Good morning

We’ll be posting throughout the day from the Viaduct Events Centre in Auckland New Zealand.

Check back at 9.00am NZST for live coverage from the Xerocon keynote #xerocon.

9.37am CEO Rod Drury keynote

“This is about real people, things that they play with everyday. We make things a whole lot easier.” 

9.50am Introducing some of the Xero board members

Sam Knowles, Phil Norman and Craig Winkler

10.00am

Big investment in the last year into accountant side features as it makes sense in the Cloud. Client and accountant software should be seamlessly connected. The client pays-not the advisor.

Xero is moving from being a software vendor to being a partner.

Many practices have out of date hardware which is not helping them to to move to the Modern Practice model.

Partners need a ‘common desktop’ so all of their document and file management works together. Many do-it-yourself solutions require more time in the long run.

10.10am Practice management

Announcement of the new practice management offer with the acqusition of Workflow max. Free practice management for partners who add 20 clients – that caused a ripple of excitement. I think I heard a ‘woo hoo’ or three.

10.23am Andrew Tokeley takes the stage to talk about the Xero Roadmap

You can call him ‘Tokes’.

“Even my 83 year old grandmother calls me Tokes so don’t feel weird.”

Report packs give complete control, new features such as notes can be drag and dropped to make life a lot easier.

You can now take Word or Excel tables and drop them into report fields. Lots of claps from the floor.

10:44am What’s in store for 2012 – report packs

Custom report fields e.g. banker, overdraft size, solicitor.

Automating schedule for Current Accounts and Loans.

Report code updates.

Purchase orders, quotes, stock lite and setup and conversion tools.

“We are not doing a full stock management system.” 

10.49am Next up, it’s Craig Walker 

30,000 + downloads Xero Touch from app store.

Craig tells us “what he got up to over the Christmas break.” … Address verification.

Data shows businesses dealing with the same businesses across the ecosystem.

Developing the Xero-to-Xero user features. Online invoices create online statements and help businesses get paid faster.

Users also get remittance advice (big cheer).

11:05 am Sara Goepel

Sara Goepel

The new Xero business community will be coming out on the 13 February. Businesses can help each other and work together.

Online training and a training dashboard for partner edition. Online training modules mean that businesses can keep track of their requirements.

You should see bank feeds in Xero personal in the next two to four months.

11.32am 

Back from the break. Getting ready to hear Hon Craig Foss speak.

“It is fantastic to be in room full of accountants. It’s not often you say that.”

Lots of concerns about the global economy around the world. It is a great time to be doing business in New Zealand. We are a trading nation and the world wants the stuff that Xero is making.

We need people with clever ideas and big visions.

We need exporters and investors who can see a new, innovative, start-up company and make it grow.

The huge investment in fibre adds lots of new opportunities for New Zealand businesses.

12.10pm Trevor Schoenmaekers, Hansens Accountants

GST is the biggest nightmare for his practice.

Trying to send things to India to save costs didn’t work and client’s didn’t like it. Trying to do reporting was taking too long and there was no time to spend with clients.

Switched to Xero in June 2010.

“Their (Xero’s) support to me was something I had never, ever, ever experienced before. One push of the button turned off $30,000 worth of fees to MYOB”.

Show of hands for the Rob Nixon group people in the room? A few here.

Major culture change was required as accountants in the business became more responsible for their clients. Increased transparency was hard for some to change habits. The business models have changed inside the practice.

Hired a marketing person fulltime to use new tools such as Twitter and Facebook to connect with customers. Staff turnover has basically stopped by creating fun and focusing everyone on clearly defined targets. Clients are encouraged to pay bills on time with prizes such as weekends away.

Trevor & Rod

12.40pm David Jessep, DJCA

David invested heavily in his business and then the Christchurch earthquake hit. He was in a bar called the Twisted Hop having a beer at the time. The whole building was demolished.

Up in running after three days with some cheap laptops and products such as Google Docs and Smart Payroll.

“The Cloud enables two businesses that are passionate about different things to connect and work together.”

“We’ve made lots of mistakes but we learned lots. It was hard in 2011 but we still doubled in size.”

1.00pm Lunchtime. (I’ll plug-in and be back soon for the afternoon workstreams).

In the meantime, you might get some food tweets on Twitter #xerocon.

1.56pm Hamish Edwards - Profiting as a connected practice

“Who went to university four years to learn how to do tax returns?”

A lot of accountants have  a lot to offer business because they run their own business.

Labour is expensive and junior accountants are getting paid more.

Love the bookkeeper. “If you annoy one of your client’s staff they will go with their staff not you.”

2.19pm  The Single Ledger

The same accounting system used by the accounting and the client.

The same accounting system is used for all clients.

2.35 pm Live Demos

Spotlight workpapers + Xero + WorkflowMax

Annual financial statements can be built anywhere. Very fast and easy to do.

Richard Francis launches a new innovation on stage with his wife Julie, Spotlight Workpapers.

March 20 is the target release date. Data is imported live from Xero into the workpaper.

The one-stop shop workpaper approach enables queries to be captured and shared online, in real-time.

2.56pm Gavin George

WorkflowMax and now Xero’s newest employee as WorkflowMax country manager for New Zealand demos value-based billing and looking at improving job throughput and practice efficiencies.

WorkflowMax demo

3.10pm Hamish Edwards back into it

It’s not about time. What is the average fee per client?

Taking questions from the floor

3.30pm

Guy Pearson from Interactive Accounting presenting his journey to the Modern Practice. Aiming to go global with his practice enabled with Cloud tools such as Mailchimp, WuFu, Google, LodgeIT and Eventbrite.

Guy Pearson's Ecosystem of providers

4.30pm

A few questions from the floor from some of today’s speakers.

Speakers take questions from the floor to finish of the day session

We’re wrapping up now for a bit so we can all go and get beautiful for the gala dinner and awards ceremony at 7,30pm tonight at the Viaduct Events Centre in Auckland. Keep an eye on our Twitter feed at #xerocon for winners of the New Zealand Xero Partner Awards for 2012. Thanks for all your comments and pictures. Great to see everyone had such a fun and informative day.

But they’re pretty useless when it comes to providing concise and illuminating answers to complex, more nuanced questions like ‘how are you different to the 20 other players in your space?’

So, I’ve developed my own personal set of metaphors and these variably bounce back and forth between long distance running and icebergs.

Long Distance Running

The stage of adoption of cloud based applications like Xero – in the UK market at least – is still early. By early I mean to say that an approximate estimate of the numbers of UK businesses using online bookkeeping is around 20,000 which I estimate to be about 1% of even a conservative addressable market size of 2 million businesses – (there are 4.7 million businesses in the UK, 98% of which are very small and 2.1 million are sole traders, so an addressable market estimate of 2M companies is pretty conservative). By any definition that’s very early.

Classic technology adoption bell-curve pop-science says that innovators and visionaries make up around 5% of a given market before early adopters show up. To counter that, speed of customer acquisition is high so it won’t take long to eat through to 5% market adoption and the much larger community of early adopters, perhaps 2-3 years tops.

So it’s a long race and I’d say we’ve just finished the first lap. And being the first lap, everyone starts at the same point, more or less, and remains bunched together which makes it incredibly hard to differentiate and pick out the ultimate podium finishers.

But by lap two the field begins to open up a little and evidence of strategy, training, stamina and determination begins to emerge and it becomes easier for the audience (market) to work things out as a pack begins to draw a little distance from the original starting line up.

So, we’re definitely on lap 2 and the field is stretching out and I think Xero is in that lead pack in the UK.

As an aside, although they haven’t even found the arena never mind made the starting line, Sage will no doubt finally show up with some Heath Robinson rocket propelled roller-skate contraption and could – if they’re lucky – catch up quickly, if not very elegantly.

Icebergs

This is a variation of an old fake Rolex metaphor I’ve used in the past to describe new technologies that look like the real thing but which are fundamentally lacking in one or several critical aspects, but which still succeed in drawing attention and some market share, if from less discerning customers.

But implying that your competition are all making fake Rolexes is pretty disingenuous and not very cool – so I don’t use that one these days unless it is a genuine counterfeit business plan – and I’ve been pitched a few of those.

When you are building out a new product or business you can take a couple of different approaches, aim modestly low and scale up investment as demand justifies it, or flip that logic and aim high from the beginning and try to create high levels of demand early. Aiming high requires you to make tough early investment based decisions about brand, marketing, architecture and go-to-market strategy on the assumption that you’ll be successful in filling demand.

Initially evidence of those decisions is generally invisible to the outside world, aside from tangible things like branding. This makes it incredibly hard for the market to differentiate between players.

But if you’ve built in scale assumptions from the beginning then it is – if the plan comes together – a tough but critical decision that pays off in the medium to long term as the various stages of customer acquisition begin to take their strain on the business, the product design, architecture and your operational choke points.

In other words building a business that gets to 1,000 paying customers is very tough, but getting to 5,000 or 10,000 and beyond is exponentially much, much harder and more complex, particularly if you have to change course or undo decisions mid-way through.

So, it’s easy to build the tip of an iceberg, much harder to build the whole thing especially when it’s invisible to the market at the surface.

And if new cloud competitors have any hope of putting a fatal tear in the hull of the cruise liner that is Sage in the UK, then they’ll need a bloody big iceberg – not just the tip – fitted out with tracking sat-nav, a means of self-propulsion and a few torpedoes to boot.

We think we’re up for it.

Which is to say there are 3,999,999 duplicate records that in the old unconnected world of business is an unavoidable consequence of necessity. Using some dubious expert guesswork I roughly calculate that one instance of BT’s details would use around 4k of disk space and therefore by theoretical extension all those duplicate BT supplier account records would soak up a combined 14 gigabytes of disk space.But that’s just one big company that has lots of customers and clearly not every single one of the UK’s 4.7 million companies trades with each other.

So, let’s ignore the big old edge cases and instead guess that the average small business – for they make up 98% of the 4.7M – maintains 500 other companies’ customer records in their accounting systems, not including prospect lists or other databases like services, warranty, memberships etc. Using my same dubious guesswork of 4k per record, that throws out a customer record database of about 2 megabytes per company. And if all those 4.7M theoretical 2 megabyte databases were dumped onto a single hard disk, that disk would need to be a not inconsiderable 9,000 gigabytes in size – single hard disks run to about 2,000 gigabytes today.

If all UK company data were stored only once in a centralised cloud database and all systems of record stored  a simple data pointer to each centralised record copy, the collective cloud data-file would be a measly 18 gigabytes.

You can get USB memory sticks larger than that today for twenty quid.

Finally, to get the absolute worst-case theoretical filesize where every UK company traded with every UK company we’d multiply 4.7M companies by 4k per company record to throw out single company’s data filesize of 18 gigabytes which we’d then multiply by 4.7M to arrive at a whopping 8.4 billion gigabytes of collective disk space.

So, a single instance of a universal cloud based database would take up 18 gigabytes and the theoretical worst case offline figure is 8.4 billion gigabytes with the true figure being goodness knows somewhere in between. And that’s before factoring in other records and transactions.

But before this blog post gets totally out of control, my simple observation is this; as we shift ever more into an online digital world whether it be systems of record in business or 10 million personal music libraries containing exact duplicate copies of a single MP3 file of a Lady Gaga track, you have to wonder if we will ever kick this thus far inescapable appetite for epic levels of database redundancy that our legacy IT systems and old world business processes impose.

I hope we do.

They say a house is only as good as its foundation, and we believe the same holds true for web applications like Google Docs. With our old foundation, we could continue delivering most features you wanted quickly, but over time it became clear that some just weren’t possible. So we decided to rebuild the underlying infrastructure of Docs to give us greater flexibility, improved performance and a better platform for developing new features quickly.

Today, we’re pleased to announce preview versions of the new Google document and spreadsheet editors and a new standalone drawings editor, all built with an even greater focus on speed and collaboration. To get a taste of what’s new today, check out our video:

This is much more like it. My docs sites haven’t updated yet but I’ll be checking during the day.

Marc Benioff from Sales force writes an essay on Sandhill.com: 2020: I See It Clearly – Through the Clouds

The article is packed with great quotes …

Thanks to cloud computing, sensitive information is no longer prisoner to a device, data is accessible from anywhere, and collaboration is enabled like never before.

Nikesh Arora shared a story to which we can all relate. He was late for a flight. Airport security was the usual tough slog: Pockets empty; shoes off; laptop out. With moments to spare, he boarded the plane—and then realized his bag was a little too light. His laptop was back at security.

The loss of a key executive’s laptop would be a considerable cause of concern for most companies. However, unlike most of the laptops that passed through Heathrow that day, there was not much on this computer—certainly no sensitive data. As soon as Mr. Arora got a new laptop, he connected to his Google Apps, and was back in business. Nothing was lost, nothing was comprised, and a whole new way of doing business was gained via the cloud.

“When the network becomes as fast as the processor, the computer hollows out and spreads across the network.” That is both an accurate description of what we are seeing today—and a dire prediction for the future of traditional software.

We are experiencing a phenomenal change in our industry with the rapid adoption of cloud computing. The last time we saw such a shift was in the 1990s when the PC revolution morphed into client-server and challenged the mainframe for dominance of the enterprise. That transition threw the balance of power from stalwart companies such as IBM and DEC to challengers …

Today, every major analyst firm sees cloud computing expanding its share of the overall IT market. Gartner Group predicts that cloud computing will continue to be the top strategic opportunity in technology this year, and it has forecast that cloud revenue could grow from $56 billion in 2009 to $150 billion in 2013.

Customers are voting for the Cloud with their dollars, euros, and yen because the software industry grew too greedy, too complex, and too out of touch with the customer. Outrageously expensive to buy, costly to maintain, and difficult to change, traditional client-server software has failed customers for too long.

Customers pay as they go; vendors recognize revenue as they deliver the service. This model aligns the vendor with the customer’s success. That’s a significant change over the way we viewed the relationship when I was in the enterprise software business, when it was all about making the sale. Today, cloud computing vendors know they have to build enduring customer relationships, not the one-night stands that define traditional enterprise software sales.

The new opportunity this affords us—the ability to work in real time—is a big change from the past. While market shifts happen in real time, deals are won and lost in real time, and data changes in real time, the software we’ve used to run our enterprises has been in anything but real time. New real-time cloud applications, platform, and infrastructure mean that when a market zigs, customers won’t have to wait weeks or months for their software to zag. It’s instant—and that’s a timeframe we’ve come to expect.

In 2020, the “office” need not be much more than an Internet connection. I can’t wait to see what entrepreneurs start in coffee shops, garages, and rented apartments. Right now, we are authoring our own odyssey towards economic recovery. If history serves as a soothsayer, this will be a time of robust business formation and innovation. I can’t predict what the next great billion-dollar business will be, but I can almost guarantee that it won’t be run on a rickety jukebox full of software hits from the 90s.

Also Steve Balmer has been talking Cloud today: Ballmer: Microsoft ‘Betting Our Company’ On The Cloud

About 70 percent of Microsoft employees are working on cloud-related projects right now; that figure will reach 90 percent within a year, he said.

We’ve spoken to lots of accounting partners and customers over the last many months. They don’t really care that that there is this concept called “The Cloud” but it is very cool to me that they are excited about how their software now works and that they see the benefits and opportunities of collaboration. Even further it’s great to see small businesses really thinking about how they market themselves in this new era of connectivity.

All the things that Marc is saying we are experiencing first hand at Xero. It’s a definitely a fun time to be in software.

Upload and store your files in the cloud with Google Docs

The Google applications are fairly low on features but being able to have a single document that anyone can work on, and at the same time, is very useful. You don’t have to worry about who has the latest version of document – there is a single version of the truth. Here is a backgrounder on docs …

Now, with docs you can store any type of file. So for small businesses or clubs and groups with no infrastructure, you have a free workspace where your files can live and are looked after for you. That’s huge.

This makes it easy to backup more of your key files online, from large graphics and raw photos to unedited home videos taken on your smartphone. You might even be able to replace the USB drive you reserved for those files that are too big to send over email.

Combined with shared folders, you can store, organize, and collaborate on files more easily using Google Docs. For example, if you are in a club or PTA working on large graphic files for posters or a newsletter, you can upload them to a shared folder for collaborators to view, download, and print.

Pretty useful!

The resulting travel disruption forced many people to stay at home rather than travelling to their workplaces and the lost productivity will most certainly have impacted the economy; some estimates even place the overall cost of the winter disruption peaking at over £600M per day.

Some disruption is unavoidable – if your delivery trucks are stuck in snow on the M40 then there’s frankly very little you can do about that – but in this modern, internet connected era of smartphones, mobile working and online applications it is reasonable to conclude that at least some UK businesses will have been less impacted than others. Thanks either to the ability to keep on top of their email from home using their Blackberrys or Outlook Web Access, to continue working with their colleagues remotely with Google Apps or indeed run their accounts or sales operations from their kitchen tables.

It would be interesting to learn of more stories from the UK from the last week about the extent of the winter disruption and if the ability to work on regardless thanks to online applications like Xero was a welcomed advantage or not.

.

It also shows for countries outside of the US how important getting fast connections to data centers will be. Already this is true for stock trading platforms where a few milliseconds can provide a trading advantage.

An interesting data point in the video is 80 milliseconds is the maximum response time required for an application to ‘feel local’. Also that it’s tough to fight physics – so you need to be within a 1000 miles of a server farm.

There is a worrying implication here that if you live in a zone where it is uneconomic to have a close (within a 1000 miles) server farm you will increasingly be on the wrong side of a digital divide. Some technology based opportunities simply will not be available to you.

Anyway, I think this is as an important video for SaaS. What do you think?

As we had more meetings we realised that it might make sense to formalise our group. So we started to search for the right organisation to help us amplify what we wanted to share with other interested people. Luckily through my involvement with the NZTE Beachheads Board I met Charles Ward from Intellect UK. The people at Intellect were very welcoming and thought that a SaaS Special Interest Group would be a great idea.

Saying goodbye to our city pub, we convened our first official meeting and decided that the first order of business should be to write a guide to SaaS for people in business. We divided up what we wanted to say into various sections including the benefits, implementation, the costs, security issues and legalities. These were then assigned to different people. It took about five months to write and collate it all and I am very pleased to announce that the guide titled The Business Case for Software-as-a-Service has now been published! You can download a copy here.  

A big thank you to Intellect and to all the contributors. I’d like to think this is an excellent, uncomplicated summary of  what SaaS is all about.

When people compare SaaS or Cloud Computing applications with their classic counterparts, I imagine the main differentiating factors that always spring to mind first are things like high accessibility, pay-as-you-go pricing and mild security concerns, although the latter is on the wane as attitudes towards online security mature. But speaking as an ex old-world-software exec, one aspect that’s possibly overlooked more than it ought to be is the ease with which updates, bug fixes and new features just quietly appear with little or no fuss.

Alongside developing and testing new software releases, traditional software companies have always had the additional operational overheads of mass duplication, packaging and shipping potentially thousands of CDs (or, latterly, zipped downloads) and the associated documentation to customers. And that’s the easy part. Depending on the design or complexity of the application and the relative impact of the patch or update, there’s often also quite a burden on users to carefully schedule and apply the update – after taking extra care to safeguard their data, document designs and other customisations – and in some cases incurring the additional cost of a consultant to ensure everything goes well.

All of this adds up to a situation where software companies choose (or, rather, are forced) to chunk-up releases and accumulate stacks of non-critical patches and updates to attempt to mitigate all this effort and disruption as much as possible.

If my personal experiences of using Xero are anything to go by, aside from a couple of hours of Sunday downtime once a month and a politely discreet dialog box highlighting any changes and new features, the way online software is maintained, improved and updated is quite remarkably unremarkable.

In doing so, I fully accept that I will never again be able to re-join the ranks of my old software brotherhood, such a profound act of disloyalty it is to reveal their tightly guarded secrets.

What follows may shock some but I’m sure will be no surprise to others. These brief snippets and insights speak of the dubious practices and standards of behaviour of a now ancient order, over which the bright new world of Software-as-a-Service will eventually prevail, I have no doubt.

1. Shelf-ware Syndrome: This is the result of (deliberately) inflexible software pricing models; or software salespeople discounting licenses of one product to secure the sale of another; leading to many customers purchasing – and paying ongoing maintenance for – more software than they actually require.
2. The Disposable Razor Blade Business Model: The reality is that most legacy accounting software companies derive a significant majority (in some cases over 75%) of their revenue and profits from the associated software maintenance and consulting services than from actually selling their software. Makes you wonder why we still call them software companies.
3. Enterprise Software Is Deliberately Difficult To Use: And the reason for maintenance and services revenues outstripping software licenses? – let’s turn to Bob Cringely for the answer; “If SAP could make R/3 easier to use they would do it, right?” – Yeah, sure they would, Bob…
4. Turning Pig Lipstick Application Into A Fine Art: The blistering pace of technological innovation during the 1980’s and 1990’s and the resulting redundancy of technology platforms (MS-DOS, Windows 3.X, Windows 9.X…), meant that software companies used not to have the option of keeping their old products alive beyond five or so years – today the software engineering equivalent of cosmetic surgery profitably keeps even the eldest monolithic code looking moderately contemporary, however illusory or superficial the effect may be. Oh, and a couple of visionary white papers on your website peppered with vague references to SOAP architecture won’t go wrong either.
5. Beware Fake Rolexes: At twenty paces it can be hard to tell which accounting software product is the genuine article – “…well it looked like it could add up properly during the demo….” – and which one will break down in one or more fundamental respects two months after you purchased it. At which point you discover to your horror that under its apparently fragrant cover it comprises a piece of string, two sticks of chewing gum and a broken roller-skate. Today’s rapid application development world means any fool can build software on weeknights on his dining room table. Caveat emptor anyone?
6. You Want Your Money Back? Um, Didn’t You Read Our Terms & Conditions, Sir? : Legacy software companies don’t like giving refunds but they very much like to be paid in full up-front – hence the financial risk lies with the buyer to ensure fit – and if not then you’d better get cosy with the finer details of accounting write-off treatment. Try before you buy? You must be joking, sir…
7. Maintenance = Money For Old Rope: The incidence of material defects in old software products effectively diminishes to zero over time. So why is it that the law of software maintenance charging is inversely proportionate to this fact?
8. SaaS?, Oh Yeah That….We Think Old Software & SaaS Will Co-Exist: According to the late American author, Upton Sinclair, “You can’t make somebody understand something if their salary depends upon them not understanding it.” And therein lies the very nucleus at the centre of the so-called ‘is the world ready for on-line software?’ debate.

Phew, good to get that lot off my chest. I’m feeling better by the second – now back to basket-weaving with strips of old 5.25″ floppy discs….

We like the way LearningSource helps us manage all the hard things associated with running events, such as seating capacity, automated reminders, directions to the venue – especially if there are some last minute changes or we need to replicate the event across multiple time zones. Combining these features with the standard calendar and registration processes gives us a great tool for organising training or events.

LearningSource runs seamlessly in the background, ensuring the right fit with the look and feel of our website. Whether events are online such as our free webinars or off-line such as roadshows and forums, they are all run through the same interface.

All this supports our goal to promote our partners and their services to the Xero community.

It’s called YouTube XL, and it’s going to bring the vast majority of YouTube’s content to your TV or large-screen computer monitor.

This reformatting of data to be optimized for different usage situations is one of the really interesting benefits of the cloud. Consumer brands like YouTube are educating users to expect access to their information anywhere, on any device.

• January: Netbooks will change the landscape
• September: The significance of Chrome

The impact on Google Android and Chrome in Q3 this year will put pressure on Microsoft to reduce the cost of the Windows and Office Client which I predict will drive a massive secondary effect where we will see substantial innovation in services from Microsoft. Microsoft has a huge war chest and thousands of smart people to throw at services.

I also believe that low cost connected devices will be be taken to market via telco’s, often with a low (or no) up front cost in exchange for a data plan commitment.

Today Windows 7 Starter was announced: Microsoft Gambles on Windows 7 ‘Starter’

The strategy is one of the ways the software giant is responding to inexpensive portable computers called netbooks, a bright spot in the gloomy personal-computer business that is causing many companies to modify their business plans.

Jim Zemlin, the Linux Foundation’s executive director, thinks Microsoft faces the greatest pressure as the computer market takes on more aspects of the cellphone market — with carriers subsidizing hardware prices with fees for data-service plans.

This is really interesting. Microsoft’s approach to Netbook computing is to offer a limited version of Windows that is limited to only run 3 applications at a time.  That is completely logical from a Microsoft perspective (and I should have picked that – I didn’t).

Will it be free?  I doubt it.  Will it be cheap? Of course – but I’m just reading Predictably Irrational which has some great experiments on the power of ‘free’. There is a massive difference between cheap and free.  They will have to compete with free. This is a big call for Microsoft and one that I don’t think will be successful.  But they should absolutely still try it.  This will be a fascinating experiment to watch.

I think we’ll still end up in the same place. It all becomes about the services.

So very, very interesting that some of the announcements you would expect under my Netbook hypothesis are beginning to fire.

Exciting times.

David doubted whether online accounting is a valid “2.0″ service. What do you think? Did I make a convincing case?

On Thursday, March 12th Grid Computing Now! KTN, FAST and Intellect are running a workshop aimed at introducing the concept of Software as a Service to the software publishing industry.

The organisers have asked us to make a 45 minute presentation, explaining the Xero story, how our infrastructure works and what our go to market lessons are. Why not come and join us by registering here? Sorry the event is now full so hope to see you there!

I’m not going to explain either here (you can read Tony’s take on it for an overview of both technologies) but I thought I would add my thoughts with regards to decisions we’ve made at Xero on this very subject.

On this website it states quite clearly that we’re the world’s easiest accounting system and that’s what we want our customers to experience. What we’ve built (and are still building) though is one of the world’s most sophisticated accounting engines – one that will hopefully become the number 1 accounting engine in the cloud.

One of the reasons we’ve been able to achieve this is our choice of storing data in a relational database (in our case utilizing Microsoft SQL Server). The idea of key/value stores is essentially a hark back to the old days of hierarchical databases, a technology which ironically underpins most of the current desktop accounting systems in the world. We believe that by being able to store accounting information in a logical and structured relational form has allowed us to build a powerful platform to evolve our accounting engine over a relatively short period of time.

Let’s take a peek behind the curtain:

Xero’s accounting engine combines a multi-perspective general ledger with an event-driven transaction engine. I’ll try to explain what that means:

The transaction engine stores documents such as invoices and bank transactions and contains all of the logic necessary to process those documents based on actions by agents (users or contacts). The outcome of these actions is to produce journals in our general ledger and because each document keeps a record of its actions, they can all be replayed or rewound when something changes and new journals can be created as and when required.

The general ledger resembles a standard journal-based double-entry accounting system, however we’ve built in the capability to model different types of transactions in the same journal. To begin with we modeled both accrual transactions (what happens when you raise an accounts payable invoice) and cash transactions (what happens when you pay that invoice) in the same journal – allowing us at any time to look at the GL in both a cash or accrual perspective. As we’ve added complexity to the system (such as tracking and multi-currency – coming soon I promise) more perspectives are added to the GL. Think of it as a dice – depending on how you look at the dice you get a different number – that’s the power of our GL.

The diagram below shows how the two engines fit into our architecture:

The transaction engine and general ledger operate like two accounting engines in one because they both contain copies of the data, one from a business perspective and one from an accounting perspective. This is beneficial because typically in a small business data is fragmented which leads to poor communication, poor visibility, high costs and unnecessary delays. The power of Xero is that it is at once both a business and an accounting solution, so its important that our business and accounting layers are self-contained yet fully integrated and that we’re able to connect our business and accounting layers with the outside world.

Why use a relational database for what appears to be inherently hierarchical data? Because it is the simplicity of our data design due to the relational model that makes Xero so powerful and allows us to achieve seamless integration between our transaction and general ledger layers.

So am I advocating relational databases in all scenarios? Absolutely not! You should always go with a “horses for courses” strategy when choosing technology. But for accounting data relational data structures offer huge benefits, both in simplifying application architecture and delivering a more integrated experience. The ideas and strategies behind key/value stores are sound and there are some very smart people behind them: my point is, though, that relational databases are not dying, let alone dead and the use of relational data design can be extremely powerful.

You can learn a lot from what others are doing, especially the big players like Google, eBay, Amazon and Facebook. In fact Facebook is a great example of an organization that has applied different technologies to solve specific problems: a MySQL relational backend, memcached (essentially an in-memory key/value store that sits higher in the application stack) for caching almost everything and key/value stores using Cassandra for email searching. This is where I see massively scalable architectures moving: choosing specific technologies to solve specific problems – pragmatism over ideology.

I have more to say on this topic, especially around what you can learn from scaling key/value stores and how can this be applied to relational databases – will leave that stuff for next time.

I’ve covered my reasons why before, and this is becoming more obvious to the wider industry.

PC’s are dropping to sub $US500 products will quickly drop to less than $US200. 

NYTimes: $200 Laptops Break a Business Model.

I was thinking NetBooks were inevitable just because of technology but of course the recession is creating an additional driver.

Hoping to save money, Arista Networks, a start-up based in Menlo Park, Calif., has much of its internal technology processes online, or “in the cloud.” Instead of buying its own hardware and software systems from the likes of Microsoft and Oracle, it opted for e-mail and online document services from Google and online sales and manufacturing software from Netsuite, based in San Mateo, Calif.

It is spending a fifth of what it would be for traditional technology, said Jayshree Ullal, Arista’s chief executive.

She smells a trend. “I think 80 percent of the new high-tech and small to mid-size companies are doing what we’re doing,” she said.

The NetBook trend will change the landscape especially in the small business accounting space – an industry that that has not been that innovative and lacked competition.

This has happened before. The dot-com bust earlier in the decade dragged down high-fliers like Sun Microsystems and America Online but set the stage for a new generation of Web powerhouses like Google and other innovative Internet software companies like Salesforce.com, founded on disrupting the status quo.

Exciting times.

This is part of an ongoing program from Microsoft to encourage software vendors to move to Software + Services by sharing partner stories.

Xero was an obvious candidate for a case study as we are one of the first Microsoft Gold Partners to establish a business purely on the Software as a Service (SaaS) model.

Xero IDC Case Study August 2008 (PDF 109k)

In his fourth article, Brett writes about the “seismic shift” in a few short years that has affected many of us in business in terms of the advancement of technology and the move towards more web-based and internet-enabled commerce.

As IT becomes more important to the resilience of your business in a tougher economic climate, it’s worth being aware of some of the more significant developments.

Brett goes on to mention four trends that he identifies businesses should be aware of and leveraging: Virtualisation, Cloud Computing, Software as a Service (SaaS) and Unified Communications.

Under the Software as a Service blurb, Brett illustrates his case by exemplifying Xero saying it is a successful local SaaS business model.

…where you can subscribe to its online accounting system that integrates with the banks and other institutions, taking care of all the security and technical maintenance for you for a monthly fee.”

The SaaS model means the provider can modify the product, legislative changes, policy or technology updates easily and at no hassle to customers.

CHANNELS FOR THE NEW SAAS INDUSTRY

The executive summary was the best explanation I’ve seen on why SaaS channel strategy needs to be different from installed software.

In SaaS, partners don’t take title to the product, there is no inventory or logistics, no contractual reselling activity, no repair service and no physical goods to install or connect.

The main focus for partners in the SaaS world is on business process alignment, optimizing the use of the information, solution deployment, application support and integration with existing systems.

While traditional IT products are sold in a “fire and forget” mode, SaaS solutions are sold with an opportunity for ongoing services. Successful SaaS companies not only think in terms of recurring revenue but in a “Recurring Services Model”.

As SaaS vendors host the application, they effectively become part of the IT organization of their customers. Hence, tech support is a vendor internal activity. That fact results in a very different channel structure.

Because of the different structure and services in the SaaS model, channels are no longer “resellers” or “Value Added Resellers” they are – CATALYSTS. Catalysts are companies or individuals that understand the various business needs in terms of organizational improvements in areas such as Sales, Marketing, HR, Operations, Logistics etc. and also understand the advantages of SaaS-based applications. They help small, medium and large firms transform their “Information Technology” into “Information Management”.

And that SaaS partners should value add …

Given there is nothing to resell, nothing to technically install and no opportunity to provide any kind of logistics, what can a successful SaaS partner contribute?

The most important value a partner can add is to provide business-process-relevant implementation and integration services to the customers. While an application may be generally easy to use, the more important question within an organization is “how are we all going to use it together”. SaaS partners are not “resellers” delivering software, but rather catalysts for this new industry, making it work long term. They help customers become quickly productive and ensure the service is fully embedded into organizational processes.

In order to do that successfully, a SaaS Catalyst needs to understand their customer’s business processes and have a good understanding of the respective verticals. A CRM, HR, Project Management or Marketing Application can be used in variety of ways, but the partner helps orchestrate the configuration and implementation to shorten the “time to value.”

SaaS enables even very small companies who don’t have IT departments or capabilities to leverage software to better run their business. SaaS Catalysts will play a very strategic role in the vendors’ success in reaching that market and retain customers long term.

I completely agree. Some other good material in the full document.

We were recently sent an essay from Richard Burton, a Business Studies student at Edinburgh University.

Richard’s essay entitled ‘Compare two companies’ is a comparative analysis of two very different accounting systems, Sage and Xero. Of course, he is not only comparing two companies but two opposing ways of delivering small business accounting software to the masses: software-on-a-CD and Software-as-a-service (SaaS).

There are a number of interesting points included in Richard’s essay about the benefits of SaaS, we’ve pasted a few of these below, including the swift change in VAT recently and how SaaS companies can deal with legislative changes easily.

Now that the internet has become so pervasive and, more importantly, so fast, people are starting to legitimately ask the following question: why do I need to install software on my computer if I can access it on the internet?

The economic benefits of SaaS are incredibly attractive. With SaaS, customers simply open up your web-browser, sign up for some software, and log in. The cost of delivering software to consumers has dropped massively.  They can completely bypass distributors, shops, and middlemen and simply go direct to their prospective customers.

At almost every stage of this traditional software-delivery process [Software-on-a-CD] there is wasted time, energy, and money.

Xero’s accounting software evolves and improves as-and-when their developers make improvements, rather than on a forced, annual basis. This has been perfectly demonstrated by Alistair Darling’s recent announcement to drop the VAT rate to 15%. Xero just tweak their code whilst Sage have to write an update and get everyone who uses their software to install it.

The following is an article, entitled ‘The future of accounting is online’, that I submitted as part of the ICAEW Software Accreditation Scheme newsletter under the banner of ICAEW Commitment to Technology.  It was sent out this week to over 27 000 UK-based accountants.

As the ICAEW says, preceding the article, “The whole area of software-as-a-service (SaaS) is seen by many as the way of the future, with online accounting looking to make inroads into the accountancy market.” Too true we think. Too true.

The future of accounting is online

As Rafe Needleman writes:

To my mind, the killer feature of Google Docs is not that it is Web-based, per se. It’s that it makes real-time collaboration easy. You can invite a user into a document you currently have open, and you both can edit the file at the same time. It’s not a feature you’re going to need all the time, but when you’re on a deadline and need to get sign-off from one or more other person on a document right away, it’s a life-saver.

In the past week Steve Balmer has started to go public with Microsoft’s Cloud computing strategy and it’s good to see they understand the issues.

I think what people want is something as rich as Microsoft Office, something that you can ‘click and run’, if you are not at your own desk. Something that is compatible, document-wise with Microsoft Office and something that offers the kind of joint editing capabilities that is nice in Google Docs and Spreadsheets. Will Microsoft Office offer that? Yes! Standby for details in the next month.

We want software that is more powerful than runs in a browser. Does that mean we will not have some neat stuff that does run in the browser? No.

We think you’ll actually want the full power of Word, Excel and PowerPoint – and you’ll want to be able to get that simply. But, if you just happen to be in an Internet cafe kiosk and you want to do some light editing, perhaps we need to have a way to support you in that as well, inside the browser.

This is great news and the best example of Software + Services. Using the power of the PC and the connectivity of the Internet together. I really believe that Collaborative Office could be one of the most exciting breakthroughs in productivity for enterprises and small businesses since online accounting.

However there are a few concerns that came immediately to mind.

• Now I’ve moved to a Mac and that Mac:Office runs a year behind Windows Office will Mac users have to wait a whole year after this is released?  Hopefully the Mac:Office team will clarify.
• Will Microsoft tie the collaboration features to SharePoint services – as there needs to be a mechanism for communicating changes and central document viewing? That may not be so great for small businesses.
• Will this be a global product or, because of the reliance on hosted services, will it be rolled out by region?

If I was in Microsoft’s strategy team I’d seriously look at tying Office collaboration into their stack. For many enterprises they don’t want working documents out of their firewall so SharePoint would make sense – and be justifiable.

Looks like some of the details will be revealed at the Microsoft Professional Developers Conference later in the month. But this is exciting news.

We covered some industry trends, I talked about building a platform for scale, James Murfin from Mural Consulting did an excellent talk on SaaS Marketing and Sean Williams from Collectsoft talked about funding options for SaaS.  There were some great questions.

Here are my slides.