September 29, 2010
Xero yesterday announced a small investment in New Zealand based Max solutions, the company behind SaaS project management product WorkFlowMax. This investment, while small and regionally focused shows a growing trend for vendors. This announcement was part of a broader initiative called “The Modern Practice” tying together a variety of different tools to provide a semi integrated suite for accounting practices.
Why is it happening?
Recently practice management vendor (and one time close Xero partner) Acclipse inked a deal with accounting software firm Saasu to package up client side and practice side software. MYOB already has the Australasian market covered with a somewhat integrated practice-side solution and so Xero was left, at least in the Australasian market, somewhat lacking in the practice management space.
This was especially trouble some as Xero has been at the forefront of the SaaS vendors, articulating the value of cloud based applications to businesses and to the practices that serve them. The accounting practices who invariably have to deal with businesses books at year end, are beginning to see the value that cloud based applications can bring. With this realization, practices are beginning to look at the applicability of connected applications to run their own practices. Xero had to respond quickly and seeing the existing players had already done deals with other vendors, their options where to build their own solution or help give someone else a leg-up to do so for them.
The Modern Practice is a logical initiative – Xero have partnered with Microsoft which has been trying to gain some momentum or its own BPOS products in the region as a strategic blocker to Google apps the credibility and deep marketing pockets of Microsoft will help Xero’s own aims.
The WorkFlowMax investment is more interesting, especially since Xero’s stated ambition is to build a global accounting business – this investment is purely to build a New Zealand specific practice management product and leaves questions about Xero’s approach in other countries.
Similarly from WorkFlowMax’s perspective it is an interesting decision. They’re essentially giving up around 16% of equity in return for a $200000 custom development job. They’ll no doubt be hoping that this development will extend beyond the New Zealand market and the credibility of having partial ownership by Xero will help their own marketshare ambitions.