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Market Insight

From NZX Market Insight May 2007

By Mark Weldon, NZX Chief Executive

We welcomed Xero to the NZSX Market yesterday, this year’s NZX Listed tech sector pioneer, listing at an 11% premium.

Xero’s ambition is to create and grow a niche in the SME area by providing an essential product (accounting software) but delivery is smarter, faster and clearer under the software-as-a-service model. This is a new delivery model where companies use rather than own the software.

Xero hopes to show, as have Rakon, Pumpkin Patch and others, that we can compete in today’s global environment. We can build globally sized companies right here, from a home-base, serving the world. With the right technology used in the right way, size and geographical location is irrelevant.

As understanding of the New Zealand technology sector (and subsectors within) grows, the companies within this sector will gain the attention and profile they deserve.

Following this, more companies will come to market to raise capital to pursue the opportunities that are available to them now, as they see evidence that the investment community will embrace and support high growth technology companies.

Best,
Mark Weldon


Technology and the Markets

By Rod Drury, Xero Chief Executive

It doesn’t seem long ago that Xero co-founder Hamish Edwards and I set being listed on the main board of the NZX as a goal for the business that we were in the midst of planning.

Now, a year or so later, it’s very exciting being able to write this from the perspective of being part of a listed company.

Xero was able to grow from a small start up software company to an NZX-listed company within a year, which is significant, not just for Xero, but also because it marks a maturing of the New Zealand technology industry.

For global technology companies, like the kind we are aiming to be, the corporate structure that comes with being a listed company goes hand in hand with technology development. Being listed becomes a core part of the business strategy.

Internationally, the software industry is in the midst of a technology revolution, where it is compelling for software developers and consumers to access applications through the Internet.

This approach is called Software as a Service (SaaS). Under this model, where software is accessed via the web, many of the traditional constraints to rapidly growing a software company are eliminated.

We believe that being listed is a compelling success factor for SaaS companies such as Xero for the following reasons.

  • Incumbent providers tend to acquire new entrants that gain significant market share - it is difficult to take on an incumbent when you’re a private company.
  • Customers wanting a SaaS solution need to have certainty in the vendor - they want to know the company is robust and in it for the long term. Selling internationally as a small private company from a “rock in the south pacific” makes for a very difficult sell.
  • In the software industry, often the first company funded wins.  It is difficult for followers to attract funding, and the first public company has the resources to acquire competing market participants following in its wake.
  • Though it has potentially high rewards, SaaS requires more up front investment than traditional software. It needs to be more scalable and requires a broader set of operational capabilities to manage the scale. SaaS is normally charged for via recurring monthly fees, rather than an upfront licence, so the revenue ramp must also be funded.
  • In a global market, you don’t have the time to move sequentially. To capture global market leadership you need to be simultaneously executing on a number of fronts.  This requires funding.

In the weightless world of software, it’s not the big that eat the small – it’s the fast that eat the slow.

Another important benefit of being listed on the NZX is that it gives Xero a better chance of staying New Zealand-owned in the long term. That is important to us.

For these reasons, being listed is a key part of Xero’s strategy – and from day one at Xero we have worked towards our listing.

Xero is new for the New Zealand Stock Exchange. Our listing is seen as an important milestone for our local technology industry. We take that responsibility seriously.

 

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