The MYOB and Kounta Deal – What it means

Accounting Software

Accounting software company MYOB made a surprise announcement last week that it had made a minority investment in cloud point-of-sale app Kounta. The deal was surprising for several reasons.

The last time MYOB acquired software or services it bought the company outright. Financial data aggregator BankLink, which supplies bank feeds to the MYOB AccountRight and MYOB Essentials ranges, has been integrated into the accounting software itself and the service rebranded as MYOB BankLink.(Update: MYOB also acquired cloud document collaboration startup Dovetail in late May.)

The Kounta investment in contrast is not even a controlling stake. The cloud POS vendor had several offers for investment and chose MYOB for access to its sales channel of 40,000 partners and 1.2 million customers.

“We’ve proven Kounta out in all sizes of businesses, from hole-in-the-wall cafes to high volume outlets and multi-outlet franchises,” Nick Cloete, CEO of Kounta, told BoxFeeIT. “All our acquisitions have been organic. Now its time for Kounta to spread its wings and from a good, solid platform.”

Kounta will continue to sell the POS app as a standalone product that integrates with competing accounting programs in Australia and New Zealand, and in the rest of the world.

MYOB didn’t have any means of supplying bank feeds itself so the BankLink acquisition made sense. MYOB already has retail programs that have sold well for several years. While Kounta will initially be sold alongside MYOB’s desktop and server-based programs in retail, it will gradually become the vendor’s first recommendation.

“As time goes by the trends show this will become the lead product,” Andrew Birch, MYOB product manager, told BoxFreeIT.

MYOB is effectively admitting it is better to have a best-of-breed solution under a white-label arrangement than miss out or stretch its developer resources by trying to build everything in-house. (MYOB Kounta is not a straight white labelling exercise as it will have tighter integration with MYOB and other features, MYOB says.)

The investment is also a tacit sign of support from Bain, MYOB’s owners and the biggest private equity company in the world.

It’s fair to say that the relationship between Bain and MYOB got off to a less than smooth start. The price Bain paid previous owners Archer Capital ($1.2 billion, triple the price Archer paid two years earlier) was an enormous valuation given the company had yet to release any cloud software.

Bain couldn’t have known how big a threat Xero would become in such a short time, and its rival’s rise has devalued the existing MYOB desktop software range.

The rocky release of AccountRight Live, which took about a year to sort out, must also have dented their confidence. It lengthened the development process and increased the time to a return on investment until the bugs were all ironed out.

Saddled with ongoing development, a $540 million debt and a new competitor in hyper-growth, things looked pretty grim for a while there. However, if Bain was looking to sweat the assets and make an earily exit it’s unlikely that it would approve investments in startups. Word is that Bain is backing MYOB for the long term – welcome news for MYOB employees and customers.

The Kounta move is the latest signal that MYOB is making tough choices and finding the right path.

Consider these other signals. In the past 12 months MYOB has poured a lot of effort into setting up an API, the method by which its accounting software can talk to other cloud business software. This has emerged as a critical step to the success of any cloud program as proven by Xero with its 300-strong ecosystem of compatible apps. MYOB is still behind but catching up.

The lightweight MYOB LiveAccounts, shown little love by MYOB while AccountRight Live underwent emergency surgery, has been “remade” (not a rebrand!) as the Essentials range. The browser-based program still has a way to go to catch up to Xero in terms of user experience, but Essentials could prove crucial to the company’s future.

Browser-based programs have become the default design for all cloud business software so Essentials Accounting may eventually replace AccountRight over time as its feature set expands.

The fact that MYOB is spending more time on it also recognises the importance of the micro and small business market (coming from Microsoft Excel) which Xero has targeted so effectively.

And this is great news for the local cloud software industry. Intuit and now MYOB are opening up their wallets to invest in proven companies. It’s great news for accountants, bookkeepers and SMEs because cutting-edge technology will find its way to market faster, kicking along the cloud-led productivity boom.

It will be interesting to see whether Xero chooses to respond by taking a piece of Vend, the other well-known cloud POS and a long-time Xero partner. On the one hand, MYOB’s plan to offer a tightly integrated cloud POS, accounting program and hardware bundle will be attractive to retailers wanting a single-branded solution. Xero will feel the urge to compete.

But on the other, Xero Australia is focused on getting its tax platform out and HQ is busy establishing its US beachhead. POS is probably not top of the agenda.

Other points of interest

  • MYOB hopes to launch its version of Kounta end of Q3 or early Q4. No pricing available until then.
  • It is easier to add more features to Kounta because it is online software, says Birch. Kounta will integrate with MYOB Essentials and AccountRight programs.
  • Greatest appeal of Kounta is ease of set up. No downloads or server installs, just add another store or register and keep selling. (And no servers required, of course.)
  • Kounta is device agnostic (Mac, PC, tablet, smartphone) and sold on a low-cost subscription not a large upfront price. Kounta works online and offline, can sync multiple stores.
  • MYOB Kounta will target the small retail and hospitality – cafes, restaurants, boutiques.
  • The standard Kounta app will still work with Xero, Saasu, Intuit, etc. It can integrate with online and mobile services like accounting, payments, loyalty, inventory, e-commerce and others.
  • The terms of the investment were not disclosed.
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