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The SaaS opportunity for Government

Posted 7 years ago in Xero news by Rod Drury
Posted by Rod Drury

This week we kicked off a workshop around a Cloud Industry Code of Practice for New Zealand. You can read about our approach here:

Cloud Computing Industry Code of Practice Signaled

There were many great points made during our discussion and it made me reflect on the relationship between small business Software as a Service (SaaS) providers and Government.

Over the last five years SaaS vendors have begun to get to scale. Our small local market of New Zealand provides an interesting case study as we now have significant market share, perhaps 10-20% of the addressable market, and our customers are likely to be interacting with more than 90% of all businesses. We’ve developed a good working relationship with most NZ government departments who seem to be taking us seriously. The more than $44B in transactions Xero has processed to date, is a significant number in relation to this country’s total GDP.

We believe it’s inevitable that cloud solution providers and governments around the world are going to work closely together in the future.


Governments around the world generally have the linked goals of reducing compliance costs and increasing the productivity of the vast small business market place.

Already we’re seeing the benefit of connecting small businesses to advisors. Cloud software that connects businesses and advisors reduces the cost friction of sharing data and it’s fantastic to see advisors now engaging more regularly ie monthly and becoming trusted advisor.

With an accountant and other advisors working alongside the business owner each month, we believe every business:

  • can improve cash-flow to allow it to grow faster
  • is more likely to hire a new employee
  • is more likely to get a business loan for plant
  • is more likely to export

So SaaS provides a mechanism, at country level scale, to improve productivity.

Reducing the compliance burden

Government to small business IT projects have often focussed on self service. Each government department will write a web application to allow their customers to self serve on the Internet. A big driver of this is the cost reduction of moving from paper based forms that require human processing to the adoption of business improvements that come from customers lodging their own information directly into the agency systems. For example most tax authorities are doing much more online.

However, each website creates a compliance silo. The business owner needs to go to each site and submit their information. Government websites have in many cases increased costs as each department invests in their own, expensive, online projects.

Governments eventually saw this obvious inefficiency and moved to projects like Standard Business Reporting (SBR), where the complete set of data that a small business would need to provide across all of its government relationships, is extracted in a single file. This ‘uber-dataset’ is then sent to government once and the relevant data for each agency sent on.

In the disconnected world where company information is stored on millions of PCs this makes sense. Software vendors have been asked to add SBR reporting to their features. The user has to have the right version of software and the application will create a file that needs to be sent in.

There are a number of problems with this SBR approach:

  • It takes a long time to get such a standard and it is difficult to change.
  • It takes a long time for the features to ripple through from the software vendors.
  • Often no single agency is permitted to store the data so an expensive real-time transaction switch is required.
  • Every agency needs to be at about the same level of capability at around the same time.
  • This in-synch, message switching, approach is very expensive. Hundreds of millions of dollars.

As cloud based solutions have become more popular there is a much better approach. Each government department exposes their data collection interfaces as web services. Cloud providers can then connect to each agency’s web service – as they come available.

This approach eliminates the problems above, it’s simple and it’s much, much cheaper for governments.  Each agency can be enabled over time as they release their web service interfaces. The small business simply submits their information with a click as it’s already in the solution provider’s system.

For the small business owner, the system will largely do the compliance work for them, seamlessly. Compliance becomes a by-product of well designed systems that improve productivity.

Compelling public/private sector partnership

Effectively the cloud providers – private sector companies – are motivated to invest to develop the workflow across various government departments as it makes their solutions more useful and therefore of more value. Each agency can step back to become the wholesaler of specific services they provide. The retail interface, which adds compliance burden, can be substantially eliminated.

The investment from the private sector is very significant. But it will be worthwhile.

This cloud + web services model is compelling to government agencies who are all budget constrained. The cost savings across government are simply massive so it’s inevitable that SaaS providers and governments will work closer together.

So as well as the the obvious benefits of working on an Industry code of practice for Cloud Computing, another key benefit is beginning the process of engagement with government departments as they grapple with the issues and opportunities arising from the cloud.


Justin Hygate
September 5, 2011 at 9.41 am

I wholeheartedly agree Rod. This is the real way forward.

The ability for government agencies to leverage off the cloud is enormous. Some of the components you suggest are being formed with strategies such as that for – and the need to promote the development of APIs for key agencies is emerging.

What is needed is a strong lead agency with a mandate to refocus the priorities of some agencies in order that the web services are a little more forthcoming.

September 6, 2011 at 1.15 pm

My understanding from is the government is progressing another solution – you reduce the number of compliance silos/sites a business has to interact with, by consolidation of government ICT systems and/or departments.

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