Hamish Fletcher

Business reporter for the NZ Herald

Accounting software rivals in a race to find soft landing in the cloud

Both Xero and MYOB specialise in accounting software, a universe which is increasingly unplugged from desktop computers and where the books are balanced in the cloud. Photos / Glenn Taylor, Supplied
Both Xero and MYOB specialise in accounting software, a universe which is increasingly unplugged from desktop computers and where the books are balanced in the cloud. Photos / Glenn Taylor, Supplied

A struggle is raging for the hearts, minds and pockets of New Zealand small businesses and their bookkeepers.

In one corner is Rod Drury's Xero, a firm whose rocketing share price turned many a head last year.

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In the other is MYOB, an Australasian company set up in 1991 by Craig Winkler, who in 2009 joined Xero's board and bought $18 million of its shares.

Both companies specialise in accounting software, a universe which is increasingly unplugged from desktop computers and where the books are balanced in the cloud.

Cloud computing, a buzzword for at least the last half-decade, involves information being stored and applications being accessed over the internet rather than from just one machine, device or network.

Xero is a cloud native and from its 2006 launch has offered only online-based products. It has since snared more than 90,000 local customers.

MYOB came later to the game and only 35 per cent of its paying customers in New Zealand are on cloud products.

However, more than 50 per cent of new customers are picking the web-based option, and a piece of MYOB's software, which about 40 per cent of its customers use, is also launching into the cloud in May.

"We've really crossed the chasm from being a desktop provider to a cloud-accounting provider," MYOB boss Tim Reed said this week, giving the company's annual result.

While MYOB is making fresh forays into the cloud, Drury says Xero has proven it has beaten this regional rival.

"MYOB hasn't really delivered on the cloud and we're well ahead," Drury said of the company last month.

Reed, however, insists his company is not playing catch-up.

"We've been in this market for two and a half decades we have always had competition, and we always will," Reed said last month after the MYOB Roadshow in Auckland.

"In terms of how do I see us against Xero? We have a more complete solution that covers the needs of more businesses and more fully covers the needs of accountants in practice."

Xero's focus is on smaller businesses, while Reed says MYOB has software for those from micro-businesses to small-enterprises.

MYOB's small-enterprise accounting product is not yet in the cloud, but this is in the pipeline.

"Stay tuned", was all that Reed would say on the timing. Reed's view is that all companies will eventually use cloud-based products, even though right now less than 20 per cent of small New Zealand businesses are using them.

"What we've seen is the adoption start with the smallest businesses. Cloud accounting is something which is led by small businesses and is progressing up into larger and larger businesses. Our view is in time, all businesses will run cloud-based applications for most of their business solutions," he said.

Who will dominate this brave new world of cloud-accounting? Technology entrepreneur and investor Lance Wiggs says MYOB has "upped their game", but fundamentally couldn't cope "with the fact Xero has completely disrupted the industry".

"Xero is just a different way of doing business and cloud-accounting is the tool they're using to do business but I'm not sure MYOB understand that [Xero] really completely changed the game ... it's very, very hard for MYOB to catch up," says Wiggs, who does not own any shares in NZX-listed Xero.

Wiggs says it's not just Xero, but the whole eco-system that has built up around it which is ahead.

"If you're a developer developing a new point-of-sale system ... you link to Xero and MYOB is an afterthought. If you're a new business setting up, it would be an extraordinary decision, in my experience from the new businesses I know, to choose MYOB. It would be seen as quite bizarre," Wiggs says.

While Xero did have a weakness with larger businesses like manufacturers, the company's partners were working on sorting that out.

"I think if I was MYOB I would be feeling like I'm being attacked from all corners. Realistically they're three to five years behind a very fast-moving player and no matter how good they are it's just going to be extraordinarily difficult to catch up," Wiggs says.

"So they may end up with a piece of the market in New Zealand, but I think it's pretty clear that Xero's going to dominate in this space."

Technology investor and commentator Ben Kepes - who has previously advised both Xero and MYOB - said it wasn't "game-over" for the Melbourne-based accounting software company.

"But it's hard to see Xero's growth not continuing apace. And what that means on a corporate basis for MYOB in terms of its private equity owners remains to be seen," Kepes said.

"They're not going to want to keep investing in something that they might consider a dead duck."

Asked if MYOB's small-enterprise software EXO going to the cloud could change things, Kepes said: "Potentially. The problem is there's not a huge mid-size enterprise market in Australia and New Zealand.

"Not enough to prop [MYOB] up as a business ... it's hard to see how they're going to keep up with Xero's momentum, to be honest."


Plans for the NZ market in 2014

Xero

Xero's New Zealand general manager Amanda Armstrong says one of the company's focuses in New Zealand this year is farming.

"We're going to be launching 'farming in the cloud'. Xero's going to be focusing on accounting and driving better industry collaboration ... there's a lot of farming software out there, our aim is to partner as many of those [products] as possible," Armstrong says.

She says farmers will have their own software and the data and financial information from this will be a different version to what banks or accountants can view.

The aim of farming in the cloud is bringing that information "together in real-time and really lift the rural sector", she says.

Armstrong says this year Xero also wants to strengthen relationships with "big corporates" and Government.

"For example, a service provider like Mercury Energy, what we see is an opportunity to have those invoices flow straight through to Xero and pay out of Xero," she says.

"It's just about creating better efficiencies and making sure that we're connecting businesses in a away that have never been connected before."


MYOB

MYOB chief executive Tim Reed says the company is focused on making "cloud-accounting easy for every business".

"With [cloud-accounting] penetration where it is - some 10 per cent in Australia, some 20 per cent in New Zealand - what's holding it back? What will really accelerate the growth of the market is making it easy," Reed says.

MYOB is also putting its attention on mobile products and has a number of launches lined up this year, including mobile software for accountants and a mobile payment option for business.

MYOB PayDirect is a mobile app that enables businesses to take payments and send receipts from a smartphone.

This involves connecting a card reader to a smartphone or tablet to take credit card payments, with Eftpos integration expected later this year.

The company is also rebranding and relaunching existing products.

- NZ Herald

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