Xro - xero

[Dentie]

The standard CFO just reports the numbers and sets budget at 10% above last year

For Xero their budgets must be pie in the sky stuff but measuring and figuring out what works and what doesn't, quickly would be very important.

Don't worry, once the steam starts to slow down, Rod'll announce another 100,000 have signed up and we'll be away again....until ...

[Toasty]

Not really! Those who got in early were the real smart money. As you can see before in previous posts people thought $3 was too high a price to pay. No one knows where the top is unfortunately.

It just seems like a total bubble and when people, including your waiter, start giving you analysis on the stock and say nothing but positive things about a company regardless of facts. That's when you start selling!

Everyone may have an opinion on Xero but my understanding is that its still a relatively small shareholder base. I sort of view the share holders as people who have bought into the growth philosophy and are happy to back the customer acquisition strategy. I sort of think that most of them have their eyes open and are treating this as the big speculative play in their portfolio. I bought in at about a 95 cent average share price and have sold enough to pay back my investment and make a small profit and have let the rest ride, to use a gambling analogy. I still freak out when I look at where it has gone but I can see the potential and I do actually realise that its not a sure thing.

[winner69]

Don't worry, once the steam starts to slow down, Rod'll announce another 100,000 have signed up and we'll be away again....until ...

Is that what is mean't by " There's a balance to achieve appropriate governance and simply arse covering and we are continually testing that balance" .... CFO quoted above

[maddog]

I've just been reading the Xero blog (http://blog.xero.com/2013/02/the-apps-second-act/) where their UK GM Gary Turner comments on his recent cull of apps on his iPhone. He decided to remove any apps he hadn't used in the previous month. Turner then realised that most of the remaining apps were free - apparently without any sense of irony or any insight into why this has happened. This issue has massive implication for Xero.

The fastest growing online accounting service is Canada's Wave (https://www.waveapps.com/). Launched two years ago they have 500,000 customers. Its a good product, maybe not as slick as Xero, but it has a key point of difference. Its free.

Quickbooks Online was recently introduced in Australia. Its also a good product. Again maybe not quite as slick as Xero but not far off it. Last week they dropped their prices by 40% - http://boxfreeit.com.au/category/c16-finance/ - and it now seems to offer a better value proposition.

Prices in the online accounting marketplace are only headed in one direction - down. I'm strongly of the view that Xero is currently on the wrong side of this equation and its business model is unsustainable.

The very nature of online delivery means there is continual competitive pressure to provide lower and lower prices. Great for customers but not great for those providing services unless they can monetise their customer base in some other way - and as Facebooks shows that's not easy.

Going back to Turner's blog. One person who has so far commented and said "I realised the other day that I no longer use any Apple apps on my iPhone except for the phone and camera apps."

Apple have the strongest brand in the world at the moment - and even they are losing out in the loyalty stakes.

The modern market is fickle. Xero has a few very strong advocates but I suspect many customers have little loyalty and are at risk if a better offer comes along.

The combination of downward pressure on prices and waning customer loyalty are real threats to Xero especially considering it is still burning cash at a great rate. It would have more room to move if it were profitable.

[CJ]

Like bottled water, why buy it when it's free? Only the suckers do that.

You buy bottled water when you are not sure of the quality of the free stuff. Even where the free stuff is probably fine but you dont want to take the risk.

If you travelled to Canada (where Wave is from), would you drink straight from the tap? Probably OK (do the locals even drink straight from the tap?) but I have been places I even brushed my teeth with bottled water.

However, Wave does seem like a viable product and for many small businesses it would be fine. They may even like the advertisements if they are truly targeted and provide real value. It is also backed by some big VC's so it should be around for a while is the main concern I would have if I choose to rely on it.

[CJ]

I am from Canada. And yes we drink from the tap. We aren't Third World.

My knowledge of Canada comes from American sitcoms - you guys dont get the best rap

[CJ]

Regardless of the stereo types I do like the analogy CJ. There does seem to be a pretty relevant parallel with DIL too. Correct me if I am wrong but DILs strongest point is the quality of their product, in particular the security they offer. Companies are willing to pay for that. XRO differentiates themselves from some of other the cheaper, even free competition in much the same way. They offer a superior product that seems to be well trusted and as a result people are willing to pay the dollars to get it. I suspect as well that Xero will be more concerned about the more established competion that they will be of Wave.

I have read with SAAS offerings, they normally offer a cheap plan and get very little take up - why. Because you never go to the boss and say we are buying the cheapest - you always buy the bset you can afford (similar to the saying - no one ever got fired for buying IBM).

If you worked for a company with a turn over of $5-10m, would you go to the boss suggesting Wave, a free product you found on the internet, or would you suggest Xero at ~$600 year, listed on the stock exchange (down the bottom of the world somewhere) and fully supported by a network of accountants, some who have even created their business to solely support it.

[Jay]

Wave does not have an inventory section either which would preclude quite a number of small business I would guess

[CJ]

Yup Exactly!

It cuts both ways though - In the US, would you suggest Inuit, a massive US company who has been doing it for decades, or a small company from NZ which has never made a profit.

[maddog]

CJ - just remember that most of Xero's customers and prospects aren't business with $5-$10m turnover with a boss to go and talk to. They're mostly owner-operated business, likely to have no staff. Most of those sorts of micro businesses people are very cost conscious - and used to using free stuff - google, facebook, linkedin etc. If its free and it works there is a market for it. For most of Xero's customer base (certainly the international customer base) Wave is a perfectly acceptable alternative and it certainly has more international momentum than Xero.

I've been picking a pricewar in this market for some time. Wave started it and Intuit's move with Quickbooks Online adds to the likelihood. I believe Intuit came to Australiasia to take on Xero head on in their own back yard and try and divert their attention back out of the USA. One of the oldest strategies in the art of war.

I also saw last week that Reckon's online accounting product is launching soon. Its also cheap and backed by a listed ASX company. The market is getting more and more competitive.