I’ve been commenting over the past week or so about the long saga around the sale of Australasian accounting vendor MYOB. At the same time other vendors have taken the opportunity to suggest what they believe is happening – in part relating to the situation in terms of traditional private equity approaches, but at the same time talking up the transaction as the signal that the days of desktop software are finally over.

The second assertion is little more than marketing speak. While I do agree that desktop software is entering its sunset phase, it’s simplistic to suggest that all desktop software companies are also in a sunset part of their lifecycle – there are two many smart people trying to work out smart strategies going forwards for that to be the case. Sure it’s a very very hard ask to move from desktop to the cloud, but it would be an exceptionally bold person to suggest that it’s impossible.

So circling back to the Bain acquisition, Xero CEO Rod Drury asserts that the following occurred;

  1. The Archer guys are very smart and ruthless about making a return
  2. They correctly picked they could be in and out before the sunset business and decline in accountant-side revenue, was noticeable
  3. They cut costs to the bone, reduced investment and put up fees.  No quality or innovative software shipped during their time
  4. They knew the end customers were loyal to the brand and not sophisticated enough to see the play
  5. The flawed Microsoft Azure sync strategy looks good on paper but they never had to deliver it– great for a sale
  6. They found a further PE firm with lots of money, needing to do a deal but not experienced in the Australasian market, who had been tracking the category
  7. Flick.  $700m profit. Masterful

While this is a fun analysis to make, it’s probably a little belittling of Bain Capital to suggest that they are so shortsighted as to buy a lemon, or that they have no idea of a strategy going forwards. So, if Bain need to add value to the business, by gaining more customers and providing a coherent set of offerings for the new connected paradigm, what do they need to do?

Well as Drury rightly points out, vendors need an answer to the opportunities provided by the “single ledger” – where businesses and accountants use the same set of data but look at it through different lenses. MYOB is currently hampered in that, while it has products for both businesses and practices, they are essentially separate products with some sort of low level integration hobbled together – that simply doesn’t cut it in the cloud world.

So what Bain need to do in order to drive up the value of their acquisition is to really deliver in this new cloudy paradigm. They need to either build or buy a consistent cloud offering that gives both client side and practice side functionality…. what to do?

Well luckily there is another Australasian client side vendor, one that is partly owned by another Australasian vendor, this time someone practice focused. The client side vendor I refer to also has the benefit (from Bain’s perspective) of being seriously under rated – it’s an awesome offering with very broad functionality, significantly broader than that of Xero.

As for the practice side vendor – they’ve got good momentum in both Australia and New Zealand and are managing to wean practices off the incumbent solution, MYOB’s Accountants Office. Funnily enough, the practice side vendor, is someone who Xero themselves talked up saying;

[they] have been investing heavily in that side of accounting. As we got to know them we saw that they shared our vision for reinventing accounting. We quickly identified lots of opportunities where we could make our software work together to dramatically improve the way accountants work with their customers. Exchanging of data between client accounting software and Practice Management is such a painful area where there has been minimal innovation. We’re excited about the things we can do.

Those words were from three years ago when Xero was announcing a partnership to produce the “single ledger” with said vendor.
So… my call is that Bain will chose to acquire companies that let them truly compete in this new world. If I was Mike Chisholm, CEO of Acclipse, or Marc Lehmann, CEO of Saasu, I’d be waiting for the phone to ring sometime soon. If that deal came to fruition, it would be a completely new battleground in Australsia, and one which would give Xero an honest fight.
Ben Kepes

Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

  • Hi Ben, would you add Smartpayroll to that list? MYOB needs one of those too.

  • I suggest that this article is written in ignorance of MYOB’s cloud strategy and progress towards that, whereas one would assume that Bain’s purchase decision is made in the full light of that knowledge. If I were Mike Chisholm, I wouldn’t be waiting for the phone to ring, I’d be wondering what MYOB are up to.

    • John, thanks for the post. As someone who has spent time consulting to MYOB about their cloud strategy, I can assure you I’m well up with the play about the direction they’re going. My analysis still holds.

      • Hm. So, is MYOB’s azure sync strategy flawed because they were not listening to their consultants or what?

        • Tim – until we see a product in the wild it’s probably to early to comment – and obviously I’m a little conflicted. I will say that there is some validity to a software + services model that syncs data between desktop and cloud…

          • For MYOB it is more about keeping their traditional consultant and client base satisfied then it is about any real business need for an offline/online model. Unfortunately MYOB haven’t delivered on their new product after years of promises. The fact that they have no plans for release of an API for 3rd party integration indicates that they have either been given bad advice or they are stuggling to produce a credible and stable offline/online solution, resorting to cranking up ODBC support in aworld where integration is everything. Drury is correct in saying product development has stalled badly since the Archer ownership.
            So in one corner you have the traditionalists who are suspicious of there data being ‘out there’ and in the other you have Xero customers who don’t harbour the same fear.
            If nothing else changes, surely online accounting will prevail.MYOB have the cushion of a huge customer list but that will erode fast if they don’t pick up their game.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.