Xero Just Confirmed The End of Xero As We Knew It!

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Few realize it, but Xero just Confirmed the end of Xero as we knew it.

My first The end of Xero QuickBooks-blog post used the March 2017 Xero Annual Report. The 2018 Xero Report  has just confirmed the end of Xero as we knew it.

Some Xero users know software development and customer service became so bad that Xero HID most feature requests and removed post dates (though we cannot delete or hide many Xero accounts in the chart accounts). However, I was wrong to write that Xero ignored many user requests for FOUR YEARS, despite 600+ near unanimous requests for many. I also was wrong to write many posts like OMG! Xero is the Future of Accounting (7/12/11) and We're number one for Xero (U.S., 4/3/12), but they now show Xero ignored many popular user requests for more than SIX YEARS.

Xero customer service became far worse during this period. Xero has no phone support and forum personnel also do not answer many posts quickly or effectively. Few use Xero or know accounting. The top Xero forum manager (wife of the top Xero programmer) asked why many wanted a general ledger, as she did not know what it was! Xero banned me from its forums (after I dropped Xero for all but two clients) for agreeing with a post saying dropping post dates retroactively was like rewriting history. A CEO appeal was no help, thought he had linked my blog, often answered my emails fast and tweeted "Stoked to finally meet" with our picture.

Few Xero users know the very important result of these many increasingly bad practices. Xero got 112% and 117% more users in its March fiscal 2011 and 2012 years. It looked like it would soon pass QuickBooks Online users, but Xero then went downhill fast each year. Fiscal 2015 users increased only 34% to 1,386,000.

I now see why this happened. Xero cut 2018 expenses to 107% of revenue, vs. 123% in 2017 and 156% in 2015. This cut them by 16% of revenue in 2018 and 49% since 2015. No wonder programming fell behind and users complained. Yet Xero still has a $28 million loss (New Zealand $, $.70 per U.S. $), vs. $69 million in fiscal 2017 and $307 million total (12 years of losses). The 2018 loss would be $46 million if it did not defer $19 million more software cost than expensed. Total losses would be $452 million if it expensed $5 million of goodwill (not being amortized) and $140 million of software. That is why it will be very hard for Xero to cover recent or total losses with more expense cuts, without losing many users. However, it must try because it only has $78 million in equity, from the more than $525 million that it had. That also is why recent Xero financials just confirmed the end of Xero as we knew it, in terms of catching QuickBooks Online or even challenging Intuit.

Xero also had many features not in QuickBooks when I switched to it. QuickBooks quickly copied them and improved many. Most important, QuickBooks had incomplete and incompatible add-on (app) interfaces, with big fees. This made a leading developer write, "The Demise of the QuickBooks Third Party Developer?" QuickBooks soon added the industry standard RESTful add-ons (apps) interface Xero used and dropped many developer fees. This got the developer to write a major new QuickBooks app and let QuickBooks catch up to Xero in an important area. It is more important than many think, unless they were at my first Intuit QuickBooks Advisory Council. That is where we heard that add-ons made users much more loyal to QuickBooks and more likely to update often. Intuit still has more work to do in terms of how many add-ons it has vs. Xero. Every Xero add-on developer, without a QuickBooks version, should be asked why, with prizes for fast and needed conversions.

It is unlikely that Xero could compete with QuickBooks Online if QuickBooks wanted a big market share. Xero lost $307 million to $452 million (NZ $) in 12 years, while QuickBooks Online users grew around 55% a year for 3 years. QBO had 2,827,000 users in January 2018 and should have 3,200,000 million by April (vs. Xero in March). Intuit also earned about $1 billion (U.S. $) a year in the last 2 years and more than $7 billion total so far. Therefore, it can easily cut prices, rush new releases and massively increase advertising to crush Xero. That is exactly what Intuit did, including making QuickBooks Simple Start free, to crush Microsoft for the third time.

Intuit also has very important unique assets: 20 million Mint users and 3+ million QuickBooks desktop users. It already did much to make QuickBooks Online more attractive to them and will do much more. That is why recent Xero financials just confirmed the end of Xero as we knew it, in terms of competing with QuickBooks Online or Intuit.

Intuit should want Xero and other competitors to be fairly healthy. The U.S. Department of Justice threatened Microsoft, on monopoly issues, when it tried to take over Intuit. The DOJ also investigated Intuit on other matters. QuickBooks once had 93% or 95% of the small business accounting market. The last thing Intuit wants is to have that big a market, when it can trigger DOJ anti-monopoly action. Therefore, Intuit has been and will be gentle with small competitors.

All this shows that Xero just confirmed the end of Xero as we knew it and that Intuit has a team of very competitive geniuses.

Editor's commentary about the Author:

Mike Block, CPA began working in accounting in 1968 and with QuickBooks in 1992. He soon earned QuickBooks ProAdvisor certification so he could help his clients with data entry and problem solving.  Mike got so interested in QuickBooks over the years that he developed a very special relationship with Intuit, and earned the status of 'world's highest-ranking pre-release beta tester for QuickBooks.'

When 'blogs' became the thing to do, Mike started his 'QuickBooks Blog' providing commentary on everything from the technology to the company behind the product. As competitors to QuickBooks began emerging Mike quickly focused on 'just how competitive' the competition really was in relationship to Intuit and QuickBooks.

Mike is a long-standing, trusted member of the QuickBooks Community. He writes from not only a 'forward thinking' observer, but an actual user of the products who understands the demands of his profession and how accounting technology impacts those demands.

Insightful Accountant is grateful to Mike for contributing this article, and we hopefully will enjoy future contributions from time to time. Please join me in welcoming Mike as a contributing author by posting your comments to this article.