By the share price, Xero looks like it is on a bit of a slide against Intuit. Share price isn’t everything of course, though it is a good indicator of the way that investors think about a company. Xero is about against a Goliath, with multiple products, a twenty five year history, and has more than twenty one million customers across different sectors including small business accounting, health, farming, and finance. Xero is a David, a want to be King, from farming stock, a noble warrior and musician, who had the confidence to bring down the giant.
Xero. Born in 2006 in Wellington, went to the share market in 2007, entered the Australian market in 2011 as well as the United Kingdom then invaded the U.S. in 2012. Has made some acquisition of companies that have furthered their footprint in different markets. Born in the Cloud, Xero’s advantage is seen that it doesn’t carry the heavy legacy of an old-fashioned software development life cycle, such as Intuit, along with a strong ethos on the API. That allowing data to be automated across a number of different providers from banks, to time sheet systems, customer facing services of large companies, and the like. Xero claim 300,000 customer across 100 countries supported by 1,o00, and growing, employees. Xero’s operating revenue was $70 million as of March 2014.
Intuit. Born originally in 1983 it now has pedigree of over three decades. It carries a current seventeen products with a claimed customer base across of those of more than twenty-one million. Intuit has acquired over twenty five companies in it’s time, the bulk of those in the last decade. Intuit has an operating revenue (2013) of $4.1B. The company’s strategy is to migrate it’s customer base to Cloud, as a lot of it is still desktop based with all the drag that creates. But, by the numbers, it’s slightly larger than Salesforce.
The war for this slice of the sector is hot. There are dozens of products in the market. Intuit lists ten competitors that are a threat, including Xero. The value of that slices is in the mega-billions.
Xero beats Intuit in a very important area. Agility and start-up mentality. When you are born with that culture, you have a competitive advantage over any company that is not built in the same way. Xero can move quickly to market with new product and new innovations. However, as it grows, this will slow, and the balance of sales, versus market, versus acquisition, the overhead and cultural change that comes with massive people growth (see Z Energy for reference), and a single dear leader, present areas of high risk that will have to be very carefully managed.
Intuit is old-school. CEO Brad Smith recognises the need for that new culture;
““We want to be a 30-year startup,” he said. “Everybody in the company is a founder. Everybody in the company is an entrepreneur. Everybody in the company has the ability to improve products and come up with new ideas that we will commercialize.” – Source
I am not sure that you can turn that boat fast enough. While Intuit has mass, the ability for it to turn on a dime like Xero, while restructuring itself, is going to be less.
The war across this software area is no different to Cloud. It comes down to price point for consumers, a strong API market, and new features, packaged in a stylish way. Intuit could eat most of that market simply by dropping their price. They could run that way until 2017, when they will have their customers mostly on Cloud. Xero, and other competitors, are not going to be able to run at low revenue (or in some cases a loss) for a long time. They will simply go broke.
In this product market, there are really only two kinds of company. Those that are creating a niche product, a new machine, and those that are creating cogs for an existing machine. Many start-ups now recognise that there is little point in attempting to create niche products, it is incredibly rare that these markets exist. What they recognise is that they can make a better cog in the machine to displace other cogs. Ultimately, the machine, will come along and acquire the new cog that they have created. I.e. They get bought out.
Interestingly enough, some very large multi-nationals in the ICT sector have figured this out and are starting to break their companies into pieces on this basis. Niche or cog. Cog to be sold off, niche to be their new future.
Ask yourself, which is Xero? A niche player or a cog maker?
Only time will tell, but for now, the smack-talking continues and the battle is yet to really kick off.