Xero and Sage - a tale of two centuries

I was unable to attend this year's Xerocon but you can catch all the upbeat stuff over on the Xero blog. If it was anything like last year, then I can imagine it was a high energy event. Some of the numbers are staggering compared to last year.

• Two day event in 2013, one of which dedicated to partner training, one day only in 2012
• 500 attendees in 2013, 230 in 2012
• 30,000 UK paying customers, again doubling up

The company is still struggling to get the spaghetti soup of UK bankjng to play ball with automated bank feeds but that doesn't stop Xero from trying. They need to crack that nut because those feeds represent the backbone from which customers can be (reasonably) assured their accounts are up to date. That in turn allows Xero to promote the idea of morphing accounting practices away from number crunching towards that of the trusted business advisor.

Now contrast that with Sage. The Guardian reported that

Morgan Stanley issued an underweight rating on Sage after hearing what Xero had to say

Ouch - that's got to hurt given that Sage remains the dominant accounting software player in the UK market by a considerable margin. Here's what Morgan's say:

...with 200,000 customers and expecting 80% revenue growth in 2014 (versus Sage's expectation for 4%). It highlighted that 60% of customer wins come from incumbent accounting platforms (Sage, Intuit, etc.). This figure illustrates the risks incumbent vendors face, in our view, as cloud understanding and adoption increases in the small business customer base.

The company highlighted that a total of 1,256 accounting practices have adopted Xero in the UK. This compares to 82 practices that have adopted Sage One. This has driven customers of above 22,000 in the UK for Xero, versus the 12,000 customers Sage has reported on Sage One.

Clearly there is some clarification needed around the numbers but what interests me here is that despite Sage's bulk, it can't seem to build significant momentum around its own solution. Is this another case of 'Can't change, won't change?'

From everything I hear, both customers and practitioners love Xero. I know our team like it (we're customers) although I personally find that crucial missing pieces of functionality - like accruals and prepayments - leave me head scratching at times. Crucially, the person doing our books has no training in accounting yet seems to get on fine most of the time. That relative ease of use goes along way towards managing a function that traditionally has been the purview of trained book-keepers and accountants.

Contrast that with the litany of ongoing complaints about Sage 50. How about this one on bank reconciliation?

Looking broader

While the per month cost of Xero is modest at £24/month in our case, start adding in additional functionality and business admin costs start to rocket.

For example, ReceiptBank multi-user will set us back £20/month. Weigh that against the cost of individually managing expenses and it is excellent value.

But then if I want (say) integrated Salesforce.com CRM then I'm looking at £19.99 a month for the integration on top of what looks like a minimum of $125/user/month in order to get access to the Salesforce.com API for integration purposes. In our case, that adds up to around £5,000 pa.

You might argue that Salesforce.com is not the only game in town and there are far more economical solutions on the market. That's true but from the evaluations I've conducted, Salesforce.com really is the only game in town that can help us keep up with sales admin and grow at the same time. We could start with something else and then migrate when the time is right but I see that as a dead end which only causes headaches further down the line.

We may be an edge case but cloud solution alternatives are forcing us to think very carefully about how best to manage the business. Net-net, this is a good thing.

Perhaps more interesting, Phil Wainewright has said that cloud provides the basis for creating business models that cannot function in the on premises world. He calls them 'frictionless enterprises.' We see that in practice on a daily basis. What we haven't yet seen is an explosion of those types of business.

My only remaining question then is whether the huge bulk of small business that currently use either spreadsheets or something like Sage will see things the same way and be prepared to make the cost trade offs against functional need. The answer to that may well form the basis upon which vendors like Xero can accurately forecast their true market potential.

Image from Xero blog

Disclosure: Salesforce.com is a premier partner at time of writing