On March 30, 2017, Xero released the news that they had hit 1 million subscribers. To be completely clear, this is one million paying subscribers, not one million free subscribers (*cough* Wave *cough*). The number is significant.
It’s funny, because companies usually send me press releases about milestones (or what I consider to be “Let’s do a press release to try and get attention for a non-thing”) all the time. This time I wasn’t sent a press release, but I feel compelled to write about it.
To come this far in the accounting software world is a huge feat, and should be recognized. But that’s not really the reason I want to write about the milestone. What popped into my head was how bad QuickBooks Online was back in the day, back when Xero was under 100,000 subscribers, back when QuickBooks Online was something I wouldn’t touch with a ten foot pole. Back then (in North America), Xero was this unknown and foreign newcomer, software that I initially didn’t like. It took me a little time to warm up to it, but once I figured it out — and it improved (as it has continued to do) — I grew to really appreciate the software in its own right.
Xero’s Impact in Accounting Software Market
But the bigger impact I saw was the effect on QuickBooks Online. I believe a big reason that today’s QuickBooks Online got to where it is now in the timeframe it did, is that Xero put a scare into Intuit. They knew they had to get better or risk getting left behind as software moved to the cloud.
It took a while for Intuit to fully embrace online. It’s easy to see why, as their main cash cow at the time was tied to the desktop world. But they had gotten too comfortable, and the push from a strong and accountant-focused competitor like Xero was exactly what was needed.
Sure, there were other successful quasi-competitors, like FreshBooks, which provided competition for the simpler businesses, but the industry really needed a product like Xero, software that could provide a rough equivalent to what QuickBooks Desktop could offer. Even to this day, though, there are some tasks accomplished much better online, and some that desktop software excels at.
Xero’s Global Challenge
Now the funny thing to me is that, as successful as Xero has been on a global basis, it hasn’t done so well in the US and Canada.
These numbers are from 2016, but at that time the 62,000 North American (US and Canada) subscribers made up less than 10% of Xero’s global subscriber count.
At the time of these year-old numbers, Xero had 717,000 subscribers worldwide. Xero now has 1,000,000 subscribers, so if you extrapolate the growth accordingly, the US and Canada probably account for about 100,000 of the Xero subscriber base today.
In contrast, QuickBooks Online reached 1.87 million paid subscribers globally as of February 23, 2017. Of that number, 370,000 are outside of the US — primarily in the UK, Australia, and Canada.
Here’s how the numbers roughly compare (these are estimates and extrapolations, look at the sources for the exact figures):
|Subscribers||US||Rest of World||Total|
So, roughly speaking:
- In the US, QuickBooks Online has 16x more subscribers than Xero.
- In the Rest of the World, Xero has 2x more subscribers than QuickBook Online.
- Globally, QuickBooks Online has 2x more subscribers than Xero.
Now, to get an idea of what this really means, let’s look at the potential size of the markets involved. Here are the populations of the big English-speaking countries:
- United States: 319 million
- United Kingdom: 64 million
- Canada: 35 million
- Australia: 23 million
- New Zealand: 4.5 million
If you total all five up, it’s 446 million people. The US and Canada comprise of 354 million, or 79%, of that number. Whereas the United Kingdom, Australia, and New Zealand account for 92 million, or 21%, of that number.
To put it more simply, North America comprises roughly 80% of potential English-speaking users, while the UK, Canada, Australia, and New Zealand account for just 20%. As we saw earlier with the rough numbers, QuickBooks Online has a massive lead in that crucial North American market.
Over the past few years, Xero has roughly doubled its subscriber count in North America on an annual basis, going from 18,000, to 35,000, to 62,000 in 2014, 2015, and 2016. Even if they continue to double each year, it will still take them four years to catch up to QuickBooks Online, and that’s if QuickBooks Online doesn’t grow at all. So, while Xero has been doing well on a global basis, don’t expect them to take over QuickBooks Online in the US anytime soon.
I think it’s safe to say that both companies are going to be in it for the “long haul,” whatever timeframe that is in software terms. I thank Xero for moving accounting software in a progressive direction and look forward to the always promised, life-changing software that will automatically do it all, yet somehow keep all the accounting professionals employed and happy. 🙂