what was basic bookkeeping software.
I've not used QBO enough to know whether it too is "beautiful" (eye/beholder) and it may be unfair to tar it/them with the same Xero brush, I don't know.
So, for me, a metric to add the Richard's list is how much of the subscription income is spent on software development and how much of that benefits UK law and practice.
PS: Xero's S&M spend in 2017 accounts = 56% of revenue
Paul the last time you wrote a comment like this, suggesting that success is somehow just a function of spending money on sales and marketing, you inspired me to write a blog post about it.
Which I'll re-link to here.
https://www.linkedin.com/pulse/underdogged-gary-turner
And also re-post for those not on LinkedIn...
UNDERDOGGED
I remember holding a view about fifteen years ago while presumably explaining to someone why I thought Sage was enjoying much more success than any of its competitors back in the late 90s (including me), that since Sage’s products were generally regarded not to be the best in the market then their success was somehow down to Sage just being better at marketing than anyone else. And it wasn't meant to be a compliment.
In the case of late 90s Sage I’m sure many of its competitors were exactly like me in taking a degree of moral offence at how a bunch of apparently downmarket and mediocre products could trump qualitatively better competitor products through the power of shady, slick, almost-witchcraft marketing. It was almost like Sage was cheating. And, of course, what better way to come to terms with your defeat at the hands of a competitor than to illegitimise their victory.
Sage was no doubt better at marketing and its products weren’t generally regarded as being outstanding but that isn’t the point. The point is underdogs often misjudge (wilfully or ignorantly) the factors that lie behind their lack of success relative to more successful competitors. And it's by thinking in this way that they actually double down on their under-doggedness and cement their ultimate failure - it's a cruel sort of self-unfufilling prophecy.
Unfortunately in the real world of business (not the fantasy one you’ve constructed in your head where you’re awesome and just unlucky) what tends to separate market leaders from everyone else isn’t simply better marketing because the truth is that more often than not it's better at almost everything that's the winning recipe.
Yes, sadly, this means that many visionary products and the visionary geniuses behind them will idle in market obscurity and failure while some good-enough competitor products will soar.
This notion of being better at almost everything can be described another way; great customer experience.
On YouTube there’s a grainy video recording of a Q&A session Steve Jobs held at the Apple developer conference few weeks after his return to an ailing Apple in 1997 - at the time Apple was about three months away from going under.
Amid a series of pretty mundane questions a member of the delegation chose to rather awkwardly challenge Jobs on his decision to kill off a product line that judging by the contempt in his tone, the audience member was presumably very fond of.
Jobs justified his decision by explaining the concept of customer experience, possibly for the first time in the recent era, and about why starting with the customer and not just with your technically great product or idea was the path to success. It’s a great clip, you should watch it.
I see many products today that are technically speaking certainly good and sometimes even great. But most of them are destined to be underdogs because they’re being built from this narrowed, inside-out perspective of fixating on just the product or service, and not from the broader approach of striving to define and then deliver the best possible overall customer experience and working back from that.
To be fair, fixating on product is a perilously easy trap to fall into because we instinctively address and engage the market precisely through our product or service - they're the most obvious and often most tangible touch-points between a business and its customers.
But then everything else; service delivery, quality, sales, forecasting, marketing, design, brand, management, planning, coaching, hiring, employee engagement, strategy, PR, funding - all the other important touch-points between a business and its customers' experience just become secondary, tertiary or even non-existent disciplines inside your business.
And you know the rest.
Gary Turner
Managing Director, Xero
@garyturner
Gary, Firstly thank you for directing me to the Steve Job’s recording. Priceless.
However, how many accounting software developers have followed the example?
The developers seemed keen to be the first to release a “Making Tax Digital” App. Customers don’t know what they want yet; we’ve not seen the final specification. It’s a shame their directors didn’t learn from the video clip.
I think with customer experience – first impressions are very important. Is it easy to use and does it do what I want? You load the trial software and are met by a wealth of object, links and graphs all cluttering up the desktop. They are there because the developer could put it there. At this point your first question is intuitively answered. Your enthusiasm for the second is diminished; sometimes you persevere only to have your, by then limited expectations, dashed.
Yes there are some good and some not so good accounting software available. Everyone that uses any software are generally content with it otherwise they would not use it. You pay your money; you make your choice.
I am sure you remember those job advert that said “must have experience in XYZ” and I remember posting a similar one that said “We use ABC; no experience necessary.”
With regard to cloud based solutions they undoubtedly have their place; many embrace it; many are cautious.
If the following quote is correct..
[At the Thomson Reuters Synergy event in May, Gary Turner explained that the Xero database holds 10m different chart of accounts codes. “It’s like the wild west - completely unstructured,” he said. “You can see where the controller brought in the system they’ve previously used and all kinds of multi-segment codes, departments and so on.”]
.. then those cautious have every right to be. What other data from your customer database are you accessing; and who are you sharing that with? Okay, you do not and a Chart of Accounts is less sensitive but a precedent has been set.
Unfortunately this does not help the customer experience.
Accounting software is a tool that we can use. I am sure I’ll revisit the packages on offer again before too long. Let’s hope Steve Job’s thinking is evident.
Best regards
@D V Fields
These two statements obviously appear together in the article and are related but are actually not directly connected with each other.
The quotation “You can see where the controller brought in the system they’ve previously used and all kinds of multi-segment codes, departments and so on." was an anecdotal remark informed through insights obtained by speaking with accountants, and from own personal experience of working with countless financial directors over the years.
Emphatically not that we "see" it by looking at actual customer data.
Gary Turner
Managing Director, Xero
@garyturner
@D V Fields
These two statements obviously appear together in the article and are related but are actually not directly connected with each other.
The quotation “You can see where the controller brought in the system they’ve previously used and all kinds of multi-segment codes, departments and so on." was an anecdotal remark informed through insights obtained by speaking with accountants, and from own personal experience of working with countless financial directors over the years.
Emphatically not that we "see" it by looking at actual customer data.
Gary Turner
Managing Director, Xero
@garyturner
Good to hear. Sadly I would agree with your anecdotal remark; although making mistakes is a good way to learn. Thank you for the reply.
Dave
Hi Gary
Yes, I got the message from your blog but it didn’t change my opinion. Sage was the innovator of computerised bookkeeping and so, like many innovators, made the money and profits early on to keep itself there even when it became stale. It also only really had one serious competitor, you have a couple of dozen.
What your comments fail to recognise, and maybe this is easier to see from the user’s end, is that once you’ve hooked a user and keep congratulating them on using the best software out there, they feel a warm glow and have no real incentive to look about and realise that they are using stale software.
I am not saying that Xero is at the same stage, just that it’s giving all the warning signs of heading in that direction.
In my post above I was not suggesting that “success" is a function of S&M spend, rather I was talking about subscriber numbers, i.e. the theme of Richard’s article, did you read it? Inadvertently I seem to have facilitated you taking the thread off down a different path, do you have any comments on his observations or questions?
You and, as I say, many others, conflate success with subscriber numbers, but if you continuously produces losses (to a great extent by spending on S&M) are you really successful? Is the top line really all that you look at? As Richard asks, how about other metrics?
Your blog does talk about a bigger picture and the user experience, but then this is subjective, if I had only ever used Xero (and you told me often enough) I could see myself giving you a high user experience mark, but then I sat in front of one or two of your competitors and other cloud software.
Does it not matter to you that your excellent marketing may be collecting sheep, and should it not matter to the sheep that the ram might have a bad day and decide to leap off a cliff?
As a user, I want reliable, easy to use software that is going to be around long term, innovates when legislation and technology changes, offers UK phone support to me and my clients, doesn’t overcharge me and, if it becomes a market leader, doesn’t milk me by stagnating. From my experience Xero is reliable but on most of the rest, it’s average.
To me therefore, on their own, subscriber numbers are pretty irrelevant.
I didn't contribute to this article, had I done I would definitely have pointed to other measures of success besides subscriber numbers.
However, subscriber numbers are so often used because they are an obvious proxy for adoption, (and not just in accounting software) and a measure of growth over time and they also imply revenue. In the case of a subscription based business model like SaaS, they're also an indicator of long term future revenue, but obviously average revenue per user is a dimension of that, too.
I'd be happy to go into a lot of depth about the measures that Xero uses to measure its progress, but rather than burden this thread, I'd point out to anyone motivated to find out more that that we regularly produce public reports and presentations on those on the Investors section of our website.
Your point about losses is a good one, and clearly our intention is not to continue to produce losses, in fact we're projecting that cashflow break even is now around the corner for Xero as an important milestone on that journey.
"Does it not matter to you that your excellent marketing may be collecting sheep..." doesn't speak very highly of your opinion of thousands of discerning fellow accountants.
As I think I've said on here many times before, it's a free country and I fully accept that Xero isn't for everyone, and not least it's not for you.
Gary Turner
Managing Director, Xero
@garyturner
@Paul - just because 56% of revenue has been spent on marketing it doesn't necessarily follow that 56% of effort has been spent on it.
The same applies to product development - while the monetary spend may be considerably less, the functionality has seen massive increases in the last 12-18 months.
Fortunately (?) I left practice in 1995 and started again in 2011. In between I had very little exposure to Sage, my experience was of large organisation ERP type systems most of which were bespoke.
I was horrified when I discovered Sage which in my opinion was (and still is) a dreadful product - I speak from the point of view of a non accountant business owner.
One of the key drivers in starting my practice was to find an online accounting software product which could allow me to support clients. Back in 2010 when I first came across it, Xero was in its infancy but it immediately struck a cord with me and how it could help me start and grow a practice grow. Its one of the main reasons I did.
Since then I have looked at and tried other software - QBO, FreeAgent, Kashflow, Liquid Accounts (whatever happened to that?). Every time I've come back to Xero because IMO its the easiest and most intuitive for clients to pick up.
Since 2010 the software has evolved into a product which can become the centre piece of a business - with the huge number of add on products which massively simplify and improve a business owners business operations.
What is overlooked in the numbers is the starting position. QB and Sage had a huge desktop user base, and I expect a large number of these converted to cloud.
Xero started from scratch - all new business.
For those practitioners who aren't saddled with a QB/Sage employment history I see Xero as the most attractive option - yes some of that may be down to the marketing - but then whats wrong with that...
Hi KA
I have no argument with you over your decisions and policies, unlike others, who go just with the marketing, you have done the groundwork and Xero suits the way that you and your clients work.
This is not my experience, but every practices client base is different, and certainly, having tried them, my inexperienced clients found other products easier to learn and stay with, Xero has most of the features you and I would want from bookkeeping, but not all users want them all on screen at the same time, and some may never need them.
Similarly with add-ons, yes there will be many businesses that value them but, when talking to lots of accountants most end up with the handful or two offered by most of the vendors. Still a list of 300-400 does make good copy. They are however important when coming the other way, ie I use App Z in my business now I need bookkeeping that links to it.
Where I also differ is in product development, my experience has been that if a feature needs fixing or improving a UK vendor is probably able to initiate it within weeks or months, whereas from a vendor having to support international features and compliance, you can be talking years.
When I started working with CB over three years ago, I drew up a list of comparable features between CB and Xero and, I'll be honest, was surprised to see that, with some exceptions, CB "out featured" Xero. When I checked back two years later Xero had caught up (it had even managed, after years of complaints, to be VAT compliant), yet, if you'd read the marketing you'd see Xero as the feature leader.
So I suppose my concern is not only with Sage II as described to Gary above, but is political, it's why we limit our political parties in what they can spend on their marketing, yes, in the West, image is everything and, if you have the money, you can outspend and conquer all, but doesn't mean it reflects reality.
Talking of being stale, I am, it's getting boring now, semi-retirement has finally reached my interest in Cloud accounting, back to the gardening and DIY
PS: Absolutely on the final accounts thing, not sure but I even think CB may have beaten Xero in telling its users why it wasn't continuing with its project.
Oh and to those who often gripe about Xero's 'promise' about a statutory accounts offering not happening, I would say (to Xero) don't bother with it...
... the collaboration with statutory accounts vendors (Digita, BTC etc) means this is not necessary - a waste of time, far better to spend resources on further (useful) product development.
Got to be a lot of fluff in these figures, certainly in the Sage numbers.
I would imagine most of their users are UK based so of their 310k users 80% must in UK so that would make them no 1 cloud provider in UK when clearly Xero and Qbo are ahead of them numbers wise. I wonder how many ghost licences are included in them.
They signed me up a 50 licence cash book deal which costs 10 quid and gets you listed as an advisor on their website but very rarely come across any Sageone users and I operate in North East where it sued to dominate.
There are still a lot of users of Sage 50 who have not moved onto Sage cloud products at all.
I would be suprised if Sageone is bigger than Freeagent TBH.
Having a small business, a wife, child and 2 dogs keeps me busy enough not to worry about what others spend the subscription fees on as long as the product does the job as sold then I am happy with it.
Although in the cloud market place I am becoming increasingly annoyed at those providers that sell a product at a level way beyond what it delivers in the hope they can fill the gap before you get fed up and look elsewhere.