Xero’s on a mission to make better use of the information it’s collecting from its ever-increasing client base.
The New Zealand born, cloud accounting software company is championing the buzzwords “big data”.
It’s creating opportunities to disseminate the information it has about the 475,000 mainly small and medium-sized enterprises (SMEs) that use its products in NZ and abroad.
With a smorgasbord of data about SMEs at its fingertips, Xero claims it has a better grasp on what’s happening in a sector that makes up 40% of our GDP, than the Government.
The company maintains no business survey can provide the real-time information it has about its 138,000 NZ clients.
With its local client base growing 35% over the year to March 31, Xero’s making significant headway targeting the 620,000 SMEs in NZ.
Data is knowledge, and knowledge is influence, and Xero knows this.
Speaking at the Xerocon conference in Auckland on Friday, the company’s NZ managing director, Victoria Crone, revealed Xero's plans to share its data with the Government, industry and among its clients.
Data – what’s it worth?
With access to nearly a quarter of all NZ SMEs’ books, as well as survey data on the likes of business confidence and efficiency, Crone says Xero has insight into the size of the economy and where it’s going on a macroeconomic level.
“Say we have another GFC (global financial crisis), we can really quickly adapt and see what type of impact it’s having on small businesses”, she says.
“Xero’s data is actual real data that’s been audited. It’s factual, it’s correct; it’s a much more powerful source of the truth.”
Crone says the information Xero has is also a more accurate reflection of the state of the economy than data acquired through surveys conducted by the Government, development organisations, banks, financial service providers and such like.
Highlighting the 2015 Westpac Grow New Zealand survey released two weeks ago, she says the accuracy of surveys is swayed by the methodologies used, sampling, and ways questions are framed.
Based on responses from 1200 SMEs, Westpac concluded; “While SMEs have adopted digital technologies, one third said digital technology has had no impact over the last five years, and 27% expected it to have no impact over the next five years.
“This means that few SMEs appear to have restructured their business to suit the new world, and are also not confident about securing the right staff to capitalise on it.”
Crone says these results tell a different story to what Xero is seeing, as its customer base in New Zealand grew by 35% in the year to March 31.
Benchmarking
Perhaps the most contentious way Xero’s planning to use its big data is through benchmarking – giving its clients access to information about how their competitors are doing.
Crone admits that while there’s some backlash to the idea of sharing information among Xero clients, it is also the number one feature Xero clients would like to see built into the software.
She says Xero is refining privacy policies around this, and plans to launch some benchmarking capabilities later this year.
She says the company has to make sure it aggregates data in such a way that individual businesses aren't identifiable. The more data it has, the easier it'll be to do so.
“If you’ve got 10 florists in Napier, you’re probably not going to benchmark that, because there aren’t enough of them. But if you’ve got 1000 florists in NZ, I think you’re quite safe.”
Big business
Xero’s also using its data bank to help its SME customers deal with big businesses.
On Friday it announced a new partnership with intermediated insurance company, NZI, which is owned by IAG.
Through NZI’s add-on, CoverKit, Xero customers will now be able to extract their own financial information to compile a financial profile they can give their insurance broker.
Crone says CoverKit is “set to be a game changer, making it so much easier for customers to access the information they need for broker advice, thereby providing peace of mind in what can be a very stressful area for small businesses”.
Xero’s also announced a new partnership with Fletcher Building's PlaceMakers, whereby Xero customers register to receive invoices from PlaceMakers directly into their Xero online accounting platform.
Xero has similar arrangements with Z Energy and BizRewards, and plans to integrate with Meridian Energy, Watercare Services Limited and Office Max by the end of the year.
Playing politics
Xero is trialling ways to share its data with the Government and opposition, and says it’ll make an announcement on this in coming months.
Crone says National is generally interested in data around wealth creation, while Labour is interested in information related to jobs and growth among SMEs, as it writes it policies around this.
The company’s also looking at ways of helping its clients reduce the cost of complying with the Government by 25% by 2017.
For example, it’s working on digitalising the Quarterly Business Survey that businesses are required to complete.
“There has got to be a better way than having a hand-written survey, businesses do not have time to do, scanned, and then a whole lot of public sector costs going towards processing all of that”, Crone says.
“It’s all around using the private sector capability and the web services space to make interacting with government much more efficient.”
What's in it for Xero?
Xero’s downplaying the financial gains it’ll get from selecting who it “shares” its data with.
“Currently we don’t see a role for monetising our big data”, Crone says.
“It’s not a major revenue play for us; it’s a major acquisition play, because if you’re on Xero you’re going to be able to get all this information about your business that’s really hard to get… It’s all around driving acquisition and driving valuable into the product.”
Benchmarking will be built into the product and users won’t have to pay a separate fee for it.
Crone says, “As we build more value into the product, then we review prices, but we haven’t had those conversations yet”.
Xero reported a net loss after tax of $69.5 million in the year to March 31. The loss was $34 million greater than the previous year.
With subscription revenue increasing 88% over the year, Xero’s loss can be attributed to the company spending 70% more on sales and marketing, and 166% more on product and design.
These disappointing results, in addition to the company’s chief financial officer, Douglas Jeffries, resigning after only two months on the job, has fuelled Xero’s recent share price drop.
The price has fallen 38% over the past year, and now sits at $19.70 – the lowest level it’s been at since Xero announced its $147.2 million capital raising in February.
32 Comments
This is a cloud service really and not the cloud as such. So there is nothing stopping you running a "server" in the cloud at say AWS and having your own financial application on it V using Xero's application. What concerns me is xero isnt making any money at the present charge rate and it will take a substantial fees increase to make it profitable? x2? x4? then there maybe subscriber erosion.
Xero showed operating revenue climbed to $NZ123 million ($119 million) for the year ended March 31, up from $NZ70 million the previous year. Paying customers grew by 67 per cent to hit 475,000 over the reporting period. Subscription revenue grew 81 per cent to $NZ120.9 million.
Any other Kiw Company growing at this rate???
So if I am reading this right 70/123 = 56% more $s but to do that they had add 67% more customers?
Of no matter, the thing is the profit expectations are what and when? So for me it looks like "investors" are gambling on a future and substantial profitability with no clear model to show how that is achieved?
"Xero is currently an early stage, high-growth, loss-making, SaaS company that derives almost all of its revenue from a recurring revenue business model," the company said. "Loss is less fundamental to the assessment of performance, as significant investment is required upfront to attain customers and drive future revenues in order to adequately capitalise on the growth opportunity and recurring business model."
If you invested 5 million dollars into real estate (industry, commercial, residential) what return would you expect? 0.5%? 1%? what's your opportunity cost? 3%?
Put on 10% more investment in stock. What kind of turnover would you be expecting, what kind of Earnings ratios? 5%? 10%?
considering the risk levels, the need for expert staff and constant weekend and stat day monitoring, the wear and tear on major machinery (whaichhaven't been include in the above numbers)....
It's only an asset if it's making a profit, so which is this asset you can sell?
For Xero it's the need for people to have accurate timely accounts or else IRD will destroy them.
For Xero it's the integration into suppliers and customers removing all sorts of human re-entering, all on a readily accessible live system (no more posting your accounts to sit on the Accountants assistants desk for 6 months)
I agree,
Below is what Xero is working on and IRd are listening as well as ACC and health providers. Adapt or find a new career?
"Henri Eliott, chair of a voluntary panel advising Inland Revenue on its billion-dollar Business Transformation project, forecast in March that the role of the traditional accountant "would slowly decline and possibly almost disappear" as a result of the move to a more "real-time" tax system"
Xero is entertaining.
How is their data "audited" as they state. Also their clients are skewed to lower, unsophisticated clients. With a higher churn rate. This is not representative of the entire SME space.
My experience is a high aversion by SMEs of any substance to the cloud.
Yes it will play the big data hand, IRD has been keen on Xero from the start and this is why smart and forward thinking SME actually resisting the cloud.
They want to control their data and not have direct access to it from the Government. Esp. IRS or IRD
This sentiment is acute in the USA given their state of surveillance there. Ironically this is xero's main growth target market...they will soon find out that data exchange will be the kiss of death for them in this market.
I actually think xero is freaking about their non performance in the US, decaying growth rate of clients in their main markets and looking at any avenue to increase revenue.
They had to spend more money to make client number forecasts..it will only get harder.
Any CFO leaving within two months is a concern...what did he not like under the hood? He would have conducted his due diligence..his whole career is on the line. People do not quit in two months unless it is compelling.
Seriously think they are just trying to get big enough so they are valuable acquisition to a main player. .someone not in the accounting space however has the channel :-)
I get a bit annoyed about people treating farming (or rental property) as other than a normal business - here's an example.
I read in the farming newspapers today, that they have made a breakthrough in Methane emissions for ruminants. possibly 90% reduction for cows. large articles, and no ideas about how or what it might be. Fair enough everyone says, it's research and that's a business. that's how they pump customers for money.
Yet when the Dairy Inspector came by a few years ago he noticed the system of antibotic I used was different than other peoples (and a lot more accurate). So he promptly wrote it all down. Likewise a few other things I use (like making plastic "curtains" out of 2mm black plastic sheet so I can remove them and soaj them rather than spend days water blasting the pit/walls). People expect farmers to invent and then to just take those developments. Do things too different and they'll stop supply if you don't do it the way they want (end product and food safety not compromised).
Name another business where the customer or third party can do that? Just waltz in and take your IP. Take an order for product then just decide they're not paying.
Or like the dairy service tech said today: farming is the only industry or business he knows of that the business owners can't set their charge out rate. Or where customers can just bowl in, and for free, dictate how things are going to be done.
so now this year we lose money. what other business is having a 10% below cost _on_everything_this_year_ sale??
I don't think they will ever have that, most other accounting software companies actually make a profit. They will survive long after xero has been bought out. Has anyone else noticed how rare it is, to find an IT company that regularly makes a profit? They all seem to be equity financed, by foolish investors.
For many years Amazon was losing money hand-over-fist, it wasn't really until the social media frenzy (Livejournal, Bebo) and the auction sites that every person could access (eBay, Paypal, TradeMe) that Amazon became more than just a really costly mail-order system.
Accountants are promoting this product flat out. The irony is they are promoting themselves out fo a job. This software will do for accounting what Uber has done ot the taxi business, amazon to retail, etc etc. The role of the accountant is being passed to XERO , MYOB etc as their technology becomes more and more sophisticated. A slow death for the small CA firms is underway, but based on their enthusiasm to promote it, they haven't figured this out yet.
They also correct and filter out a lot of data problems. The software suppliers will over sell their software's ability to do this.
http://www.afr.com/business/accounting/xero-settles-social-media-stoush…
Our accountants in Manukau recommended Xero to us and we totally stand by it, our old accounting software was clunky and expensive. I now have a real time view of my financial information wherever i am and this allows me to make commercial decisions out on the field.
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