Xero announced yesterday via press release that they have acquired Hubdoc.1 The announcement gives very little details on the acquisition, though a separate report values the deal at $70 million USD consisting of Xero equity and cash.2 Speaking of the acquisition, Keri Gohman, President for Xero Americas said: “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.”
In a blog post on Hubdoc’s website, co-founders Jamie Shulman and Jamie McDonald clarify that they “aren’t going anywhere” and that they will continue to lead Hubdoc. This assertion makes sense in the context of the prior-cited report, which claims that $10 million USD of the Xero equity is to be issued to Hubdoc’s shareholders after 18 months, subject to Hubdoc meeting “agreed operational targets and conditions”. No doubt, at least one of these conditions includes personnel continuity at Hubdoc.
We’re thrilled to announce that we’ve been acquired by @Xero! 🎉— Hubdoc (@Hubdoc) July 31, 2018
Thank you to our customers who have supported our team through the years. We’re excited to help Xero move one step closer to achieving its vision for code-free accounting.
Learn more here: https://t.co/56ciEwOWM6 pic.twitter.com/6xaCwix33n
Hubdoc also added the following clarification to the announcement: “There will be no change for our customers and partners. The Hubdoc business and brand will continue to operate on a standalone basis as we work to identify the best way to integrate our product roadmaps.”3 The only real change that Hubdoc reveals an intent to make is “a deeper, more powerful integration between the Xero and Hubdoc platforms”.4
Cloud Accounting Investment Picks Up Steam
That said, this acquisition looks like a virtual carbon-copy of Intuit’s acquisition of TSheets, which was announced only nine months ago. At the time, I said the move to acquire TSheets indicated that “Intuit is now looking to aggressively expand the native capabilities of its QuickBooks Online system”5. We shouldn’t be surprised to see that, in response, Xero now appears to be doing the same by acquiring Hubdoc. As QuickBooks Online and Xero continue to fight for market share in the cloud accounting space, and with the accounting software market expected to grow 8.6% annually, it logically follows that we will continue to hear of additional funding deals, acquisitions, and strategic partnerships between the various players in cloud accounting. In fact, yesterday we also received news from Gusto that they nearly doubled their equity investment with $140 million USD of Series C funding.6 Gusto’s co-founder and CEO, Josh Reeves, is confident that Gusto will be ready for an IPO within three to five years.
Big news! 🗞 We’re excited to announce that we've raised a Series C to help us create a world where work empowers a better life. @julieverhage has the the full story via @business: https://t.co/s2LpNXqRlq— Gusto (@GustoHQ) July 31, 2018
Integrations: Can’t We All Just Get Along?
Given that I am QuickBooks Online and Hubdoc certified and I use Hubdoc as a key part of my cloud accounting tech stack for clients, I view this acquisition with some trepidation. While Hubdoc insists they will continue to support all of their customers “regardless of the technology they use”, it’s difficult to see how Hubdoc will be as motivated to continually invest in improving their integration with QuickBooks Online.
Sure, Hubdoc (and Xero) would be foolish to drop integration with QuickBooks Online altogether, but the integration is already in need of improvement (e.g. can we get support for publishing credit card credit transactions please?). However, Hubdoc’s priority will surely be its “deeper, more powerful integration” with Xero, while its integration with QuickBooks Online may by comparison look stale over time.
It’s Your Move, Intuit
Although Intuit made an arguably intelligent move in acquiring TSheets, Xero has countered by forming a strategic partnership with Gusto in the U.S.,7 and again with this acquisition of Hubdoc. It will be interesting to see how Intuit may react.
For starters, although Intuit enjoys substantial market share in the payroll software and services market for SMBs, but they have a lot of work to do to maintain it. Their disjointed smattering of payroll service offerings are confusing for accountants and consumers alike, and leave a lot to be desired. For example, their long-time offering, Intuit Online Payroll, has been relatively static in its design and feature-set for far too long. Finally, just this last week, QuickBooks Online product managers are now indicating that QuickBooks Online Payroll will ultimately replace Intuit Online Payroll once the full feature-set of Intuit Online Payroll have been brought over.
While that certainly will simplify things for Intuit, they really need to pick up the pace to keep up. Gusto recently introduced multi-tier service plans alongside a whole slew of newly available features, many of which I have been very excited to introduce to clients as an option for streamlining their payroll and HR operations. But even before Gusto introduced these new features, I have always felt that their core product, in both usability and features, is absolutely fantastic.
Hubdoc has been making similar strides over recent months. Their machine learning-powered data extraction, introduced back in May, has so far been effective in reducing the processing time of their OCR data extraction. They also continue to additional financial and service companies they can automatically retrieve statements and bills from. Should Hubdoc begin to distance itself from QuickBooks Online in favor of Xero over time, Intuit will need to make its own move in this space as well.
Xero’s acquisition of Hubdoc bodes well for users of the two systems, and inevitably stokes the competitive fire between Xero and QuickBooks Online even more. Intuit looks set to continue investing in their first-party payroll service offerings (which likely will have deep integrations with TSheets), and Xero is smartly focusing on streamlining the financial accounting and payroll processes in their own system.
Time will tell if additional acquisitions are to follow from either company, but after what we’ve seen this past year, it certainly wouldn’t catch anyone off-guard, would it?
- Xero Acquires Hubdoc: Business Has Never Been So Beautiful
- See Xero acquires Canadian partner Hubdoc in US$70M deal.
- Hubdoc and Xero Customer FAQ
- Intuit Agrees to Acquire TSheets — Impact on Cloud Accounting
- Payroll Startup Gusto Raises $140 Million in Funding
- The touted benefits of this partnership between Gusto and Xero are conspicuously similar to that of Xero’s acquisition of Hubdoc, i.e. Gusto intends to build a “deeper technical integration with Xero”. See Gusto Selected by Xero as Strategic Payroll Partner in U.S.