See you at Xerocon Auckland!

On the heels of wrapping-up the Australian Xero Road show, we’re very excited to announce that we’ll be attending and exhibiting at Xerocon Auckland 2015!

Sharesight will be at Xerocon Auckland 2015

Why attend Xerocon?

If you’ve ever been to a Xerocon conference, then you know it’s unlike any other. Check out our wrap-up of last year’s event to see what we mean. As the biggest accounting technology conference in New Zealand, Xerocon is the place to be from 30 April – 1 May, 2015:

  • Learn first-hand what Xero has been up to and what they have planned for the coming year
  • Listen to industry-leading speakers discuss the future of cloud accounting technology
  • Check-out a vast array of Add-Ons and service providers like Sharesight
  • Network with peers and form new connections
  • Earn up to 10 CPD points when you attend both days

And on top of that, you might even get to see Rod Drury working the room on his skateboard. When’s the last time you saw the CEO of a global company doing that?

Xero CEO Rody Drury, skating around Xerocon Sydney 2014
Xero CEO Rody Drury, skating around Xerocon Sydney 2014 – Source

See our award-winning Add-On

What do fish have to do with investment portfolios? All will be revealed when you stop by our booth! Our friendly staff, including Co-Founder and Managing Director Tony Ryburn, Business Development Manager Vanessa Gorman and Client Experience Specialist Lulu Ye look forward to meeting you and personally showing you our award-winning portfolio admin & reporting system.

Sharesight will be at Xerocon Auckland 2015

More information

Does freemium work? A look at the streaming music industry

Sharesight is a freemium product. A portion of our product is free, with the full feature set available in our premium packages. Free + premium = freemium. It’s the ultimate “try before you buy” concept and because we help people with sensitive investment data, it’s a fair (and necessary) way for our customers to kick our tyres for as long and as hard as they wish.

This remains a unique concept so we keep an eye on others who’ve deployed this model. One of the oldest in relative terms is the streaming/online music industry. Chances are you’re at least a free subscriber to Pandora or iTunes Radio. At Sharesight Sydney, we use the $9.99/month Spotify package for the office. Both Google and Amazon offer streaming music platforms too, and there’s a host of smaller players.

Recently, Taylor Hatmaker at The Kernel wrote a piece on the state of the online music industry. She asks: “Are streaming music services about to bite the dust?” Hatmaker points out that Apple redoubling their efforts via their Beats acquisition and Billboard finally recognising songs streamed in their “top” lists are important developments.

Online Music

But streaming music companies aren’t profitable. Even though Pandora has 250 million users, Spotify 60 million, and iHeart Radio over 50 million, these companies haven’t reached breakeven. Hatmaker puts it plainly:

Consumers are blissfully ignorant, mostly content to endure a few ads to listen to unlimited free music. Considering how many people are sharing the pie, the ad-supported “free” streaming model remains a bonkers excuse for a business plan, no matter how you slice it.”
Taylor Hatmaker

In my view, profitability doesn’t elude these companies because of the freemium model. Spotify reports 15 million paid users and Pandora over 3 million. At $9.99 and $4.99 monthly, that’s $2 billion dollars in potential annualised revenue (both companies report about $1 billion each in revenue). Ultimately, music is something that’s in widespread, global demand and translates perfectly to mobile. All genres from decades past are available to an ever-growing market. More music is reaching more people.

So where’s the revenue going?

Acronyms abound in freemium businesses, but a vital metric is CAC (client acquisition cost). If your CAC is greater than what you expect someone to pay, you’re in trouble. But the CAC for streaming music companies is probably very low. Downloading the app to your mobile or signing up via Facebook should be close to $0, while their spend on advertising probably averages less than $100 per client (an educated guess). So gathering customers cheaply is not an issue.

But a different CAC bedevils these companies: content acquisition cost. Streaming music companies claim that 70% of their revenues are paid back to record companies and recording artists to license music. That might work if all users paid something, but the majority of their userbases never upgrade from free. So even with low client acquisition costs, solid free to paid subscriber ratios, and a gargantuan addressable market, it will be difficult to survive and prosper given that each new free listener means more “ears” to pay for.

Online Music

Compare this to Sharesight. We pay to acquire some customers (e.g. advertising on Google), but our on-going fixed costs are low. We rely on clients to provide content (e.g. their trade data) and license info from exchanges who charge fixed and variable fees, which are many times lower than 70% of revenue. We keep features such as tax reporting, portfolio sharing, and personalised support entirely behind our paywall because giving away all of our IP would send us into a death spiral: no paying clients = no revenue = no development or support = a terrible product plastered with banner ads (just think: “Payday Loans” or “Trade GOLD Cheap” stretched across the top of your portfolio).

So freemium does work, but the inputs need to be carefully calibrated from day one. What content or features to give away for free? How long does the free service last? What features to reserve for paid plans? How much to charge? How often to charge? These are the most important variables to tweak.

In my view, streaming music companies are far too generous with their content. And once that threshold was crossed, it became far more difficult to convince people to pay with supplemental “features” or discounted pricing. Right now every song in the world is available on demand, across multiple devices, for free. If you’re willing to put up with a few advertisements (far fewer than terrestrial radio or TV) then you’ll become conditioned to expect free music.

Take me as an example. My personal music spend on albums (CDs) was probably about $800 per annum. When iTunes came along, my spend went up significantly to around $1,200. Then a friend introduced me to Pandora in 2005, which meant free music at home and work. Then the iPhone launched. More free music while commuting. Then Spotify debuted. Same again, but with a better library and curated playlists. After three years, I finally broke down and bought Spotify Premium and still don’t pay Pandora a cent. My music spend is now $120 per year: 8% of what I’m willing to pay.

If streaming music companies throttle back what they give away free then their free to paid ratio should improve and the content costs should align with paid user totals. As for the huge cut that record companies take from artists and streaming music companies for distribution, here’s hoping that changes as it has in other industries (e.g. investment platforms and wraps). One wonders why the artists don’t just publish their work directly via the online music players given the peanuts they end up with.

Ultimately, the price people are willing to pay for music online seems to be stabilising at $9.99 per month. Given the amount of content available that’s incredible value. If Pandora or Spotify can’t make freemium work due to the payouts necessary to the old-school music machine then perhaps they were just ahead of their time, or started off too generously to attract customers. Remember, a whole generation of music fans grew up on Napster and Pirate Bay. If they fail, I expect one of the “techmedia” giants (probably Apple) to win out by simultaneously strong-arming the record companies and leveraging their massive retail client base.

As Hatmaker concludes:

It might seem silly to frame the entire streaming music conversation around Apple, but the company defined the digital music era, putting a previously unthinkable catalogue of songs in our pockets with one-two punch of industry prescience in the iPod and iTunes. The music industry was never the same — and now, in fits and starts, it’s all happening again.”
Taylor Hatmaker

Next Bank Sydney: Wrap-Up

We were recently invited to Next Bank Sydney – a conference curated and run by banking practitioners with the aim of covering the very latest thinking in financial services.

Next Bank Sydney

Here are some of the points that really stood-out from our perspective:

1. Ecosystems are better for everyone

A major theme throughout the day was the importance of encouraging openness and the ability to connect with best-of-breed partners. From iTunes to app stores, whether they even realise it or not, users have already embraced the ecosystem model, but we love the way that Macquarie’s Allan Foster highlighted the ecosystem movement by referring it as “Modular over Monolithic”:

Next Bank Sydnew: Allan Foster

In terms of tangible ecosystem success stories, cloud accounting superstars Xero lead the pack. Xero Australia CEO echoed the importance of the ecosystem when he said “Our API enabled us to grow, and enabled our partners to grow”. Full-disclosure: we’re rather biased by being not just part of the Xero ecosystem, but also by being named Australian Add-On Partner of the Year. But with all the success that Xero has had over the past few years, it’s nice to see that they attribute so much of their success to their partners. And with all the add-ons and integrators that have sprung up in recent years, there’s no doubt that the feeling is mutual!

Next Bank Sydney: Xero Add-Ons

2. Data Ownership

Another common theme that came up was the question of “who owns the data”. Because Sharesight relies on client-imported data, we could over-simplify things by saying: the client owns the data! However, we like the way CEO of Xero Australia Chris Ridd put it when he said ”we’re custodians of data”.

Next Bank Sydney: Chriss Ridd

Overall, our feeling is that big data, when used in the right way, helps to further improve user experience. But companies of all sizes must do their best to protect and respect customer data. As one audience member commented “If we go over that creepy line, we’re never going to get back the trust that we’ve betrayed”.

3. If you build it, they will come

One of the highlights of the event from our perspective were the talks and panel discussions by some of the leaders in the disruption trenches – the hubs and accelerators supporting and mentoring the next generation of fintech players.

Craig Dunn, chair of Sydney’s newest fintech hub Stone and Chalk gave an impassioned talk on the potential for Sydney to become a global fintech player. And Toby Heap from AWI Ventures (Australia’s only fintech accelerator) predicted that many more accelerators will spring up by 2020, helping to launch as many as 40 new fintech companies per year. Tyro FinTechHub’s Andrew Corbett stressed the importance of mentorship by saying that “fintech hubs must be led by other fintech entrepreneurs.” Overall the sense was that you must balance finance & tech experience. As a company founded by an accountant & engineer, we couldn’t agree more!

With the majority of the speakers during the day coming from the big banks (or the digital agencies who work for them), it was nice to hear from some of the people working to really disrupt the industry and support budding fintech companies. We’d love to hear from some of those startups next year.

The event closed-off with Bank Innovators Council co-founder JP Nicols stressing the importance of “finding the others” and disrupting your company’s “business prevention department”. It was a nice reminder that no matter what kind of company you work for – whether a big bank or a nimble startup – it’s possible to work towards common a goal to effect small but impactful change.

Thank you to Next Bank and Macquarie for putting on such a great event! If you have a moment, check out the live-tweets from the day.

2015 Xero Roadshow Wrap-Up

As much as we enjoy being a SaaS business that works primarily online, we really love the chance to get out of the office from time-to-time and demo Sharesight to users on the ground. So when Xero invited us to their recent Roadshow which took place across Australia during the month of February, our Business Development Manager Vanessa Gorman and Client Experience Specialist Lulu Ye eagerly packed their bags and set-off to get the word out about our perfect portfolio management system.

Xero Roadshow - Lulu & Vanessa

If you followed the tweets, then you know that the overall theme seemed to be overwhelmingly huge turnouts in nearly every city. Not that should come as any surprise. Xero topped Forbes’ list of the world’s most innovative growth company last year, and Australian Managing Director Chris Ridd announced that they’re quickly closing-in on the 200,000 customer mark in Australia. And just yesterday, they announced a capital raise of NZ$147.2 million. So even more innovation and global growth is expected from the Wellington-based cloud accounting company.

Evolve - Xero Roadshow

Beyond a slew of exciting product enhancements announcements, the ”day in the life of a connected advisor” session really stood-out from our perspective, with local Xero Gold partners sharing tips and advice on how to evolve practices by improving workflow and the way advisors interact with clients and each other. We were so pleased to see Sharesight mentioned time and time again as a crucial part of that process, and the crowds at our stand following those sessions were proof that attendees really took the advice to heart.

One of the best things about being part of the Xero Add-On ecosystem is the chance to work alongside the many great companies who make up this vibrant community. It’s always so nice to see the familiar faces of our mates from CrunchBoards, Deputy, Fathom, Practice Ignition, Receipt Bank, Shoeboxed, Spotlight ReportingWorkforce GuardianZeroBooks and others. It’s nice to be able to catch-up, talk strategy, and even go for long walks on the beach together (what happens in Frankston stays in Frankston)!

Sharesight & Fathom

Of course, it wouldn’t be a Xero Roadshow without a bit of fun mixed in. Having recently been featured in XU Magazine, we jumped on the opportunity to pose for a selfie-stick photo with Xero Guru Heather Smith:

Sharesight & Heather Smith

And like many others, we had a blast with Xero’s portable photo booth frame and indulged in Deputy’s delicious cookies:

Xero Roadshow - Lulu & Vanessa Deputy Cookies

A huge thank you to Xero for organizing another fantastic event and allowing us to tag along. The countdown is already on for Xerocon Auckland in April — see you there!

Where is the Uber of Australian wealth management? (Our take on the debate)

Recently on the CuffeLinks blog, Graham Hand posted a thoughtful piece on what it might take to truly disrupt the Australian financial services industry. He asks whether or not there is an Uber or Amazon of wealth management.

Hand suggests that true disruption needs to be more than just online “robo-advice,” and rightly points out that even if these businesses attract billions, this would merely dent the $2 trillion superannuation market.

Ultimately, his take is that a true disruptor will need to upend all facets of wealth management (advice, admin, asset management) simultaneously and be price-led, a trusted brand, and non-reliant on the traditional distribution model. He concludes:

“I don’t see how any company can make wealth management sufficiently exciting for enough people to grow a market share of 5 to 10% in the next few years. To use Google’s test, what problem will the disruptor solve in such a novel way that hundreds of billions will divert from incumbents? I hope I’m wrong because it would be fun to watch.”
Graham Hand, CuffeLinks

I share in Hand’s hope for one true disruptor, and don’t see it on the horizon either. However, I do think disruption will happen, albeit differently.

Let’s remind ourselves that no one has managed to do this yet in the biggest, richest, and lowest-cost consumer market of them all: the United States. Over there, online trading is already dirt-cheap (free even!). Companies offering online advice are well-established (Wealthfront), with more on the way from big-time brands (Fidelity).

So why haven’t we seen a disruptor?

One, early adopters of tech-based solutions to old-school problems tend to be young people, who tend to not have money, who tend to not contribute to their retirement (401k) accounts (it’s not compulsory). It’s difficult to convince even educated young professionals to invest. Unfortunately, most financial education in the US begins and ends with the human resources department of companies who offer retirement plans. As is with health care now in the US, you could argue that this shouldn’t be their responsibility at all.

Two, “solutions” are coming from the staid financial institutions that got us here in the first place. They might succeed in convincing their existing client base to sign up to something online, but it’s hard to see a 25 year-old downloading the Fidelity Investments app to their mobile. Plus, it’s very difficult to “start-up” a bank, especially post-GFC. The capital requirements are massive. Tellingly, it’s taken even Walmart with all their lobbying power, years to launch a retail banking product.

Three, taxes. Not high taxes, but a perplexing tax code. The US tax system is in dire need of an overhaul. The less you know about it, the worse off you are, which disproportionally impacts those with less skin in the game. It’s virtually impossible to file a tax return on your own. Working out state and federal taxes on even a simple ETF holding is complex (even for me and I’ve worked in this area for a decade).

Four, the actual process of moving money between accounts or from one institution to the next is excruciating. Most payments are still made via physical cheque (which take 7 days to clear). The banks and the old-fashioned Automatic Clearing House (ACH) are to blame. If disruption has any chance at all, it must be easier for people to divert funds with one click. Even something as basic as NAB’s UBank would be a game-changer in the US.

Financial Services Disruption

Meanwhile, back home in Australia, items 1, 3, and 4 are already solved. Compulsory super means the piping is laid and everyone is contributing. The tax regime is far simpler, and moving money is a breeze. Superannuation is a model policy and no doubt improves the financial lives of millions. But it breeds a lethargic industry and middling returns for savers. With so much money automatically flowing into the very institutions likely to lose as a result of disruption, it’s hard to see them changing anything (hello number 2 above).

So disruption hasn’t worked in the biggest market and it hasn’t worked in one with the infrastructure already in place. But maybe comparing wealth management to Google, Amazon, and Uber isn’t quite right.

Those tech giants succeed based on an our short-term needs. They’re transactional and expertly deliver a means to an end. I want information, I search (free) on Google. I want to buy something I shop (free) at Amazon and know that I’ll get the best price. I need to get from point A to B, I check to see where the Ubers are idling in real-time.

Conversely, wealth management is boring, long-term, and intangible. It’s impossible for me to compare a bad experience with a good one, and even if I can do some comparative analysis it doesn’t crystallise until years down the road. I know what not getting a taxi is like in Sydney on a Friday night, and I know how satisfying it is to call an Uber – problem solved.

Instead, change might come incrementally, and disruption might just come from the many smaller companies taking on specific parts of the traditional vertically-aligned wealth management stack.

Today, an investor using Sharesight can do SMSF admin using ESUPER, get research from Intelligent Investor, do accounting with Xero, trading with CMC, place a portion of their assets in a Stockspot portfolio, and share access with their financial adviser. And the critical factor here is that these solutions are investor-bought, and investor-driven. People are finding these solutions on their own and in turn demanding more from their advisers and accountants.

That’s great news for investors already in the know, but to Hand’s original point it’s still difficult to see how the rest of the population gets sufficiently excited enough to revolutionise wealth management. Here’s hoping more and more apps and services join the fight!