Analysis of Xero Accounting Software

Introduction

The computer program that helps the accountants and the bookkeepers to record and analyze the financial and the accounting transactions of an organization is termed as the accounting software (Ramanathan 2014). The aim of this literature review is to understand the various aspects of the accounting software that has been developed by Xero. The accounting software that has been developed by Xero offers many functionalities, and understanding has been developed through analyzing the various aspects of the software.

Xero is an accounting and online bookkeeping service provider based in New-Zealand. Xero develops and maintains the cloud services targeted for the small and the medium businesses (SMEs). The company has spread its offices in various countries namely, New-Zealand (NZ), United Kingdom (UK), America (USA) and is presently working for developing the software aimed for everyone (Xero Accounting Software 2016). The company is listed on the stock exchanges of two countries, NZ and Australia.

History

The company was founded in 2006 and was aimed to change the game plan for the small businesses. The services for the company started in March 2007 and the basic services that were provided at that time were manual journals, reports and a direct feed from the Bank of NZ. Founder Rod Drury and his personal accounting assistant always felt that the present computer-based accounting system has limited accessibility and needs to go online which can be accessed from anywhere which led them to develop Xero (King 2015). The company spent around five years in the domestic market of NZ and made sure that the services are of international standards before moving to international market. The company then spread Australia, UK and subsequently to the USA. The company went public on 5^th, June 2007 on the NZ Exchange and went public on the Australian Securities Exchange on 8^th, November 2012 (Smith 2015).

The company has received funding from several investors over time, some of the notable investors are Valar Ventures (4 Million USD in 2010), Matrix Capital (49 million USD in 2012) and had a valuation of 230 million USD in 2013. The company acquired the payroll provider PayCycle in July 2011 for a sum of 1.9 million NZD. PayCycle is an Australian company which provided online payroll and helped Xero to incorporate the services under its umbrella. In the subsequent year, the company acquired two more venture namely the Spotlight Workpapers and Workflowmax for a sum of 6.8 million USD.

Developments and Adoptions

Xero, after the inception of the product in March, budget manager, billing, My Xero (for account management from one place), contacts, recurring invoices and credit notes were added in the subsequent months. In the same year, the UK version of Xero was released. In the next year, performance tracking for P&L, Xero-2-Xero, Comparative balances, statements, Paypal Payments, Direct bank feeds and similar services were added under the umbrella (Xero Accounting Software 2016). The integration of Xero Global was a major achievement for the organization as the service allowed the cloud services to be available for everyone without the physical boundaries.

The year 2009 was dedicated to securities, and lesser services were added to the company profile. In 2010 services like DOCX Invoice template, Yodlee bank feeds, invoice branding and Bank Rules were added. 2011 saw a series of services that were incorporated. The notable services that were included were Xero Touch and Highrise integration. In 2012 the notable services that were integrated were Xero community, Payroll, and Online Invoices. 2013 was an important year for Xero and gave Xero the much-needed facelift (Wyslocka and Jelonek 2015). In the year services that ensured the easy operation on the platform Payment Services, New Payroll reports, Xero Touch and Payroll were added in the system.

In 2014 the new dashboard was integrated into the system, and Xero U Launch helped the user to understand the aspects of the software. The Xero Profiles was added in this year for accountants and bookkeepers so that they could connect to the valued customers. In the subsequent years, many other services were added to make the services better than the rest.

The Present Market Size

Xero has evolved over the years and at present has 1400 strong employees operating over different locations. The company has around a million subscribers, and the company has been noticing an exponential growth in its subscriber’s base.

Figure 1: The subscriber growth over the years

(Image Source:  Xero Accounting Software 2016)

The target segment for the company is the SMEs and aims to provide the best accounting solutions in the market. Xero offers around 1200 product services and updates and has more than 16000 partners. The accounting software has more than 1 trillion NZD on records and has a turnover of more than 124 million USD in 2015 and aims for around 207 million USD in the year 2016. According to the Xero Blog (2015), the company is the fastest growing cloud accounting service provider; the company is also one of the largest payroll providers. The reports state that Xero grew 74.7% in payroll sector and 80.3% in financial applications. Although Xero has a market spread over the globe the majority 94% of them are based in Australia and NZ.

The company has increased around 500% and promised more to come in future. The subscriber trend shows that the increase of the revenue has been exponential. The current capitalization of the organization is 5 Billion NZD which has resulted due to the aggressive subscriber acquisition and advanced services.

Figure 2: Revenue generated over the years

(Image source: Design 2016)

Leaders in the Market

The main market of Xero is Australia and NZ and the main competitor in this market is MYOB. Although there exist other service providers like Dynamics, Sage50, SageOne, SAP, etc. but the market leader in Australia and NZ is MYOB. MYOB single-handedly controls around 70% of the accounting market. The SaaS-based Cloud services account for 67% of the modern day consumer and is expected to increase over the time (Myob.com, 2016). MYOB failed to realize the importance of the cloud services and Xero with its varied services in cloud snatched away a major segment of loyal MYOB customers. This help Xero to gain the initial momentum required for the company. MYOB is a Fortune 2000 company and after suffering the initial setback is now spending extensively on research and development of products (Businessinsider.com.au 2016).

Competitive Advantages

Xero is a SaaS-based cloud based accounting service provider. The cloud has many inherent advantages compared to the stand alone system. The services provided through cloud are always online and can be accessed from anywhere. Since the services of the Xero can be accessed through a browser, the device that is being used to access the services doesn't need any specific software installed on the system apart from the browser (Curtis and Averis 2014). The services can be accessed through mobile devices like a smart phone. Since the cloud offers a singular platform for data up keeping, the data update is always real time and ensures multiple users working on a project are always up to date and is backed up (Trivedi and Gangwar 2013).

The other services that make the company stand out of the crowd are Automated Bank Feeds, Interactive Dashboard, simpler and fast invoicing, regular up gradation, and finally, the services are faster compared to other providers.  

The current challenges that are associated with the organization are the price of the services, authentication and authorization and successful management of intermittent data connection. The pricing of the services of Xero is a bit on the higher side and needs revision. Any cloud service provider faces the issue of security. The authentication and authorization for service access are not very evolved and needs to be updated and made multilevel instead of single level. The intermittent internet connection makes the services difficult to success and makes the system prone to error. The company has to evolve in this sector and make more versatile.

Recommendations

The services that have been offered by Xero have won hearts with its varied services (King 2015). But no system is perfect and needs some update to make is better. The recommendations for overcoming the challenges are:

1. Competitive pricing or singular payment option that helps in saving money for customers. This will not only encourage the new consumers to go for cloud but will also deter lateral movement.

2. The security should be made multi-leveled. The multilevel security will deter miscreants from gaining unauthorized access to the system.

3. Updates should be incorporated to make the system more versatile in case of intermittent connections.

Conclusion

In this work the various aspects of the online accounting and the bookkeeping software called Xero was analyzed and reviewed for understanding the accounting software. The various aspects of the history, development, and adoption, the present market size, the leaders of the competitive market advantages and challenges were analyzed regarding the software. Finally, the recommendation to improve the software has been suggested for improvements in software.

References

Businessinsider.com.au. (2016). [online] Available at: http://www.businessinsider.com.au/charts-the-battle-for-supremacy-in-australias-cloud-accounting-market-2015-4 [Accessed 21 Aug. 2016].

Curtis, V., and Avery, L., 2014. Bookkeeping For Dummies-Australia/NZ. John Wiley & Sons.

Design, Z. (2016). Home - Clare Capital. [online] Clare Capital. Available at: http://clarecapital.co.nz/ [Accessed 5 Sep. 2016].

King, A., 2015. Xero soothes auditors on automation.

Myob.com. (2016). About | MYOB. [online] Available at: https://www.myob.com/au/about [Accessed 5 Sep. 2016].

Ramanathan, S., 2014. Accounting for Management: A Basic Text in Financial and Management Accounting. Oxford University Press.

Smith, H., 2015. Xero for Dummies. John Wiley & Sons.

Trivedi, S.K. and Gangwar, R., 2013. CLOUD COMPUTING: A TOOL FOR ENHANCING THE COMPUTING POWER. International Journal of Information Technology & Computer Sciences Perspectives, 2(2), p.555.

Wysocki, E. and Jelinek, D., 2015. Accounting in the Cloud Computing.The Online Journal of Science and Technology, 5(4).

Xero Accounting Software. (2016). About Us | Xero. [online] Available at: https://www.xero.com/about/ [Accessed 5 Sep. 2016].

Xero Accounting Software. (2016). News & Media | Xero. [online] Available at: https://www.xero.com/about/media/ [Accessed 5 Sep. 2016].

Xero Accounting Software. (2016). Timeline: Xero History | Xero Accounting Software. [online] Available at: https://www.xero.com/feature-timeline/ [Accessed 5 Sep. 2016].

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