Xero has moved one step closer to becoming New Zealand’s first global technology giant.
Last week TCV, a Silicon Valley investment firm, bought 1.4 million Xero shares from Matrix Capital Management. The deal was worth NZ$28.5 million. That’s a little over one percent of the company.
Few people in New Zealand will have heard of TCV. Most New Zealanders will have heard of the company’s other investments. TCV owns equity in, among others, Airbnb, Facebook and Netflix.
Xero a name in Silicon Valley
Technology Crossover Ventures is based in Palo Alto, California, the epicentre of Silicon Valley.
Matrix reduced its holding in Xero from almost 10 percent of the company to around 8.5 percent.
The share transfer may not be a big deal in Silicon Vally terms or even in TCV terms. The business has close to US$10 billion invested in technology companies. The investment is from a TCV fund that focuses on mature firms that already have an impressive track record.
Yet it is significant for Xero, although not in financial terms. It’s an important vote of confidence marking Xero’s arrival in the technology premier league. That’s something no New Zealand company has managed before now.
The cloud accounting software company has disrupted global markets. Xero made the world sit up and look at New Zealand technology.
While Xero’s share price has fallen back from the mid-2014 high point, it has performed well so far in 2017. The price is up almost 15 percent since Christmas. In mid-December it traded at NZ$17.50, today, at the time of writing, it is NZ20.50. That’s the highest point for the company’s shares since November 2015.
Like many fast growing technology companies the business has yet to turn a profit. Although that day is now getting closer. At a recent company update founder Rod Drury said the business will soon be cashflow positive.
It continues to show strong growth in revenue. What’s more subscriber numbers continue to climb. This is a vital metric for a software-as-a-service business. At the end of March it hit the milestone of one million subscribers.
Xero says its Apple Pay partnership will help small businesses get paid faster.
The company says slow payments are a major source of grief for small businesses who often struggle with poor cash flow.
Xero says its customers around the world sent 15 million invoices in the last 30 days. Based on Xero’s data customers will pay more than 60 percent of those invoices late.
It says there is evidence that if you offer debtors a payment service your invoices get paid almost 80 percent faster.
Xero is using Stripe to add Apple’s Pay technology to its services. Strip operates in 25 countries, its service allows anyone to accept internet bill payments.
Apple Pay easy
Apple Pay streamlines the paying process. Online credit card payments involve a lot of fussing filling in forms and looking up security codes. It can be as simple as reaching for the Touch ID button on an iPhone, iPad or MacBook Pro. It is also fast.
If you’re a business taking Xero payments with Apple Pay and Stripe you get the extra level of security. Fraud is harder.
Connecting Xero users with Apple Pay means transactions are automatically entered and matched against invoices. The more automation the better.
With more and more online transactions taking place on phones, Apple Pay opens another channel to get money into a business faster.
One of the most interesting things here is how Xero is able to focus on the things that matter most to small businesses. Cashflow is essential. Small business owners and freelance contractors tend to live off the cashflow.
Next year, Hawke’s Bay will join the likes of San Francisco, London, and Singapore, as a base for global software company Xero.
The ever-expanding company will be opening a new office in Napier — potentially at the new Ahuriri Tech Hub — which will create 30 support jobs over the next 18 months to join the company’s global customer experience team and specialist payroll experts.
Australian accounting software company MYOB bought Greentree for NZ$25.5 million. It will pay another $3 million if the owners meet unspecified targets.
It’s the latest move by what was, until recently, the regional leader in small business accounting software.
Over the last five years Xero has hammered MYOB by offering a clean, online, subscription-based alternative to desktop PC accounting software.
The pair squabble over numbers, but whatever the details, Xero has pulled a lot of market share from MYOB in New Zealand and Australia. And that fact alone informs every major decision MYOB makes.
Xero thinks big. Its goals stretch far beyond Australasia, the New Zealand based software company wants to handle the world’s small business bookkeeping and expand into providing wider fintech services.
In contrast MYOB remains focused on Australia and New Zealand. Which goes some way to explain why it bought Greentree. If Xero is expanding outwards, MYOB is pushing up.
Greentree is a New Zealand-based business software company with a range of ERP (enterprise resource planning) products. It sells to around 850 organisations in New Zealand, Australia, the UK and US. It’s a quiet achiever, an export earner and something of a catch for MYOB.
Greentree sweet spot for suites
Most of Greentree’s customers are larger than the companies that buy small business accounting software from the likes of MYOB and Xero.
They include firms like Ryman Healthcare, Mediaworks, Easiyo and Johnston’s coachlines. These are big names in New Zealand, but they are small in regional terms and tiny on a global scale. Greentree also counts schools among its customers.
Even so, the important point is that Greentree’s customers are organisations that need more than basic small business accounting. There are dozens of ERP modules in the firm’s portfolio.
To a degree this squares with MYOB’s other recent New Zealand acquisitions. In the last three years it has purchased BankLink, PayGlobal, Ace Payroll and IMS Payroll.
While this portfolio extends MYOB’s reach into adjacent markets, the thrust is to push upmarket to serve more lucrative customers. ERP buyers spend a lot more each month MYOB can charge for small business accounting software. Greentree licenses typically run to many thousands of dollars a year.
The cathedral and the bazaar
While MYOB is moving upscale, it is also vertically integrating. This is in contrast to the focus at Xero which has developed a vibrant ecosystem of partners that create point apps extending the brand’s reach.
That sounds plausible. It’s a tried and tested strategy. Many software companies have treated acquisitions the same way in the past.
Keall and Kepes also mull over the potential, imminent parting of the ways between MYOB and Bain Capital, the US private equity firm owning a majority stake in the business. In the greater scheme of things, Greentree is too small to be a material consideration in what happens next to the company. On the other hand, a timely acquisition shows the management isn’t asleep at the wheel — something potential investors will want to see.However, it looks as if MYOB is feeling the heat from competition with Xero at the mass market end of the accounting software game. Moving into markets where customers are less inclined to count pennies speaks volumes about how MYOB views the future of small business accounting software.
One of the advantages of cloud apps like Xero is that it is easy to link them. You do none of the hard work, that’s all handled for you. Best of all, you don’t need to buy fresh software or download and install patches.
Xero founder Rod Drury has hinted in the past that this year would see a lot of behind the scenes work to help small business owners get more from their existing data. He is also keen on automating processes.
Overnight his company took another step along that path when it announced Xero now links directly to Microsoft Outlook. This means you can get to mail messages, documents and contact information without ever leaving the online accounting software.
Likewise, while you are working with Outlook you can get a feed from Xero telling you details about a customer including what they have purchased and what they owe. You can then open their Xero contact information without leaving Outlook.
Taken in isolation, it’s not a huge leap forward. However, Xero has set up a number of similar links weaving its functionality deeper and deeper into small business workflows.
Late last year Drury told me a new wave of innovation is on the way. He says: “When it arrives your software will be able to watch what you’re doing, spot something that matches a pattern it already knows then ask questions like: Here’s something we noticed that we need to ask you about.”