MYOB and Xero locked in a bitter cloud war

MYOB has doubled its number of paying cloud users as it continues to battle Xero in a fight for the accounting market.

Incumbent accountancy software leader MYOB still has much the greater turnover and a larger overall user base – but Xero holds a big lead in the all-important number of cloud users.

While MYOB has a smaller cloud user base, its cloud adoption is growing significantly, as is its revenue.

MYOB recently published its half-year report for the six months to 30 June; the record result saw revenue grow by $23.7 million, or 21 percent, to reach $140 million.

Earnings before interest, tax, depreciation and amortisation (EBITDA) increased by more than $15 million to $69.7 million, a 29 percent boost.

MYOB posted a net loss after tax of $5.6 million, compared with a loss of $6.3 million in the same half the previous year.

More MYOB customers are choosing cloud services than before. There were 86,000 paying customers using cloud files at 30 June this year, double the number recorded a year earlier.

Of the new registrations for MYOB's SME product in June, 63 percent were for cloud products, compared with 36 percent a year ago. Recurring revenue now accounts for 93 percent of total revenue at MYOB.

MYOB lays claim to an overall customer base of 1.2 million businesses. The company also boasts a partner network of more than 40,000 accountants.

The company has been investing heavily in staff and R&D. It reported an 11 percent increase in operating expenses to $59.7 million to fund strategic growth initiatives. More than 100 staff were added in the past 12 months and MYOB plans to spend more than $40 million on R&D this financial year.

In early 2015, MYOB plans to launch MYOB Advanced, a cloud-based "business management system" for larger enterprises. This will complement its MYOB EXO and MYOB PayGlobal products for medium and larger businesses.

From zero to hero

Meanwhile Xero, which was founded in 2006, more than a decade after MYOB, may not compare in overall turnover but is well ahead in the number of cloud users.

Compared with MYOB's 86,000 paying customers using cloud files at 30 June, Xero reported 284,000 customers at the end of March 2014 – all of which would be cloud users, because Xero is a software-as-a-service product. This number is growing significantly, up from 157,000 paying customers in 2013.

Direct financial comparisons are made more complicated because MYOB reports on a calendar year while Xero's fiscal year ends on 31 March. However, in Xero's full-year results announced in May, the company reported revenues of NZ$70.1 million (AU$62.3 million), up by 83 percent from NZ$38.4 million the year before.

Xero reported a net loss after tax of NZ$35.5 million (AU$31.6 million) for the financial year ended 31 March 2014, compared with NZ$14.4 million the year before.

Like MYOB, the company is investing heavily for future growth, spending NZ$55.1 million on sales and marketing costs and adding 376 employees in the 2014 financial year.

Earlier this month, Telstra revealed it was offering free six-month subscriptions to Xero to eligible business mobile customers.

In May, Xero struck a deal with global accounting chain H&R Block giving it access to an effective reseller network of 11,000 outlets in the US.