David vs. Goliath: The Cloud Computing Battle in Accounting

a big french bulldog and small tiny chihuahua dog looking at each otherTake David vs. Goliath for instance or longshot Rocky Balboa taking on the heavyweight champ in the Rocky movie franchise.
In business the little guy can often win when he takes on the giant in a moribund industry or when the bigger competitor is unable or unwilling to react to market and industry forces.
Recent examples include Uber taking on the traditional taxi business and Netflix going up against Blockbuster Video and winning.
And in the accounting software realm we have younger and smaller upstart Xero taking on accounting giant Intuit for dominance in the accounting software and online bookkeeping market.
Who will win this tussle? The battle so far has proved very interesting.
Founded in 2006 and head quartered in New Zealand,  Xero made serious inroads in the New Zealand and Australian markets in a relatively short time.
Xero is hoping to do the same and capture the big U.S. market and do it quickly.

Intuit embraces cloud computing

Xero’s target, Intuit, did indeed look vulnerable in the cloud accounting space until a year or two ago. In accounting circles many thought that Intuit and its QuickBooks small and medium sized business products in particular, lacked any real awareness of the cloud.
However, times change and Intuit’s 1st quarter financial reports from this year tells a different story.
Some of the figures from this release:

  • Revenue of $672 million, up 8%, driven by the ongoing acceleration to the cloud
  • Grew total QuickBooks Online subscribers by 43% to 739,000, up from 40% growth in the previous quarter
  • Increased QuickBooks Online subscribers outside of the U.S. by more than 170%, to 103,000, further accelerating from last quarter
  • Small business online ecosystem revenue grew 30%, with customer acquisition continuing to drive growth. QuickBooks desktop ecosystem revenue declined 2%, in line with expectations, as the focus continues to shift to QuickBooks Online
  • QuickBooks total paying customers grew 22%
  • Online payroll customers grew 24%, and full-service payroll customers nearly doubled

It would seem that Intuit is making the move from a desktop paradigm to a cloud paradigm rather well. And it is managing to build its customer base at the same time, all in a relatively short period.

Hard for Xero to win accounting software and online bookkeeping battle

An analysis by Australian commentator Sholto Macpherson also questions Xero’s ability to achieve U.S. market dominance in such a short time.
Among his reasons:

  1. The US has 50 state agencies that levy their own sales tax and a federal agency with a separate set of rules. This makes the US tax system is an order of magnitude more complex than Australia and New Zealand which have one central taxation authority… A more complex tax system means that it takes a lot longer to write code that automates those rules. Automation of the accounting process is a key goal for online accounting programs, so Xero must either take a long time to develop the software or spend a lot of money to make it happen faster.
  2. Intuit is far bigger and stronger (US$4 billion in revenue, 8,000 employees) than any competitor Xero has faced to date . It woke up to Xero well before it arrived on American shores.
  3. In terms of core functionality, Intuit may be playing catch-up but it’s doing a good job of plugging holes with smart integrations.
  4. Intuit is profitable by US$850 million dollars each year. Xero has US$150 million in the bank and is burning through about US$15 million a quarter.

As Macpherson adds:
“The blitzkrieg 2.0 ain’t going to happen. This is going to be a long and expensive siege of half a decade at least with no guarantees that Xero will threaten Intuit’s hold long term.”
From our perspective, the jury is still out on Xero. The product looks fine, but doesn’t seem to offer enough compelling features for us to consider changing. Who knows what the future will bring? But for now, we will continue to support ONLY QuickBooks and Sage for our bookkeeping clients – two products we know can do the job.
Are you aware of Xero and its products? Who do you think will win this accounting war? We always appreciate your comments and feedback.
Copyright: damedeeso / 123RF Stock Photo

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Juliet Aurora

Juliet Aurora is the CEO of AIS Solutions and Co-Founder of Kninja Knetwork. Through both of these businesses she fulfills her mission to Educate and Empower those around her. In 2017, her firm was named Intuit's Global Firm of the Future, the first time the title has ever been awarded to any firm outside of the US. She has also has been named as one of the Top 50 Women in Accounting, one of the Top 50 Cloud Accountants and one of the Top 10 Canadian Influencers in the Bookkeeping Industry. Her passion for education is channeled through the Intuit Trainer Writer Network, hosting Kninja Knowledge Webinars and most recently, developing a Cloud Accounting Course for the next generation of accounting professionals.


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