The accounting software industry is, contrary to what you might think, a pretty interesting place. Characterized by three large vendors that hold the lion's share of the market in their respective geographies, until recently it has been a fairly sedentary place with Intuit (U.S.), Sage (U.K.) and MYOB (Australasia) happy to organically grow their businesses. That all changed around 10 years ago when Xero, a New Zealand-based startup, came on the scene and started taking well-aimed kicks at the three sleeping bears.
Since then, Xero has gone on to take significant market share in its home market of Australasia, pretty positive market share in the U.K., and is trying its hardest against a newly invigorated competitor to gain a toehold in the all-important U.S. market. That isn't proving quite as easy as in Australasia and the U.K., due to some structural and competitive issues and also due to the fact that Intuit is doing a fantastic job (at last) of innovating and doing what it needs to do to keep market share.
All of this makes it even more interesting to hear from yet another U.S. market entrant, ZipBooks. ZipBooks is a new startup, based out of Utah, that hopes to deliver a compelling point of difference for its customers. ZipBooks comes to market with the perspective that for small and midsize businesses, nothing matters more than cash. Its primary focus is on doing everything it can to help customers get paid faster.
"None of the existing small-business accounting solutions out there are solving the most important problem for small businesses -- managing cash flow," notes Tim Chaves, founder and CEO of ZipBooks. "I've felt the misery myself as a small-business owner, having to make payroll when a needed payment was still outstanding. We are putting enterprise cash flow management tools into the hands of small businesses. More importantly, we're working these tools right into the process of sending an invoice that business owners already use every day."
That's a pretty staunch claim to make. If you were to ask Intuit or Xero (not to mention Wave Accounting, FreshBooks or any of the other competitors), they'd say that they're helping customers get paid. So what are the key points of difference for ZipBooks?
Unlike Intuit and Xero, ZipBooks is following the example of Wave and offering its product for free. So how does ZipBooks offer bookkeeping, invoicing, time tracking, bank information and credit card processing without a monthly subscription? By finding alternative revenue stream.
For Wave, that all focuses around giving business owners opportunities to buy products and services that are tailored to them. ZipBooks takes another approach and has set up strategic partnerships with credit card processors and finance companies. What this means is that ZipBooks customers can, from within the ZipBooks application, obtain invoice financing.
In other words, financial institutions take over their accounts payables, give them the cash to use for day-to-day purposes, and do the hard stuff around ensuring the invoices get paid. ZipBooks' platform can underwrite a business within 24 hours of its application for Invoice Instant Payments. Businesses that opt to finance an invoice can see money hit their account the day after an invoice is sent, regardless of when a client pays.
While other accounting vendors have partnerships with financing organizations, ZipBooks does it natively from within the application. This is even the case for its recently released iPhone application. The app has on-the-go invoicing functionality, and ZipBooks monetizes that by charging 0.5% per week of the advanced amount and automatically scheduling repayment over a 12-week period with no penalty for early repayment.
While both Wave and ZipBooks are free products, it seems to me that ZipBooks has worked out a more sustainable model. The question comes down to whether its invoice financing model is scalable -- ZipBooks believes it is, and reports that it has many financing companies ready to jump on board with the platform. As such, it seems that for those looking for a free solution, ZipBooks is the way to go.
Which gets us to the central issue: Do businesses trust a product which is free, or for their core business needs would they rather pay a modest amount for a solution that they feel more comfortable with? If this were an enterprise product, the answer would be obvious -- enterprises need the security that comes with a direct contractual relationship between software vendor and customer. But this is the SMB space, and the success of other free or freemium products has shown that this is a valid route to market.
It's hard to see how ZipBooks will gain traction in a market that has a lot of vendors -- two in particular that are spending massive money trying to drown the other one out. Traction is hard enough at the best of times, even harder in such a busy market and targeting such a broad customer base.
The other issue is that it's not a huge leap for either Xero or Intuit to add invoice financing natively within their applications. Do that and they've removed at least part of ZipBooks' uniqueness. Time will tell where this all goes.
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