Xro - xero

[winner69]

If Groupon is worth US$15 billion Xero must be worth NZ$1 billion .... at least it does something constructive for people

[The BOWMAN]

If Groupon is worth US$15 billion Xero must be worth NZ$1 billion .... at least it does something constructive for people

You can't compare them. Web sites like Groupon or Facebook is the similar sort of deal in terms of value. They collect a vast amount of human information, i.e. a massive user base. The value lies within the data. They may not be able to make money directly out of their web site today but all that is required is to come up with ideas to make massive amount of money based on the data.

On the other hand, Xero is very limited and straight forward. Cost of building and maintaining the application against the revenue collected from the small number of clients using the service. Maybe more tangible business model but not much potential really. It is one of those High Tech ideas that may become successful but will never become miracle.

[Stranger_Danger]

Remember when eforce, advantage, commsoft, IT Capital (enjoying the trip down memory lane?) etc etc were "worth" XXX because Amazon and Yahoo were worth many times XXX?

What a bull**** way of "valuing" things.

[CJ]

You can't compare them. Web sites like Groupon or Facebook is the similar sort of deal in terms of value. They collect a vast amount of human information, i.e. a massive user base. The value lies within the data. They may not be able to make money directly out of their web site today but all that is required is to come up with ideas to make massive amount of money based on the data.

On the other hand, Xero is very limited and straight forward. Cost of building and maintaining the application against the revenue collected from the small number of clients using the service. Maybe more tangible business model but not much potential really. It is one of those High Tech ideas that may become successful but will never become miracle.

Xero also has a large amount of data. Mint was profitable even with no subscriber fees because of the way it mined its data (and got referal income)

[Stranger_Danger]

Yeah but does data mining/targeted ads work with paid accounting software?

Do I want a banner ad promoting my competitor who is trying to sell me the same product as one I sell, who by placing the ad clearly has a relationship with the person who holds my accounting data and, when I'm doing my accounting?

Playing devils advocate as always, but you'd want to do it carefully.

[winner69]

The point of bringing Groupon into the discussion was to say (like 10 years ago) the traditional valuation methods don't apply anymore

Groupon revenues less than $500m and punters saying it is worth $15 billion .... 30 times sales .... and some of you guys say that it could be all over for them in a year or so when the next social media fad comes along

Never mind .... if punters think Groupon is worth that and that XRO is worth nearly $300m than they must be right .... who i am to question the masses

[CJ]

Yeah but does data mining/targeted ads work with paid accounting software?

Do I want a banner ad promoting my competitor who is trying to sell me the same product as one I sell, who by placing the ad clearly has a relationship with the person who holds my accounting data and, when I'm doing my accounting?

Playing devils advocate as always, but you'd want to do it carefully.

I am not sure exactly how Mint worked but I beleive it offered recommendations (ie. if you change to this credit card, you would save $x on fees and $y on interest). It didn't recommend changing to MYOB. This is obvoiusly an ability Xero would have as it is not tied to a bank (exept BNZ with their personal product) wheras you would be sincial if Heaps (Kiwibank) or ASB's version gave a similar recommendation.

So a company (Contact energy) could go to Xero and say if you have any customers that pay more than $x for a product (electricity), it could get Xero to offer it at $x-1. The company (Contact) wouldn't get the details unless the Xero customer responded to the ad. Xero customers would go to the 'deals page' as they know that any ad in there has already been pre-screened to ensure that it is actually a discount to the customer. It doesn't sell anything additional, just a product or service that the customer already buys and is paying to much for.

[futurist]

It is quite surprising the level of understanding about software business differs so much these days. To put it in the simplest way, Xero is an online service which does not benefit from network effect as much as Google Search, Facebook, Twitter or Groupon, even though it was developed around the same era.

If you look at the history of software business, service-oriented software exists for a very long time and so moving it from desktop to cloud does not change its nature and certainly it is not a new idea at all. Web 2.0 beasts are no longer new neither but they have more potentials because at the core they are designed to become better by just having more users.

Another important point is that most successful Web 2.0 companies were started and are still run by technologists. Of course they get the help from VC in terms of fundings and business strategies but it is never the other way round. Money is not and should not be the issue to begin with, it is all about solving problem. Therefore it is more common for them to become a listed company only after they become successful in terms of adoption. It is because when you get certain millions of users, it is harder for your competitors to compete with you because you get help from those million of users for the ongoing innovation and development of the product/service as well. For example, Twitter's usage of @ and # are all user innovations, not originally designed by the company.

Okay let's go back to Xero. Maybe it is really useful and valuable to some people, but in its current format it is not a Web 2.0 company. What about the software itself? It is not complex enough that could monopolize the market I guess. Also I could understand about having personal data being mined when I am using some free services like Google Search and Facebook, but I am not sure if I would agree to that if I am paying for a service to deal with my accounting needs.

What is good about Xero in my opinion is its publicity right now, and apparently many people believe in it enough to invest. So there are potentials for it to change. However if all their efforts are spent on marketing the software to more countries but not on R&D, then they are just waiting for the day when two dropouts from university decide to build a similar service and just let people use for free to come.

[gregrday]

Hi guys, my 2c...
@Stranger_danger, comparitive valuations is a recognised method of valuing companies. Its up to you to work out exactly how apple and orange-like everything is and weight the valuation accordingly.

@futurist, I agree with most of your points, particularly, network effect, and SaaS not being such a 'new' beast. However, I think you are selling Xero a little short in that I very much doubt '2 dropouts from uni could build a similar service...'. Software is much more complicated than that, so I think there is a bit of moat that Xero has, assuming it can beat the competition, who will have a similar moat.

I think the Peter Thiel investment is incredibly important for Xero, but there is still a massive way to go. At the moment, @winner69 has it right in that its hard to argue with the masses! My own feeling is that Xero is significantly overvalued right now (although obviously better than last week!).

cheers
Greg

[futurist]

@futurist, I agree with most of your points, particularly, network effect, and SaaS not being such a 'new' beast. However, I think you are selling Xero a little short in that I very much doubt '2 dropouts from uni could build a similar service...'. Software is much more complicated than that, so I think there is a bit of moat that Xero has, assuming it can beat the competition, who will have a similar moat.

I think the Peter Thiel investment is incredibly important for Xero, but there is still a massive way to go. At the moment, @winner69 has it right in that its hard to argue with the masses! My own feeling is that Xero is significantly overvalued right now (although obviously better than last week!).

cheers
Greg

I agree that some software could be complex, like the infamous ERP system could take hundreds of consultants working on it for years. But when I was talking about Xero I implicitly take the view that Xero is no where near that kind of complexity, or it needs to be. Don't underestimate what 2 dropouts from uni could do - Microsoft DOS, Google Search etc, because they see the world of IT very different from the rest. Statistically speaking amazing software innovations are mostly created by relatively young technologists, not mature business savvy people (with only very few exceptions). Academically this is called learning bias, when some expert is too good at what they know, they couldn't really learn anything new outside their domain and so at best they could only achieve incremental innovation, not the game changing radical innovation.

Could anything accurately describe or define what Google, Amazon, Facebook or Twitter is? The reason we find it difficult is because they could always be more than what we think based on their technological potentials. What about Xero? Maybe the first thing in their CEO's mind is to make sure people know exactly what Xero is, and that is exactly why it is not amazing at all.