'Bigger than the cloud' ... Xero makes first move towards automated accounting

"We think we'll be able to make accounting so much easier than before ... over half of our customers are new to accounting software, so cloud accounting did a big thing for making accounting more approachable, but this will attract the next generation of customers."

There are about 10.1 million unique account codes on Xero, and Mr Drury said it had found small businesses were regularly attaching the wrong code to an invoice or transaction by mistake.

The machine learning automation will initially be available for testing by a small group of small business customers and their accounting partners from Tuesday, before being available to all Xero customers by mid-year.

Xero's migration to AWS from Rackspace began in June last year, but was the result of two years of work and involved the migration of more than 700,000 customer files.

Mr Drury said the migration was now complete, but it had been a time-consuming process.

"It was very difficult, but we're now seeing big performance improvements in the system. We're still working through this and we're reinventing our core processes. Half of our developers for the last year-and-a-half were working on getting us to AWS," he said.

In addition to the automated coding, Mr Drury said Xero was working on applying machine learning to automate invoices entirely.

Xero's major competitor in Australia and New Zealand, MYOB, has also been investing in machine learning, introducing MYOB SmartBills two years ago, which interprets invoices and captures data to eliminate manual data entry for clients.

"Last month, we upgraded to the second generation of SmartBills, which uses machine learning/artificial intelligence to improve the accuracy of this service," an MYOB spokesperson said.

"The key to success with any type of machine learning is the quality of the data, such as bank feeds, which informs the coding. This is because any error which goes through (regardless of coding) creates significant rework for accountants to fix later."

Both Xero and MYOB are working to position their businesses as financial services platforms, rather than simply sellers of software.

However while Xero is focused on becoming a global giant, expanding into the UK, North America and other markets, MYOB has opted to stay focused on its local operations.

Analysts do not believe either company is winning the race to be the platform of choice at the moment, and they are split on whether or not it will be a winner-takes-all market.

Mr Drury said he was confident that having a global platform was the right strategy and that Xero would emerge as the dominant player.

"It's already proven to be a winner-takes-all market. How many customers does MYOB have left in New Zealand? That was our first market, and we now have a third of all businesses," he said.

"It's now very obvious that accounting platforms need to be global because SMEs are starting to export, so they need technology that can be used across many countries.

"We're executing in all of our markets, and that means the platform becomes more powerful as small businesses need to go global."