The battle between Xero, Intuit and MYOB in Australia makes for a fascinating case study in strategic maneuvering.
At stake is dominance in the $1 billion market for booking-keeping for millions of Australian businesses, mainly small- to medium-sized ventures. All three companies promise to make life easier for small businesses, allowing management to focus on growth and products rather than the drudgery of accounting.
Xero entered the market a couple of years ago, giving users a fresh option and now it’s looking to expand its US operations and grow the customer base.
In a show of how important the US market is to Xero, it announced today it was shaking up its management in North America because it was “dissatisfied with execution and leadership” over the last six months – not a long time to allow a management team to prove itself.
Leveraging its success in New Zealand, where Xero processed about one third of the country’s GDP in transactions last financial year, it listed in Australia and is open about its plans for US expansion which are already underway with the acquisition of Seattle-based payroll startup Monchilla in a deal worth over $4 million.
With the US being Intuit’s home turf, it’s paying very close attention to the activity in the Australian market which Xero is trying to use as base camp for an assault on the US.
When one moves, the other responds. Both are growing quickly, but still standing in the shadow of MYOB, the incumbent behemoth.
The startup support battle
On Tuesday Xero announced it had struck a partnership with startup incubator Fishburners with its Australian MD Chris Ridd saying the company wants to champion startups. More on that here.
On the very same day Intuit Quickbooks Online announced it will be a primary sponsor of Startup Weekend Australia which gets going this week.
It’s a case of “Anything you can do, I can do…”, well, if not better, they’ll at least try something.
Intuit said the sponsorship would help deliver a national series of events for the country’s growing startup community.
Intuit Australia MD Nicolette Maury said startups have been at the centre of the company’s success, adding it wants to be known as a 30-year-old startup.
“Intuit QuickBooks Online is committed to being a part of the entrepreneurship ecosystem in Australia and, together with Startup Weekend Australia, is proud to be here for our startup and small business community,” she said.
Xero said its accounting software helps small business do better by streamlining accounting processes.
Maury said the Intuit offering helps startups do better because it helps them “realise the power and potential of their businesses”.
“We want startups to be successful and we help make that happen by providing intuitive financial management solutions in the cloud so they can run their business from wherever they are and always know the status of their finances to make the best business decisions,” she said.
Business Insider asked both companies for comment on the timing of the announcements.
Xero MD Chris Ridd said:
“We have had a long term involvement with the start up community in Australia, and having once been a start up ourselves, we have a natural connection to this community. We continually find Xero is very popular and highly subscribed to by startups and so we are keen to invest and give back. We see continued efforts by our competitors to replicate some of our successful programs we are involved in and on numerous fronts, but it does not distract us from the work that we are doing and we continue to see outstanding growth in our business as a result of that focus.”
Intuit MD Nicolette Maury said:
“Intuit has always been committed to being a part of the entrepreneurship ecosystem in the markets we operate in, and we’ve had a long history of collaboration with startup organisations around the globe, including The Global Innovation Forum, Startup Weekend in Canada, TiE in India ,and others. Startups and small business have been at the heart of Intuit’s success across the world, and here in Australia over the past two years, and conversely our QuickBooks Online offering has been part of the success story of many entrepreneurial ventures. We are fiercely passionate about providing innovators with the tools, guidance and resources they need to launch successful ventures and joining forces with Startup Weekend Australia is a great way for us to support this mission and showcase our commitment to the local startup community.
While there have been other groups aiming to represent the startup community in Australia, we found that the entrepreneurs who decided to bring together the Startup Weekend initiatives that already existed in a few key Australian cities really had a vision for building an action-oriented national community. Startup Weekend Australia is about less talk and more action. We love the results coming out of these events: after 54 hour long weekend events, companies are created, entrepreneurs find engineering and business talent, and meet potential funders. Intuit aims to contribute to that hands-on experience by providing insight on how to manage finances early in a startup’s journey.
We confirmed Intuit as the lead national sponsor of Startup Weekend Australia back in September, and have already been working with them on a range of local events around the country over the past few weeks. To celebrate the launch of the national program however, we wanted to do something special that would bring together industry and community leaders along with startups and entrepreneurs to discuss and debate the current state of play for the startup ecosystem. On Thursday, we’re excited to formally unveil the national initiative by discussing the issues the startup community faces in Australia, alongside major influencers in the entrepreneurship community, as well as The Hon. Paul Fletcher MP, and importantly the startups themselves that have either benefitted from Startup Weekend events, or are looking to make meaningful connections to grow their business. “
There have been rumours of the companies trash-talking each other to analysts, a strategy which can be used to take some of the gloss off a share price. However Ridd said he hadn’t heard of this happening but added: “I wouldn’t be surprised.”
“Intuit had really no footprint in Australia whatsoever,” he told Business Insider. “Its first step was to sever ties with Reckon.”
“With the traction they’ve achieved so far it doesn’t give us cause for concern.”
Ridd said, “Reckon and MYOB will be the real losers”.
“Xero is growing fast and Intuit has a reason to be in the Australian market,” Ridd said.
MYOB is one of the biggest players in the Australian market with 1.2 million customers using its software. Of that more than 100,000 customers are using its online system in Australia and New Zealand and 90% of its business comes from Australia.
A MYOB spokesperson told Business Insider the company was a leader in startup support.
“We have numerous relationships with startups they wanted,” she said of Intuit’s and Xero’s startup ventures. MYOB is a big supporter of Startup Australia and the Entourage network and has been for about 18 months now.
“We have been the champion of startups,” she said, adding: “The problem with Intuit and Xero is they’re about 18 months behind.”
All three players are jostling for the top spot in Australia’s accounting market.
MYOB said: “if you look at the numbers of cloud subscribers to know that there’s a lot of hot air behind what Xero says. Always.”
Xero is “not comparing apples with apples,” according to MYOB. “They’re actually making a comparison where it suits them, and makes them look better,” the spokesperson said. “They’re nowhere near the size and the uptake that MYOB has.”
MYOB is concentrated heavily on the Australian market.
“We have always been an Australian company that cares about Australian and New Zealand businesses. We’ve never once wanted to conquer the world, we want to do the best for Australian and New Zealand businesses and that’s why we’re number one. We’re not going offshore trying to crack a market that is much more complex and very different to Australia,” she said.
“MYOB spends over $AU50 million on R&D every year in Australia and NZ unlike our competitors. We are proud to be focussed just on Australia and NZ.”
Xero said this Australian-only focus is something that could be holding MYOB and Reckon back.
“They’re always hampered by the fact they have to be successful in this market. We have the ability to hedge our bets,” Ridd said.
In the past 12 months Xero has doubled its Australian customer numbers up from 79,000 to 158,000 – making it the company’s biggest market.
Previously Xero has said it has poached a bunch of MYOB’s clients, something the incumbent’s CEO Tim Reed said he found “challenging” to believe.
“The data that we have in our business would not support that hypothesis,” Reed told Business Insider earlier this year.
Either way, the cloud accounting companies are locked in a strategic battle for growth and dominance.
“The battle’s heating up here,” Ridd said.
Accounting, feisty? Who knew?