A small business in New Zealand or Australia kept its books in installed desktop software, spreadsheets or paper. The leading product was MYOB, which had dominated entry-level accounting since the 1990s through retail shelves and recommendations from accountants; Reckon sold Intuit's QuickBooks in the same market XRC-5 XRC-7. The owner and the outside accountant worked on separate copies of the file and exchanged it when the accountant needed the books, and entering and reconciling transactions took time every month XR1. The desktop products were capable, but working together meant passing files and keeping local copies up to date XR1. MYOB had built online tools in the early 2000s and had not released them XRC-2.
Xero
Xero put a small business and its accountant on one live ledger fed by the bank, and accountants moved their clients onto it while MYOB held back its online product to protect its desktop sales.
How Xero won
- 1 · 2006–12One live ledger shared by owner and accountantFounded in 2006 as Accounting 2.0, a browser ledger that the business and its accountant open at the same time.Novel Architecture
- 2 · 2007–13Bank feeds turn bookkeeping into quick reconciliationBank reconciliation was among Xero's first standout features, designed as a matching game.Ease of Use
- 3 · 2008–17Accountants organized into a community that moves its clients20,000 to 30,000 accounting firms on Xero by 2017, retraining programmes, and Xerocon drawing about 3,000 in Melbourne.Practitioner Community
- 4 · 2010–17Open API makes the ledger the hub for appsAPIs published early; about 600 certified apps and 40,000 developers by 2017.Platform Strategy
- 5 · 2016–25Switching costsXero passed MYOB on subscribers in 2016/17, and practices standardized on Xero keep their clients there.Switching costs
Versus MYOB: MYOB sold an installed file that the owner and the accountant passed back and forth, and it held its online product back to protect that desktop base. Xero put both on one live ledger fed by the bank, and accountants moved their client books onto it, then kept them there.
Arena: Market Conditions Before Xero
How each step happened
Step 1 of 5 · 2006–12
One live ledger shared by owner and accountant
Xero's innovation was one accounting ledger held online, which the business owner and the accountant could open at the same time from different places. Rod Drury and Hamish Edwards founded it in Wellington in July 2006 as Accounting 2.0 XRC-12 XRC-5, and Drury describes the change as putting accountants and businesses on shared databases instead of separate files XRC-1. Invoices, bills and reports sat in the same live record XR1. MYOB's software was an installed file on each machine; to offer one shared record it would have had to rebuild its product and move a paying desktop base onto something new.
The shared ledger made the accountant's step part of the owner's normal work instead of a handover at the end of the year XR1. Co-founder Philip Fierlinger designed it around running the business, with a real-time dashboard, rather than around filing tax XRC-4. Drury saw accounting as the system of record that links every small business to its bank and to the tax office, and built the engine to work across countries from the start XRC-3. That link to the bank is what the next step used.
Rivals MYOB's strategy chief John Moss said in 2016 that MYOB had developed online tools in the early 2000s but delayed their release and missed the timing XRC-2. Its online version for existing desktop clients, AccountRight Live, arrived in October 2012 XRC-11.
Step 2 of 5 · 2007–13
Bank feeds turn bookkeeping into quick reconciliation
Because the ledger lived online, Xero could pull transactions straight from the bank. Paff, an Australian channel analyst, writes that Xero built its accounting around automated bank reconciliation XRC-5, and Drury names reconciliation as one of Xero's first standout features, comparing it to a game of Tetris XRC-3. Fierlinger designed the screen like the Memory card game: the owner matched each bank line to an invoice or bill, and a chore became something close to fun XRC-4.
Easy reconciliation mattered because it kept the shared ledger current. An owner who once keyed statements into a desktop file every month now only confirmed the matches, so the accountant logging in saw up-to-date books XRC-4 XR1. Current books gave accountants a reason to work in Xero all year, which set up the next step.
Rivals In the MYOB desktop file, transactions were entered and reconciled by hand XR1; MYOB bought the bank-data service BankLink in June 2013 XRC-11.
Step 3 of 5 · 2008–17
Accountants organized into a community that moves its clients
Xero entered Australia in 2008 XRC-7 and made accountants and bookkeepers its main route to small businesses XRC-6. A practice could run many clients' books in one product and recommend it during ordinary advisory work, so a business that trusted its adviser skipped the search and much of the setup XR1. Some accountants at first resisted, fearing fewer billable hours of data entry; Fierlinger says Xero answered by moving them toward advisory work done with the client in the shared books XRC-4.
Xero then organized these firms into a community. Drury said in 2017 that 20,000 to 30,000 accounting firms used Xero and did better for it, and that Xero was spending heavily on retraining the profession, including a lifelong-learning programme for accountants XRC-3. Its Xerocon conference drew about 3,000 people in Melbourne that year, with editions in London and Las Vegas, partner app exhibits and a vocal bookkeeper contingent XRC-9. A trained practice could move its whole client list onto Xero, and the owners came with it.
Rivals MYOB also relied on accountants and bookkeepers, but its accountant and retail channels were built to sell desktop software XRC-5 XRC-6. Paff judged its cloud move flawed and called AccountRight a stopgap that attached desktop software to a cloud database, and Drury said MYOB's hybrid product was received poorly XRC-6 XRC-1.
Step 4 of 5 · 2010–17
Open API makes the ledger the hub for apps
Xero published its programming interfaces (APIs) early, so other companies could build software that read from and wrote to the ledger XRC-5. By 2017 Drury counted about 600 certified apps and 40,000 developers connected to Xero XRC-3, and partner apps were exhibited at Xerocon beside the accountants who recommended them XRC-9. Xero did not have to build every specialist tool itself: payroll, payments and other applications extended the ledger into adjacent work, and by FY2026 Xero described accounting, payroll and payments on one platform XR2.
The apps made the ledger the place where a small business's financial data met, and the accountant who already worked in it could advise across all of it. Intuit, which had launched QuickBooks Online in 2004, added published APIs about a decade later, in Paff's account as a response to Xero XRC-5.
Rivals MYOB spent about A$47 million a year on research and development held to Australian and New Zealand features, and in 2015 it still had 375,000 paying desktop customers, with 56% of revenue from desktop XRC-2.
Step 5 of 5 · 2016–25
Switching costs
The lead showed in 2016/17, when Xero passed MYOB on subscribers, 692,000 to 585,000, and grew revenue 43% against MYOB's 13%, although MYOB's revenue was still larger XRC-7. MYOB had 170,000 online customers in 2015 XRC-2; Xero, with more than 600,000 subscribers in 2016, reports about 5 million customers today XRC-2 XR1.
What keeps clients there goes back to steps 1 and 3. A practice that runs its client books in the shared ledger, trained its staff on it and connected apps to it would lose that setup by moving a client elsewhere, and a business that changes accountant can find another of the many firms already working in Xero XRC-3. Each firm that joins makes Xero more useful to the owners, and each owner makes it more useful to the firms. A 2025 investor analysis describes customers and accountants as loyal to Xero, with low churn and a high degree of stickiness, and calls Xero the leading cloud accounting provider in New Zealand, Australia and the United Kingdom XRC-10.
Rivals MYOB relisted in 2015 and was taken private by KKR in 2019 XRC-11. In the United States, Intuit's QuickBooks leads and the same analysis expects it to stay ahead XRC-10.
Key dates
- 2006-07Founded in Wellington as Accounting 2.0 XRC-12
- 2007-06Lists on the New Zealand exchange XRC-12
- 2008Enters Australia against desktop MYOB XRC-7
- 2011-08Bain Capital buys MYOB XRC-11
- 2012-10MYOB releases AccountRight Live XRC-11
- 2012-11Lists on the Australian exchange XRC-12
- 2013-06MYOB buys bank-data service BankLink XRC-11
- 2015MYOB: 170,000 online and 375,000 desktop customers XRC-2
- 2016600,000+ subscribers Worldwide; 425,000+ in Australia and New Zealand XRC-2
- 2017Passes MYOB on subscribers for 2016/17, 692,000 to 585,000 XRC-7
- 2017-09Xerocon draws about 3,000 in Melbourne XRC-9
- 2017-10About 600 certified apps and 40,000 developers XRC-3
- 20192 million subscribers Worldwide XRC-12
- 2019-05MYOB taken private by KKR XRC-11
- 2021-093 million subscribers Worldwide XRC-12
- 2025-07Called the cloud accounting leader in NZ, Australia and the UK XRC-10
- 20265 million customers In 180+ countries XR1
Sources
Oldest first.
- XRC-5 How did we get here?. Industry analyst history
- XRC-6 Getting SaaSy Part I. Industry analyst comparison
- XRC-2 MYOB stays fighting fit in competitive accounting software ring. Trade interview with rival executive
- XRC-9 Xerocon is Coachella for accountants. Trade report
- XRC-3 Rod Drury on Xero's origin story, new partnerships & Xerocon. Founder interview
- XRC-7 MYOB, Xero, Quickbooks and the Cloud Accounting Ecosystem. Trade commentary
- XRC-4 MediaPhones, Accounting Dashboards & Digital Marketplaces: The Design Journey of Xero's Co-Founder Philip Fierlinger. Co-founder interview
- XRC-10 Stock Story: Xero. Investor analysis
- XR1 FY26 Annual Report. Annual report
- XR2 Xero annual report 2026. Annual-report mirror
- XRC-11 MYOB (company). Reference (orientation)
- XRC-12 Xero (company). Reference (orientation)
- XRC-1 Trash talk means rivals are struggling: Xero's Drury. Trade report with founder quotes