I’ve been on the road for the last couple of weeks. Brisbane, Sydney and Melbourne last week and Silicon Valley this week. It’s been fun and very stimulating meeting with lots of partners and having a good look at the state of the small business web space in different countries. It’s clear that it’s still very early days but the small business web is becoming more interesting as new services and vendors emerge and connect.
We’re starting to notice some implications and new market dynamics as the industry is maturing.
When we first thought about doing Xero, we’d have assumed that three years in, we’d be doing all sorts of value added services over the accounting platform. Even though we’ve shipped more than 45 major updates, we’re now very aware that accounting is a broad minimum feature set – there’s always more to do. So we’ve stayed focussed on that.
As adoption of online services for small business has gained traction we’ve seen a number of new services arriving that link to Xero. Because these companies connect to Xero they haven’t had to write an accounting engine. They’ve been able to focus on improving specific business processes, often in a very elegant and high value fashion.
The incumbent desktop products that have been around for many years have added many features during their time in the market and therefore often provide more than just accounting. For example job costing and payroll features are common in many established desktop accounting products.
One of the reasons these broad but thin desktop applications evolved is because small businesses do not integrate with desktop software products. It’s too expensive to have a consultant come and do it. A good example of this is Customer Relation Management (CRM). You would think that most small businesses should have a CRM system to track leads and customers, but if they have CRM and an accounting system, as soon as they create an invoice you have customer data in two places. So integrated products have been the only real option, even if they provide a pretty average user experience.
The small business web is taking things in another direction. Using web services, the web vendors themselves are integrating their solutions to work well together. This means that small business owners can get ‘best of breed’ solutions that ‘just work’ and are best in class.
If you compare Xero to desktop products there are things we don’t do, things we do much better and new services that are unique, such as live daily bank feeds. But when linked to another specific solution, like Job Costing, Sales Order Management or Payroll, the combined solutions are much better than the previous all in one approach. We’re impressed by the new solutions we’re seeing coming through which are giving small businesses very sophisticated integrated ‘best of breed’ business systems. And these are at a very reasonable price point. They also provide real choice where small businesses can ‘pick a chocolate out of each box’ to find a collection of applications to best meet their requirements.
This has further implications. Currently there is a real gap in the small to mid market accounting software space. Once businesses grow to a few million dollars in turnover the cost jump from commodity desktop accounting software to low end ERP software is high. We’ve heard of many customers who have hung onto desktop software, even unsupported software, because the new versions or next product step-up is tens of thousands of dollars.
The combined, linked, ‘best of breed’ solutions model will provide much better options for businesses as they scale up. We’re already seeing a number of ‘cloud consultants’ appearing that want to help business owners set up these linked solutions. While it’s still early days we believe we’ll see these hybrid solutions delivering value for just a few thousand dollars per year, in contrast to the current options which cost 10’s of thousands per year. This will be very disruptive to the low end ERP space and great for growing business owners.
Keep an eye on your vendor partner blogs to find new partners and integrations. Normally they produce short videos which give you a feel for what they do. Think about who among your customers might be interested in each new solution. They’ll be glad to hear from you.
For cloud consultants
Becoming familiar with new solutions is an exciting opportunity. Perhaps working with your local accounting firms will lead to introductions through their client base.
For software vendors
Working together with partners you can gain access to high affinity customer groups. Learning to jointly market with partners will be key.
Seeing these fundamental changes occurring in small business technology, opens up new opportunities for vertical and specialist applications, even applications that connect other applications together.
The challenge for us in the small business web is to communicate the benefits of ‘best of breed’ to customers who have been trained over the past 10 years to think that the integrated ‘all-in-one’ approach is best. But we think it’s compelling and hope our partners and other vendors begin to educate the huge small business market that they really can have it all.
What do you think about this ‘best of breed’ model?