How being born-in-the-cloud helped Xero win over the desktop ancestors

Rod Drury - CEO, Xero

It’s hard to comprehend that we’re more than ten years into the cloud journey and the technology’s true potential is only just revealing itself.

An arms race between Microsoft, Google and Amazon is establishing the second generation of cloud, the public cloud, as a truly compelling opportunity for SaaS companies.

We’re beginning to see innovation commoditised, with the ability to plug-and-play complex big data analytics and machine learning tools over billions of dollars-worth of transactional data.

It’s an opportunity which has required years of heavy lifting and hundreds of millions of dollars worth of investment to get to this point.

We’re not a traditional software licence company, we are using software to rewire the economy and it’s this global framework that’s enabled us to transform how small businesses work.

Here’s a look at how the cloud has helped us win.

Distribution disrupted

The desktop software industry was once considered very hard to unseat. Sold through the retail channel, even Microsoft found it difficult to compete against Sage with their accounting product in the mid-2000s.

But as more of the core accounting functions were built in the cloud and mobile technology became prolific, small business owners increasingly wanted to share their books with their accountant and be able to access their financial information from anywhere.

By the end of 2014, 38 per cent of U.S. small businesses deployed cloud services, compared with only 21 per cent in 2013, and IDC expected this to grow to half of all small businesses by the end of 2015.

For SaaS companies like Xero, who were born in the cloud, distributing our core product via the cloud made us incredibly agile and readily available to our users. It really was a win-win.

Global by design

While specific accounting rules vary between countries, it’s based on the same Double Entry, General Ledger system. Regional rule variations are easy to incorporate once you’ve built a single, core code base. Changes to those regulatory rules aren’t difficult to spot as they’re usually relatively slow moving.

And as accounting moves from back office to front office applications, there are less regional variances.

One reason the Xero add-on ecosystem is thriving, with more than a quarter of Xero’s 700,000+ subscribers using at least one of the more than 500 integrations, is that Xero abstracts regional variations so a partner can sell globally over the Xero platform.

Xero is localised in four main markets yet has customers in 180 countries and additional country flexibility and configuration has been designed into the product.

R&D allocation

The low marginal costs of adding countries to the product allows R&D investments to be spread across large a much larger TAM than traditional approaches.

The United States is responsible for a quarter of the world’s R&D investments, but increasingly a lot of disruption and innovation is coming from Down Under.

President Barack Obama recently said that when companies come together, “you help bring countries and cultures together”.

“You generate greater understanding among peoples from different parts of the world. That’s one of the most important things that you produce, and you should never underestimate its value,” he said.

“The world is smaller than it used to be because of innovation, because of technology, because of globalisation, because of global markets.”

Launching a global business from a small set of rocks in the South Pacific has been a really interesting journey. It’s meant we’ve had to move away from a head office mentality to establish a globally distributed business. Our C-suite is positioned right around the world. We use Google Hangouts and collaborative tools like Yammer to be the virtual watercooler.

Xero CEO, Rod Drury, was contributing exclusively to Reseller News.