Xero opportunities
Stuff reports:
Some New Zealanders might be the last to believe it, but overseas analysts and investors are convinced the country really could have a stellar success on its hands in cloud-software firm Xero.
After raising $180 million from investors on Monday, Xero’s shares smashed through $20 and climbed as high as $27 during a frenetic week’s trading.
Incredible. What is really fascinating is those buying up shares are not small inexperienced investors, but large professional investors who have concluded Xero is going places.
Founder and chief executive Rod Drury’s own stake in Xero is now about $570m, making him wealthier on paper than property investor Sir Robert Jones or film-maker Sir Peter Jackson.
What’s nice about Rod is he is no different to a few years ago. He still makes time to pop into things like Net Hui, and to promote things he believes in such as a second cable for New Zealand.
Xero faces bigger and more established competition in each of its target markets: MYOB in New Zealand and Australia, Sage in Britain (worth £3.5b (NZ$6.68b)) and Intuit in the US, worth US$19.6b (NZ$23.17), all of which are also putting their accounting software online.
But David Goel, a managing member of Matrix, reckons Xero is emerging as the “definitive software platform for small business worldwide”. That’s a huge claim. But among Xero’s 600 staff are a growing number of executives who have moved to the company from the world’s biggest technology companies, persuaded by the opportunity.
Two of them are Scottish-born chief revenue officer Stuart McLean, who previously ran Google’s enterprise software business in Australia and New Zealand, and general manager of marketing Jonathan Allan, a former vice-president of German software giant SAP in the Asia-Pacific.
Xero “hasn’t even scratched the surface” of the market, McLean says, comparing the potential to the area of a table and its current business as a dollar coin. McLean says there are 4 million businesses in the US that have made an upfront investment in Intuit’s popular Quickbooks packaged software to do their accounts. But there are another 21 million that currently use pen and paper or spreadsheets, and he believes many of them could reasonably be expected to make the switch to low-cost, cloud-based accounting software.
The share price of Xero reflects a belief it can not only win market share off the existing players, but also grow the market.
Xero has an advantage of never having been a non SAAS product. It has designed its software entirely for use in the cloud. I use it as a customer and love it. The other companies are trying to modify existing software to work in the cloud, as they have to keep current customers happy. That can limit their ability to innovate.
Allan says Xero is essentially following the same growth trajectory as another of his former employers, Salesforce.com, the US pioneer of online customer relationship management software, which is now worth US$31.5b on the New York Stock Exchange.
As Xero rents its software online, its revenue will keep building, he says.
“We don’t land $1 million deals. We land a $50 per-month subscription, but it is going to last perhaps 15 years.”
Xero is spending a lot of expanding. But there will come a day when it will have all these revenues and relatively light maintenance and development costs going forward