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New Xero UK app store
Xero App Store

Xero app store revamp ups commission rate

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Cloud accounting engine developer Xero flexed its marketing muscle this month with an app marketplace overhaul that increased the commission payable by app developers to 15%.

18th Aug 2021
Editor in Chief AccountingWEB
Columnist
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At the beginning of August, Xero unveiled a new-look app store designed, the company said, to provide “a new and easier way for small businesses and advisors to discover and buy apps for their business, while helping app partners grow on the Xero platform”.

Campbell McLean, general manager of the Xero App Store, explained in a YouTube video how the new store was going to make it easier for customers to buy the right apps to run their businesses.

“Essentially we’re playing a matchmaker, like Spotify does for music,” he said. “We created a app recommendation engine powered by machine learning. Second, we enhanced app reviews to be higher quality and more relevant. And we streamlined subscription and purchase management.”

The underlying motive

The matchmaking machine learning code draws on behaviours exhibited by similar businesses to offer search terms and selections that most closely match the likely needs of the user, he explained. The contributions of the “enhanced” app reviews are harder to gauge, but the real motive for the overhaul emerges pretty clearly from McLean’s final point.

As part of its overhaul Xero is taking direct control of the sales and subscription process of apps sold through its marketplace. And it’s going to take a bigger cut from developers for doing so by skimming off 15% of the app subscription for as long as the user pays for it via the App Store.

The 15% “referral share model” is in line with industry standards, Xero explained to developers and will give app partners a platform to grow, while also ensuring “Xero can realise the potential of this important part of our business”.

If the 15% of recurring revenue slaps the software partners who helped build Xero into a globe-spanning business app platform, other nuances in the app store may sharpen their misery. The sums earned and user ratings achieved via the app store will enable Xero to rank developers in a premium tier, and the rest. The strongest developers will be entitled to even more benefits and opportunities to work closely with Xero to accelerate growth, the memo to the developer explains, though these elements amount to a premium listing in the store, with a special badge and additional support from Xero staff.

The shark bites

The modern software industry leaves little room for the weak and Xero founder Rod Drury has been warning anyone who’s listening in recent years that the proliferation of apps was confusing users. Drury is no longer part of the day-to-day business, but with an ecosystem of more than 1,000 developers hanging on their coattails, Xero executives finally decided to raise the barriers to entry. 

The emergence of Xero’s inner predator came as a shock to many observers and app developers, but after a few days of crossfire on social media, a mood of resigned acceptance prevailed. In-house developers and start-ups with fewer than 25 customers will be exempt from the commission, and established companies will still be able to market their apps through other channels, so it’s not quite the appegeddon that many initially feared.

“Paying 15% of lifetime value for driving incremental new customers still offers plenty of room for profitable growth and is unlikely to be that unattractive compared to the cost of other acquisition channels,” commented David Tuck, who founded Chaser, the award-winning credit control app.

“It will be about whether the new app store drives a significantly greater number of new customers vs the old marketplace arrangement where they came for free.”

AccountingWEB member and 2020 community technology champion John Toon commented on LinkedIn: “From an accountant’s point of view, I'm not all that bothered about the changes, particularly if it makes signing up for apps/managing them a bit easier. 

“BUT my big issue, and this pre-dates the changes, is the idea that Xero is signposting apps to clients without any insight, like the kind we can provide. Additional apps are useless without proper process and implementation”

But if Xero takes a bigger slice of their revenue, app developers will no doubt review their own revenue models and profit margins, noted Jon Jenkins from Hindsight: “Who do you think will end up paying the additional fees? Vendors aren't going to suck it up.”

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