A month or so ago I spoke in Blenheim. One of our great partners, Neil from Winstanley Kerridge was introducing me and Xero and it surprised me that he thought the biggest benefit of Xero was the ecosystem of applications that connect to the General Ledger (Xero). Neil isn’t alone, either – I heard similar thoughts on the weekend at Xerocon AU:
- At our Australian Gold Partner lunch two thirds of the conversation was about add-on partners. Accountants were talking like IT geeks.
- During the breaks at XeroCon I had numerous accountants approach me, with iPads open, showing me apps they’ve been working on. Accountants as software developers!
- We had 80+ Add-on partners to the developer sessions of Xerocon. We were blown away by how many new companies exist solely to connect to Xero.
So what’s happening?
The cloud is changing the integration model
In the desktop world we know that small business owners won’t spend $10k on consulting services to integrate their software. That’s why many small businesses don’t run Customer Relationship Management (CRM) software as customer data needs to be synced between accounting (invoicing) and the CRM. We covered this back in 2010 Best of Breed v. All In One.
In the cloud generation, vendors are linking their solutions together on the server side, reducing the risk of bespoke integration and instance to instance integration projects. Linked applications can provide a much better fit for small business owners.
Cost jump to low end ERP
There is a big gap between the amount spent on commodity desktop accounting products and low-end ERP systems. If you are running MYOB or Quickbooks you may be spending $1-3k per year. The next step up to low end ERP might be tens of thousands in licensing, $20-50k of implementation and $10-20k per year of maintenance. We see lots of businesses that should be on larger packages still running on low cost offerings. There is nonlinear scaling of costs between very small and mid size companies.
The add-on approach starts to fix this problem. Accounting becomes a commodity service and small business owners can invest in great line of business applications that can really fit their needs. There is starting to be lots of choice.
Accountant as IT consultant cycle
Everything goes in cycles. In the 90s and 2000s as desktop software and client server software was taking off, accounting firms got into the software consulting space.
But this has always been a graveyard as customizing and integrating complex software is hard and when you are charging a small business owner by the hour resentment soon follows. We know of lots of instances where an Accounting firm has had troubles with software and ended up sending a bill for tens of thousands of dollars which is never going to be paid.
Consulting arms within small to mid size accounting firms were often spun out or shuttered.
But under the cloud generation the accountants are coming back to provide integration services, as it is much lower risk.
Hansens are even providing services to other accounting firms: http://www.hansens.com.au/solutions
Cloud has changed the game
The rise of cloud based offerings with open APIs of cloud vendors are creating a new model. Rather than consultants having to link instances of software together, the new generation of cloud providers are linking entire solutions together on their own.
This makes sense for several reasons.
- New vendors all want customers, so by working together they can share customers.
- As the products are new, no one has had the time to build everything. Partnering is logical.
- Piggybacking on a successful vendor with traction creates immediate access to a high affinity market, so much lower customer acquisition costs.
- The cloud vendors, working together, are enhancing the value of their respective offerings. A tide that raises all boats.
- While platform plays take major reinvestment and time, niche vertical applications can be developed quickly and do not necessarily require significant investment.
Explosion in network partners:
And a few years into it some of those solutions are getting really good.
Our Gold partners are those partners who got early into Xero and are transforming their practices. They’ve typically been following the cloud space over the last few years and have seen first hand the impact of cloud technology on their own practices and their clients. They can see how transformational it is and once they had a good experience with us and an integrated partner they start to get hungry for more. However, they’ve all experienced the pain that comes from trying to implement products that don’t quite fit and have seen how quickly you can rack up costs that can never be billed.
They are asking us:
- How do we find out about new Add-ons
- How do we know when they are good
- How do we know which situations they are best for and which scenarios to avoid.
There are quite a few things we do to help.
- Promote our new Add-on partners on our website and in direct communications with partners
- Create a partner forum to discuss add on partners and see others experience
- Promote solutions that work well together. We think a good way to do this is on verticals. Here is a recent retail vertical we’ve been working on: http://www.xero.com/business/retail
- Connect accountants to the new breed of integration specialists that are emerging
So we think the add-on opportunity is simply huge and our gold partners are proving that every day. The characteristics of vendor connected solutions eliminate a lot of the risk of instance to instance integration. The accounting partner can leverage the work the vendors have done and add real value at integration time.
This ecosystem dynamic is happening faster than we anticipated but shows the vast potential in the small business cloud space and the unprecedented opportunities to make small businesses more productive.
And that’s what we’re all about.