In 2010, I presented the above 'state of the nation' view of the UK SaaS accounting market. Apart from a change in terminology - for SaaS read 'cloud' - what else has changed?
At the time, I was talking a lot about the objections I saw raised in the market. Security was high on the list and remains so as evidenced by a session at a recent ICAEW event where lawyers were at pains to point out the many myriad problems with securing intellectual property, copyright problems and the terms of service that the likes of Amazon impose upon unsuspecting users. However, when asked if they could name a single catastrophic failure that has led to serious business disruption in business critical systems, neither of the eminent speakers could point to such an event. I know of one. And that goes back to September, 2010.
Despite the cold words coming from the harbingers of doom, it turns out that SaaS/cloud apps are proving to be remarkably resilient. Buyers in the SME space are voting with their wallets. This suggests one of two things: either buyers are unaware of the perceived risks or they are calculating that their providers are doing at least a good enough job.
All that aside, how are the main players getting on? Surprisingly well.
In this video, Ed Molyneux, CEO FreeAgent says the company has more than 30,000 paying customers. Xero reports around 22,000 (see image above,)KashFlow hasn't revealed numbers but in a quick call CEO Duane Jackson, he admitted to being 'somewhat annoyed' that Xero has passed his company's customer count 'by a bit' - for which read 21,000 paying customers.
However, things change when you crunch the value of those customers. By my reckoning (and no, I am not revealing my calculations), Xero is out ahead on revenue with FreeAgent second and Kashflow third. This makes for an interesting 2013-14.
As things stand, I expect Xero to extend its customer value lead, largely because it is much better funded than the other two so can both enter new territories and outspend its competitors on marketing without causing too many market jitters. What's more, the Xero partners I recently met in Melbourne Australia are doing things differently. I will explain more of what this means in upcoming posts but the main point is that they are challenging existing business models and succeeding in the process.
The one main caveat is how Xero gets on in the US. History teaches that the US can be a graveyard for non-US technology vendors. Like it or not, the market is dominated by Intuit, which despite having a so-so product in Intuit Online, represents a formidable competitor.
Another caveat comes in the shape of mobile. Right now, we see something around 20-25 percent of all traffic coming via mobile devices. Getting an accounting system to provide enough functionality to make it worthwhile on a mobile device is seriously tough work. My bet is that the vendor which gets this right will be well placed to snag a significant piece of market share.
Even so, we at diginomica are confident enough about Xero's prospects to have signed up as a customer. :-) From what I can understand, both FreeAgent and KashFlow intend to continue concentrating on the UK market in the coming year.
Why am I ignoring market leader Sage in this discussion? It doesn't go un-noticed that Sage did not attend as an identified representative, presenter or exhibitor at a recent cloud specific ICAEW event. Its reported growth for SageOne is anaemic given the company's massive marketing machine. One search suggests that total customers now total 6,100 but it is not clear how those breakdown among the various product lines inside the SageOne brand. None of this should surprise given that Sage Group seems far more concerned about buying back its own shares rather than investing in the future.
Over and above all this market data, I see the new breed of player as indicative of the direction that innovation has to go. All the main players bring something fresh to the table with a near constant stream of new features. I am constantly amazed at how these tiny companies are re-inventing accounting into something that is useful on a day to day basis and not just after year end.
Stay tuned for some of the lessons I learned while in Australia. They are truly eye opening.