Editor's Corner: Explaining the Xero Hubdoc Deal

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While you may not come to AccountingWEB for breaking news, it is possible you may know that cloud accounting platform Xero has purchased third-party vendor partner Hubdoc. I’d like to take some time, for your benefit, to explain what I think it means, as well as some other details you may find useful or entertaining.

First, for the benefit of those not dialed into accounting news circuits or social media channels of their own: On July 31, Xero acquired Hubdoc for $70 million. The Toronto-based company created a data capture solution designed to help accountants, bookkeepers and small businesses streamline administrative tasks such as financial document collection and data entry.

According to Xero, this acquisition moves the company closer to achieving its vision for code-free accounting, enabling accountants help small businesses make sense of their financial data, as opposed to collecting it. The existing integration between Hubdoc and Xero delivers streamlined data capture, real-time financial data and organized and verified data.

Hubdoc has been a part of the Xero third-party ecosystem since 2014. It is also expected that Hubdoc founders Jamie Shulman and Jamie McDonald will stay on to manage the relationship and report into Xero Americas President Keri Gohman.

Regarding the transaction, Gohman said this in a statement: “Bringing Hubdoc into the Xero family will enable us to take the next step in delivering a platform that seamlessly connects small businesses with their financial data and their accountants and bookkeepers. This is all about accelerating our ability to streamline the collection and classification of that data so that small businesses and their advisors can answer the big questions, and find lasting success.”

Ok, now that the official statements are out of the way, what does this all mean to you the CPA and you the bookkeeper and what more should you know?

Well, for those that still don’t really know these companies you can bet they will make it their business to change that fact. Xero, which has been around since 2006, has offices around the world and has been in North America since 2010. They have admittedly struggled to gain ground here on chief competitor Intuit.

In other international markets where Xero is more established and Inuit is moving into, it’s a different story but this buy, like any strategic purchase, only serves to help that cause. Hubdoc is indeed an international company, but for all intents and purposes, we’ll stick to North America and the U.S. in particular.

The short version of this story is the simple fact that the core accounting ecosystem is up for grabs. I say this for two reasons:

1. First and foremost, just take a look at the third-party ecosystem from a distance and tell me it’s not ripe for consolidation.

2. Second, note one of the identical moves from late last year when Intuit purchased long-time partner TSheets. True, there are differences and similarities but in the end, the respective accounting software platform makers saw a strategic opportunity to bring “in-house” products that have been developed to serve a specific need that the core accounting product maker did not itself develop. Think about that.

Look at the landscape and the myriad of products designed to address a specific function and ultimately tie back (mostly through some API or integration tool or another) to core accounting. Why wouldn’t the core accounting product maker simply sit back, let the third-party vendor develop and mature its offering until ripe for the picking?

Granted, maybe that’s not the goal of most of these companies, but to be a stand-alone in an increasingly crowded marketplace can get lonely very fast. Not to mention, most have investors to satisfy at some point and it makes financial and business sense to merge in with a competitor and grow and, if the offer and timing is right, join up with your core accounting partner or grow through acquisition or merger yourself.

Now, as I mentioned with the Intuit and TSheets deal, this does not mean that these moves are about “one-upping” the competitor and taking competing ecosystem members off the table. In fact, in the eyes of core accounting buyers such as Intuit, Xero and even Sage, the end game is still about offering more to their small and midsized business customers and accounting partners. In other words, it’s a big sandbox that everyone can still play in, but just know our name is now on “this” and the best-of-breed sandcastle grows.

A few other points to note, one of Hubdoc’s chief competitors is ReceiptBank, which recently added a Fetch feature not entirely unlike Hubdoc’s abilities. It’s a feature that, essentially, puts the program to work to digitally and automatically go out and get the financial and other data the program needs.

For instance, in ReceiptBank’s case their Invoice Fetch submission method allows ReceiptBank to automatically download your clients’ recurring bills and invoices from supplier websites. Both ReceiptBank and Hubdoc automate such functions, saving clients and their accountants time and effort and one of the many things Xero found attractive about Hubdoc.

Now, as to why they chose to bring in Hubdoc over ReceiptBank is unclear. Both companies with of all their similarities are part of the Xero and Intuit QuickBooks Online ecosystem. ReceiptBank in fact joined the Xero partner ecosystem much earlier in 2011, while Hubdoc joined in 2014, around the same time it joined the QuickBooks Online ecosystem.

On this issue, the official party line from Xero (via spokesperson statement) is that “it's important to note that while this acquisition will allow Xero to build a deeper, more powerful integration with Hubdoc over time, Xero is an open ecosystem. That means that customers will continue to have the choice to use the apps that best meet their individual needs, including other data capture apps.”

ReceiptBank’s response was not all that dissimilar. According to Damien Greathead, RecieptBank’s VP of Global Accountants’ Programs, “We congratulate them both. Hubdoc initially led the industry on the fetch capabilities and we congratulate them for their imagination around this feature. ReceiptBank has an exciting product roadmap ahead and we're looking forward to delivering that to the accounting and bookkeeping community around the world.”

As for QuickBooks Online, both Hubdoc and ReceiptBank joined that ecosystem in 2014. While Intuit did not have any direct comment about Xero’s specific purchase, a spokesperson did say that “Intuit supports an open platform to serve our customers and have similar document management capabilities built into QuickBooks Online and QuickBooks Online Accountant. Hubdoc has been a great partner and we congratulate them on this transaction.”

In other words, as with the TSheets purchase, while it is officially an Intuit product, TSheets remains in the Xero ecosystem and Hubdoc will remain in QBO’s.

To conclude, if this type of consolidation is the tone of the day and everyone can really play nice in the same sandbox, there is no reason not to expect more of these deals to occur in the foreseeable future.

About Seth Fineberg

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Aug 2nd 2018 19:46

I like the way that the acquisition was presented in the press release, and Seth's ending paragraph of his story. Xero needed to alleviate any concerns in the community that Hubdoc users using QBO were going to be shut out. Time will tell how things play out, but it's a promising tone to set.

Working at one of the companies that is a competitor to Hubdoc or ReceiptBank (I'm at LedgerDocs), I agree it's a crowded space. But, it also creates a healthy competition between rivals. If each app wants to give its' users the best tools, features, user experience & customer service, the end customer wins, and the app that delivers on these promises will have word of mouth from the customer.

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