Motley Fool Pro Premium Feature

Has Xero Already Won?

The financial press is buzzing about the epic battle shaping up between Xero (ASX:XRO) and MYOB. But is it possible that Xero has already won?

Here at Motley Fool Pro we love to dig deeper, and some of the latest data we have found should raise a big red flag for anyone considering buying into the upcoming MYOB IPO.

The thesis for investing in Xero is that this innovative upstart from a tiny country will be able to overthrow its much larger and established rivals. A great parallel is the story of Facebook (NASDAQ: FB) vs. MySpace. Here we had a very dominant competitor (MySpace) that most people thought had already won the game when it came to social networking. And yet Facebook ran a freight train straight past MySpace, by focusing relentlessly on user experience and innovation.

One metric that was fascinating in that battle was the popularity of searches on Google (NASDAQ: GOOG). Once Facebook had overtaken MySpace in Google search term popularity it was already game-over for MySpace – in only a matter of months Facebook was also winning on user count and engagement.

So, to test the Xero thesis we started off by comparing the search term popularity for ‘Xero’, ‘MYOB’, ‘Quicken’, ‘Quickbooks’ and ‘Reckon‘ (ASX: RKN) amongst Google users in Xero’s home market of New Zealand.

Xero overtook MYOB in Google search term popularity in New Zealand way back in July 2011, and has continued to put daylight between itself and MYOB ever since. After first winning Google searches, Xero’s New Zealand market share almost doubled over the following year, and has showed no signs of slowing down. Xero is now the undisputed leader of cloud accounting services in New Zealand, counting over a quarter of all small New Zealand businesses as customers. XeroNZ

Winning the Google search race was a big turning point for Xero in its conquest of New Zealand. So, how does the data look if we take the same companies, but instead focus on the share of Australian Google searches?

As you can see, over the past few months Xero’s Google search term popularity has surged past MYOB. This should be a hugely encouraging metric for Xero investors, particularly considering that MYOB still has a large installed base of traditional desktop accounting users in Australia.

Even more interesting was when we zoomed out to Xero vs. MYOB in global search term popularity. Investing in Xero is far from just about winning in New Zealand and Australia – it is about Xero’s ability to create a truly global platform. When we look at global share, we can see that Xero actually overtook MYOB in August of 2013, and since then Xero has only widened the gap.

This performance is a testament to the wall of innovation that Xero has been releasing, not to mention the company’s relentless focus on user experience and customer engagement. Xero still has a big mountain to climb in the United States, but Xero’s massive cash injection from one of the world’s biggest and most successful VC funds is a great indication that Xero is armed and ready for battle there too.

We will keep watching this metric over the months and years ahead. If I was MYOB, I’d be worried.

Fool on!

Matt Joass

About Motley Fool Pro

To find out more about Motley Fool Pro, and to ensure you receive a "priority invitation" to join Motley Fool Pro, including qualifying for a special "early bird" discount, please click here now. It's totally FREE to register your interest, and there is no obligation whatsoever.

Matt Joass is a Motley Fool Pro analyst. Matt Joass and The Motley Fool own shares of Xero. The Motley Fool has a disclosure policy.

HOT OFF THE PRESSES: My #1 Dividend Pick for 2017!

With its shares up 155% in just the last five years, this ‘under the radar’ consumer favourite is both a hot growth stock AND our expert’s #1 dividend pick for 2017. Now we’re pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is enter your email below!

Simply enter your email now to receive your copy of our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2017.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.