MYOB: End of an era

A very significant day today as MYOB is suspended from the Australia Stock Exchange.

MYOB Ltd has been suspended from quotation on January 20, 2009 the compulsory acquisition notice sent to shareholders on January 13.

MYOB has been a great company. One of the pioneers of small business software. In Australasia when you think of small business software you automatically think of MYOB.

Small business software is entering it’s 3rd generation.The 1st generation came in the 80’s with the introduction of the PC. Character based accounting software running on DOS were one of the first small business applications. Introduction of the PC along with the early text based word processors. Usually these were standalone applications.

The 2nd generation was Windows accounting software in the 90’s. The functionality was the same as DOS based products but they became far more usable with the friendlier graphical user interface.

MYOB timed things perfectly with the Australian introduction of GST in 1999 and Y2K. Sales of MYOB took off.

As public companies do, the leaders buy the number 2 and number 3 players and within a few years MYOB had completed a number of acquisitions and had a full set of products covering all aspects of the market. If anyone looked good, MYOB would buy them.

Several New Zealand companies benefited from this. CA Systems (now Acclipse) and Exonet are the examples that stand out. Several New Zealand software developers made their fortunes by selling to MYOB.

In the world 3 major companies dominate this 2nd generation. MYOB in Australasia, Sage in the UK and Intuit in the US.

It’s interesting that the really big global software companies (IBM, SAP, Oracle etc) sell almost no software to the massive small business market. This is because it is very expensive and a fragmented market to sell into. Companies cannot have a $100k sales person selling into an account that returns $1000 of revenue a year.

As time went on it became clear that it was difficult to go after incumbents in existing markets with the same 2nd generation technology. MYOB had forays into the UK, China and the USA but over the last year pulled back from those markets selling their business units. Swapping from one Windows based accounting product to another is a very hard sell. Even Microsoft has found this with their desktop product.

The 3rd generation is online accounting. It’s been fascinating that none of the incumbents have not yet come out with a compelling or credible online product.

We think this is for several reasons, including:

  • It is difficult to attract the design talent into an industry that has been slow to innovate and seen as boring.
  • Internally there is so much drag integrating the various acquisitions and creating a coordinated product strategy
  • Maintenance and support drag is enormous
  • Multi-tenanted applications are a huge mindset shift
  • The channel model for online software is fundamentally different from the high street retail model
  • As public companies it is difficult to cannibalize existing revenues
  • These businesses generate huge amounts of cash and probably aren’t as hungry as the new entrants are. They are comfy. If a new competitor looks good they can be acquired

That isn’t to say that the individuals inside the incumbents aren’t passionate, it’s just hard to move the big ship.

There does not seem to be any doubt that online software changes the economics of addressing the fragmented small business market. Research keeps upping the size of SaaS marketplace especially the small business sector. MYOB had lots of cash (it just returned $50m to shareholders in December) so you would think they were well placed for growing significantly over the next few years.

Online companies operate on much better multiples.  The PE ratio of MYOB was around 22. Concur is around 94 and SalesForce.com is 114.

So it is very odd that MYOB would delist as a public company.

Many of MYOB’s products are developed in Visual FoxPro, a discontinued language soon dropping out of support. MYOB has a massive investment across it’s range of products to not just move to generation 3, but to keep them running.

Xero drove MYOB into announcing MYOB Business Basics Online that has been roundly panned. It seems the team has been disbanded.

It’s hard to think of many software companies other than Microsoft who have successfully spanned technology generations so the challenges are enormous.

Did MYOB management just give up?

We believe that SaaS requires the transparency of a public company. Who is looking after your data? How are they funded? Will they be around in 5 years?

When private equity comes in the normal model is to slash costs and mine the cash flows and get to another transaction. Investment in product development was signaled to be a place where saving could be made in the Manhattan takeover documents. The motivation is making money, not helping small businesses.

So this feels like the beginning of the end of MYOB and the end of an era. Talent is flooding out of the building.

Accountants in New Zealand and Australia have run their business on MYOB for a generation. Their processes are MYOB processes. We are seeing accountants picking up Xero for supplier risk mitigation reasons.

Obviously this move is great for us but significant because so many Australian and New Zealand small businesses have run on MYOB for 10+ years and it has been the staple for accountants for a business generation.

Looking forward, the sheer number of business running MYOB and using processes developed over the last 10+ that suited a disconnected accounting application has a huge impact on productivity. Desktop accounting software forces business processes that are simply inefficient compared to when accounting software is disconnected.  We covered this in our discussion document on small business productivity.

So this is a significant moment for Australasian business and we think signals the beginning of the 3rd generation of small business management and a fantastic opportunity to improve small business processes and make small businesses more productive. For example http://www.xero.com/blog/runningabusiness

Of course we compete hard with MYOB (and we were probably a bit cheeky running this ad in the Melbourne Age last month) but we genuinely congratulate MYOB shareholders. MYOB was a company that made a difference.

We’re delighted to pick up the baton.

55 Comments

Mike Larry
December 31, 2011 at 4:22 am

What a great read, I have to say after all that debate, Ian came up trumps.
He brought up some really strong points and seemed genuwine in his approach.
As for Paul and Darryl,nice effort but the answers you gave seemed a little childish and came across more like a second hand car salesman lacking depth and substance.Good luck xero all the best.

Brent
March 31, 2012 at 2:15 pm

I just read most of the comments. While I agree with Ian in many ways, some of his points are a bit ridiculous. His SoEasy accounting/business management product is a bit more mature than Xeros so claiming that his does so much more is a bit rich – its not like Xero will be sitting on their hands for the next 10 years.

As for security, in a world where all your PCs are connected to the internet, if you run a small business, I am damn sure your security will be better if you are using a Saas model.Not having to worry about data loss or security breaches for small businesses is a massive time saver. Small businesses are notoriously bad at keeping their PCs up to date with security patches let alone worrying about physical security. At the end of the day if someone can access your data, they can decrypt it and view it. I would rather trust a Saas firm whose data stores are constantly penetration tested and run by security professionals than Joe Bloggs who runs a nursery.

To give you an example, I worked for a 300 person organisation that was running SAP. We needed to create a report out of SAP but there were no resources for an SAP developer coming in to do so. The report was simple and SAP data was stored in SQL Server databases, so we simply did a little reverse engineering and grabbed the info we needed. 3 months later a new manager decided to do a penetration test on our systems. They found literally dozens of ways for external users to access our systems. To top it off, we had old SQL Server accounts with access to SQL Server that weren’t cleaned up. Essentially, we had an open door to our accounting data – and this was in an organisation with 10 specialised IT people. You can imagine how vulnerable smaller organisations are.

The reality is 2G is not a thing of the past and will not be anytime soon. But the world is waking up to 3G, it offers a number of advantages over 2G and its drawbacks are getting less every year. I used to be a believer (as a software developer) that 2G would always be better, however with a promise of virtually always connectedness and some of the amazing things people are doing through the online channel, I am no longer convinced.

Myob software
November 30, 2012 at 5:17 pm

Informative blog…thanks for sharing with us….:)

Peter
December 12, 2012 at 8:02 pm

Does SoEasy work on 64bit Operating System yet? Last I checked I had to run virtual XP mode to be able to use the Accounting Package.

Customer Support Software
February 27, 2015 at 12:31 am

Congrats to MYOB – as they say sometimes it’s better to be a “big fish in a small pond” and looks like this strategy is working out well for MYOB.

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