14 Comments

Xero and Intuit – Its more than just the numbers

The numbers make for interesting reading. On February 20th Intuit announced its second quarter results which showed that there are now 561,000 paying customers worldwide using QuickBooksOnline (QBO) cloud accounting software and that 45,000 of those were added in the last quarter. Meanwhile Xero has announced that globally it has 250,000 customers, approximately 100,000 or 40% of these are in Australia – the remainder mainly in New Zealand (its birthpace), US or UK. Xero also advised that it is adding 200-300 new customers a day which equates to around 78,000 a year. So Intuit is out[pacing Xero in both the total number of customers and the acquisition rate.

Chris Repetto Director of Corporate Communications at Intuit provided additional breakdown of QBO new customers – approximately 70% of these came from outside the world of Intuit – i.e. start-up businesses, businesses migrating from a shoe box/spreadsheet system, or migrating from another software product. The remaining 30% migrated from the QuickBooks desktop software. Further review of Intuit’s published figures indicate that around 90% of its customers are US-based and the remaining 10% mostly from Canada, UK, Australia and India. Extrapolating this out, it means that of the 45,000 new QBO customers last quarter some 28,000 of them were new US-based customers. So even excluding the customers converting from desktop – QBO is outpacing Xero in the US.

There is more to it than just numbers. Intuit has long been a dominant player in the small business accounting software world in the US and has both a high level of brand awareness and accountant participation giving it an edge over Xero there.

Xero arrived unknown to the shores of Australia some six years ago and using the disruptive marketing techniques for which it is now well known, caught the dominant Australian software company, MYOB off guard. MYOB was not ready to launch a major cloud offensive (although MYOB Live Accounts made a small splash) and Xero was able to effectively woo accountants by selling the benefits of a cloud solution with its collaboration and single ledger and take market share from MYOB.

Having refined these techniques in Australia, Xero was ready to make a move on the US market. However, this time the dominant player was not caught napping. Intuit quickly recognised the threat from Xero and virtually disrupted itself before Xero could do so. QBO had been on the US market for around 10 years before Xero came along  and as there were many similarities with the desktop product transition was relatively easy making it a possible option. However the user interface was cumbersome, inconsistent, disorganised and out dated. You had to be really committed to want to use it. Intuit quickly recognised these issues could be exploited by Xero and set about overhauling the interface and last October, released the new user interface which overnight transformed the product into being easy to use, vibrant and interesting.

So last quarter with the release of the new interface, about 13,500 existing Intuit customers who could well have migrated to Xero, instead migrated from QuickBooks desktop to the revitalised QBO and a further 31,500 new Intuit customers started to use QBO – validating the strategy. So whilst there is some robbing of Peter to pay Paul, it means that overall not only do existing customers stay with Intuit but it also confirms that Intuit can attract new customers at an increasing rate  . (Previous quarters the increase in QBO customers had been around 28,000 -29,000 per quarter) Just as an aside, there wasn’t a commensurate increase in QBO revenue in the last quarter – the increase was pretty much the same as previous quarters – maybe due to price discounting in a period when Xero generally increased its subscription costs

It doesn’t look as though Xero will make the same waves in the US as it has in Australia partly because Intuit met the challenge there much more quickly than MYOB did in Australia but also because of the size of the US market where there is a lot more scope for multiple players. Intuit is now firmly entrenched in Australia. I don’t know how the numbers of QBO users here compare with Xero’s 100,000 but it QBO certainly gaining traction here (partly at least due to extensive price discounting.) It will be interesting to see if Australia is ready for another round of disruption or if Intuit will use other techniques here where brand awareness and product familiarity is limited.

I am off on holiday for five weeks – (roadtesting the anywhere concept of cloud accounting while I am visiting  Ethiopia) so I will be off the air for a few weeks but hopefully keeping up with developments.

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14 comments on “Xero and Intuit – Its more than just the numbers

  1. Margaret,

    Love the article, loved meeting you last fall, and hope I get to see you again soon!

    You mention that the QB desktop to QBO migration is “robbing Peter to pay Paul”. I’ve seen it described in other articles and online comments as “cannibalizing” the desktop customers. I have to respectfully disagree with this, and here’s why.

    I’ve had a bookkeeping/payroll/consulting practice for 10 years now, and I work solely with QuickBooks clients. I support the windows versions: Pro/Premier/Enterprise as well as Mac and QBO. What I see so much is businesses that buy QB Pro for about $150 USD. Many of these businesses will keep that software as long as they can – which can be well beyond the time Intuit sunsets that year version. (Case in point, I upgraded a client in 2012 from QB 2001 to Enterprise 2012).

    Intuit’s income from this customer between 2001-2011: $150 USD

    If that client had been using QBO, at the highest subscription (we’ll use today’s option, QBO Plus at $39.95 USD/mo), Intuit’s income from this customer between 2001-2011 would have been $4794 USD.

    If were Intuit, I’d want EVERY QuickBooks desktop client to convert to QBO.

    Well, even though I’m not, I still want that!!

    • Hi Stacey – thank you for your comments and yes totally agree it is year on year revenue that wouldn’t otherwise have been earned, but what I also meant was that although some desktop clients moved off the product, unlike in Australia where they went from MYOB to Xero, now with the new user interface, these desktop clients stay within the Intuit product family – the client wasn’t lost to Intuit.

    • Its interesting though (to me at least) to also note the continued strong growth of QBES (around 20%) albeit from a much smaller base – QBO (and QB Pro for that matter if that’s the close equivalent) does not meet every ones needs and for many Intuit customers – particularly the larger, more complex SMBs – moving to “the cloud” is not an easy option when all the required functionality is considered. In many cases, the “the rise of the virtual machine” aka private hosted VMs is a way people, reliant on QB Desktop can get many of the benefits of being “cloud based” without migrating to a true SaaS product such as QBO or Xero.

      IMO, Intuit is focussed on growing the business and as a part of that – the lifetime value (& longevity) of a customer. You’re quite correct in that QBO delivers higher LTV than Pro to Intuit and its apparent that they prefer as a business model, stable recurring revenue streams and this is easier to achieve with a SaaS product. In the case of QBES, the FSP delivers this to some degree though not all customers subscribe to this of course. To some degree I think a simple analogy to the cloud/desktop cannibalization debate is like a car maker who introduces a new hybrid option alongside the traditional gas model. Sure there will be customers who buy the Hybrid and maybe gas model sales growth declines but the car maker probably cares more about total model sales and less about the split until such time as it makes no sense to continue to sell & support the gas model. For both gas powered vehicles and QB desktop – I reckon (no pun intended) that time is a long way off.

  2. Xero is and will be far better than QuickBooks

    I was almost exclusively Intuit for 35 years. Many years had hundreds of fast email exchanges with Intuit CEOs and top aides (BestQuickBooksCPA.com). These CEOS wrote (and let me publicize):

    You’re fantastic Mike! Absolutely fantastic!

    Keep raising hell when Intuit does something wrong.

    However, here is why I know know that Xero is and will be far better than QuickBooks. 200 – 300 new daily Xero users means about 22,500 (250 * 90) new users in the last quarter. This is 11% more (22,500 / 213,000). The 45,000 new QuickBooks Online users were a 9% increase [45,000 / (561,000 – 45,000)], so Xero won on percentage growth.

    Xero is actually doing far better. QB desktop lost more than 800,000 users. Even if this does continue, it means QBO had NO EFFECTIVE GROWTH. It simply cannibalized 70% of QB desktop losses, which cannot continue.

    QBO inflates numbers by counting each paid user, in 3 to 25 user packages. It previously inflated by counting trial users, so it had 900,000 users. Each Xero paid account can have many users and it does not count trials. If it averages two users per account, it already has 500,000+ QBO-type users and is more than doubled QBO effective percentage growth.

    Many professional accountants get very upset with Intuit because it repeatedly disregards and damages us and our clients (Professional accountants, Xero and Intuit http://bit.ly/JSQV8W). In each of 19 cases, Xero did things right. That is why Xero gets 2/3 of new users from former QuickBooks professionals, cutting sales costs. It is also why it attracted so many top QuickBooks professionals to recent international conferences.

    Xero recently got $150 million of new stock, at above market prices. This made its stock price soar again, so it is now up about 5,500% (55 times) in five years, compared to 200% for Intuit. The anemic Intuit price increase largely relates to more than four billion in stock buy-backs, mainly from insiders, in four years. This was more than Intuit’s lifetime earnings, but buy-backs are due to increase. I can only imagine the explosive Xero user increases as it spends this $150 million on expansion and former QB professionals keep converting clients in mass.

    For all these and more reasons, Xero users should keep increasing very quickly while QuickBooks dies.

    • Mike,

      I can appreciate where you’re coming from. I am a QB Pro Advisor, and I also use Xero.

      For me, it’s about the functionality of the software, and the ability to continue improving the software.

      In both of these areas Intuit is tried and true. Xero has yet to prove itself to me.

      In the past year or so Intuit made radical changes to its product, bringing it onto a completely new Internet technology platform. In doing so, they leap-frogged over Xero’s technology platform.

      The question that I would ask myself, before recommending any software to a valued client, is, “Will that software company be able to keep up with the new technology investments that will need to be constantly made in this age, and at the same time improve their product from a functionality standpoint?” If they can’t do that I would not recommend them to a client.

  3. Major error, acquisition rate of 200-300 is for Australian xero only ! Xero are growing at 70 percent plus per annum .globally….. Do the math and correct this article. It’s neck and neck on customer acquisition rates.

  4. @ Mike – I am on your side but would like a reference for Xero growing at 200-300 users a day in Australia alone. 200 to 300 averaged, times 90 days, is 22,500 per quarter. That is only 11% a year on the 213,000 on 9/30/13 or 9% on the 250,000 on 2/19/14. It also is 23% to 28% annualized, before compounding.

    250,000 (2/20/14) vs 213,000 (9/30/13) is 17% more, or 43% annualized. How do you get 70%?

    • Sure Mike, Xero’s at approximately 100,000 customers in Australia (AU), and growing at approx 100% per annum in that market, hence your numbers are correct at 22,500 per quarter in AU. Outside of AU we need to consider the UK market + NZ market + US market, so Xero as a whole has around 250,000 total paid subscribers at the moment and is probably growing at annual equivalent rate of 200,000 per annum (ish), say 550 per day. So about half the daily rate is from AU market and the ROW accounts for the other half. Intuit and Xero are growing at approximately the same customer acquisition rate. Give or take. I find it astonishing that Xero can do this without 6,000 employee’s, but with only 600. Without being large in the single most scalable US market (yet) and without having over a million existing customers to galvanise. It’s a tech minnow on the way up. That’s the real story. It looks to me like both companies will be succesful, a duopoly is on the way. With some also rans doing ok but lacking the scale to do the really cool stuff.

  5. I was a Quickbooks stalwart for almost 10 years. I watched Xero in New Zealand from is launch and every couple of years would say no, Quickbooks still has me. Last year I moved my practice to Xero. With the release shortly of Xero reporting v2 many of the Xero shortcomings compared to QB that I’ve identified will be gone, principally filtering.

    Quickbooks in Australia and New Zealand is now Reckon Accounts, which is the QB code as of February 2014 but now Reckon is developing it from Australia and no longer has ties with Intuit. Reckon are also developing Reckon One which is a true cloud solution to take on Xero. It was meant to be released in Australia late last year but hasn’t been yet. The roadshow for NZ was to be September but that didn’t happen either.

    I still have clients using 2010 version who won’t move because “I’ve paid for it and its costing me nothing not to run”. But wait till they get a windows 8 computer! I have one client with 5 Reckon Hosted datafiles so for them cost is the issue. NZ$435 pa for one user or $600 pa for each datafile.

    • Hi Margaret, thank you for your comment but please note that Reckon One was released last month in Australia. I released a blog on it then http://bit.ly/MHGqG1 – it is very basic and certainly not on the same playing field as Xero & QBO. Intuit managed to prevent significant customer loss by the competitively enhanced version of QBO but Reckon is likely to b in the same position as MYOB

      • I stand corrected re Reckon One! Many thanks. I was under the impression it had been delayed both countries, but then I guess it was if released in February in Oz. I saw a demo of it last May at the NZ Reckon Accredited Consultants conference and I’d fully agree that its really basic and can’t compare to Xero. And yes agree re MYOB. Just this afternoon I’ve had a client ask to go from MYOB AccountRight Plus online to Xero.

  6. […] is an edited version of a post that originally appeared on the Cloud Accounting Buzz […]

  7. Quickbooks has been rapidly growing in India as well as a result of its huge marketing spends….

    however, its lack of customisation for the indian audience has been a major hurdle in the growth of Quickbooks and many accountants are not satisfied with the performance of quickbooks as it is not customised for the Indian audience.

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