I use Xero and I think that despite it lacking some of the more technical feature as mentioned by innuendo, the software caters to it's target market pretty well (majority of users don't know what impairments or deferred revenue even is). It's also very, very user friendly.

That being said, whilst it would be a bit of a pain to switch systems, If Xero keep taking without giving users an improved product (like adding features mentioned) there is a point where I'd consider doing it, and it's at a price not that much higher than it is now. I've heard some rumbles of discontent but have heard no suggestions of viable competitors......yet.

Spot on @PeregrineCapital- I don't hate Xero. It serves its purpose well enough but I can't help but ignore the growing number of "why on earth do I need to buy an external add-on to do something an accounting system should already do?" conversations I've been having so far.

I work with a few startups/scale-ups in the SaaS space and this almost always pops up as founders are trying to fundraise. (Trying to wrangle what they've been doing in Xero into something that makes sense for financial due diligence/SaaS metrics etc.) I think there's a real opportunity for someone to do this really well.

I'm not trying to say Xero is going to go away overnight. I just think that an agile competitor could attack a beach head pretty swiftly and catch Xero off guard. They'll have levers to pull to combat this, sure, but can they do it quickly enough as an established player? I'm wary of companies resting on their laurels for too long and I'm starting to think Xero might be in this category.

Xero enjoys a great 'trap door' moat -- very sticky product due to high switching costs (largely the cost of time and effort in this case). Another great example is enterprise software; just look at companies like SAP and Oracle, or Technology One (ASX:TNE) here at home.

So I agree @PeregrineCapital, its a huge pain to switch. Especially when business owners always have a thousand other more pressing issues to deal with. And that's why these companies also have great pricing power too, as @actionman alluded to.

(It's also why the banks hate the idea of portable account numbers)

Given all of that, competitors have tried to make switching a much more seamless experience. EG. Apple has an app for android users to easily switch from android. Chrome makes importing data from other browsers super easy. VOIP companies put a huge emphasis on portable phone numbers back in the day to overcome customer intransigence.

There's probably better examples, but you get the point. Switching in these areas is laughably easy nowadays, but I remember when it was a real hassle.

I note that Intuit uses a product called Dataswitcher to import from Xero to Quickbooks. It's not yet available in Australia from what I can tell, and the process seems fairly involved, but I'm wondering if such programs become better and more widespread over time?

ie. Could it be that in (i dunno) 5 years time switching between one accounting package to another, at least for a small business, is really just a matter of going through a 5 min guided process? And, if so, does this have a material impact on retention and pricing power?

And, of course, it goes both ways (xero uses JetConvert to import Quickbooks data).

I honestly don't know, and am just wondering aloud.

Just heard a podcast where someone gave advice not to get in between high quality compounders and also share his own experience selling PME, AD8 and ALU and how he feels about it rightnow...

In a hindsight so easy and in real time when you are in that situation so bloody hard...love it...

@Strawman was doing the same kind of lamenting with ALU and AD8 on the latest Motley Fool Money Pod :D

I actually meant him only. Wanted to see if he actually reads a comment or just puts thumbs up....seems like he hasn't noticed.

oh i read it @Valueinvestor0909.. and had a little cry on the inside ;)

There, there...as someone who has done similar things with some of my positions, I can attest to how hard it can be to hold when the valuation gets well ahead of itself. You also tend to lament in the other direction when there are big drawdowns from clearly overvalued levels, so you just can't win!