Published on the 13/08/2015 | Written by Beverley Head

Cloud accounting specialist, Xero, has now passed the 250,000 Australian user milestone and added new partners to its 400 strong ecosystem including DropBox, Adobe and Bigcommerce…

Among the new partner initiatives announced at the company’s Australian user conference today was a deal with Dropbox, to integrate Dropbox for Business with Xero Tax to allow accountants and bookeepers to collaborate with clients on key documents; the planned integration with Adobe Document Cloud eSign to allow electronic document signing; and e-commerce business Bigcommerce will later this year allow users of its systems to push data directly into Xero.

In an interview with iStart ahead of the user conference, Xero co-founder and CEO Rod Drury, said that the partner network was key to Xero’s strategy to support the needs of small businesses – and allow them to bypass traditional ERP solutions.

Drury said that Xero allowed small businesses to “commoditise the general ledger” then add on a third party solution that supported their line of business. “SMEs don’t like paying for full ERP because 90 per cent of it they don’t use – they just want the part that’s specific to them.”

“The combination of commodity, cheap general ledger and line of business application” was driving demand for Xero in Australia and internationally he said. The company now boasts 540,000 paying customers worldwide.

Drury acknowledged though that selling to small business was tough, and that despite its success Xero was only installed in 10 per cent of Australia’s small businesses. He believed however that with stronger global brand partners, and the network effect of existing Xero customers spreading the word, demand would continue to rise.

“We are the new kids on the block – but we are the leader by such a long way,” said Drury, who remains dismissive about rivals such as MYOB, Intuit, Reckon, Sage which all now offer cloud accounting systems.

“Our competition to date has been the winners of the last generation – the desktop generation and it’s just much harder for them. Great companies in their day…but they get to a certain size and have this incumbency and innovation goes out. They do R&D by acquisition and as the technology changes you’ve got a whole bunch of outdated technology and bunch of different platforms and have to glue it together to protect your revenue base.”

He said that; “The incumbents forget to be software companies, once they get to be a certain age it’s less about the passion of software than keeping shareholders happy and eking out your 10 percent growth,” said Drury.

Drury’s approach meanwhile has been to eschew profitability in favour of rapid growth – a strategy which has been common among global SaaS providers such as Salesforce and NetSuite, but which he has acknowledged has fazed some Australian shareholders.

However even Drury is now talking about a time when the company might achieve “break even” though he isn’t putting a timeline on that. With $NZ260 million cash in the bank he said that the company could slow hiring and turn a profit now if it wanted.

“We get to break even just by slowing hiring rate as we grow. Want to get to break even. With this much cash it’s academic – we could swim to the safety of the side of the pool at any time or we can keep investing for growth.

“Because we are getting so much future margin the right thing to do is to grow,” he said, adding that at present just 1 per cent of the global market had installed online accounting software.

The next big market to crack is the US, where Xero currently has a much more niche presence with 35,000 plus customers. (Intuit meanwhile has 5 million US users – albeit of its desktop solution) A US IPO is on the cards in order to boost Xero brand awareness though Drury’s in no hurry noting that; “Saas stocks have been out of favour for the past year.”

The company is also working with Rackspace to transition Xero out of Rackspace’s data centres, and onto the Amazon Web Services platform to give it scale and global reach to support its growth ambitions.