Friday, March 16, 2007

How would Google + Intuit change the market?

Nick Carr wrote a piece yesterday suggesting that Google should go out and acquire Intuit. He makes a good argument, though he misses a few points (like QuickBase).

I'll suggest another reason (from Intuit's perspective) the deal should happen. The QuickBooks business may be headed for some trouble. Not QuickBooks Enterprise, which at this point looks to be a phenomenal success, but the entry level stuff, the backbone of the QuickBooks business.

QuickBooks Enterprise is successful because it is filling a gap between tradition QuickBooks and mid-market packages like Dynamics. Intuit's original move up market was all about retaining customers that outgrew QuickBooks and moved to other vendors. They never felt so compelled to make this push as when Microsoft acquired Great Plains. In 2002 Intuit CEO Stephen Bennett commented.
"When we were just losing those customers to (rival) Great Plains Software, it was dumb. Now that Microsoft has bought Great Plains, it's really stupid for us to lose customers to Microsoft."

Intuit proceeded to go on an acquisition spree, picking up mid-market focused business solutions in an attempt to offer a growth path to its customers. This strategy proved to be an almost complete failure, and most of the acquire business has since been divested (American Fundware to Kintera, MasterBuilder to Sage, etc).QuickBooks Enterprise, on the other hand, has been a huge success, adding about 4,000 customers in Intuit's last quarter. The success of this product is one of a handful of reasons Sage's MAS 90/200 business has faltered.

But let's be clear, the primary driver of success for QBE is the constant stream of customers outgrowing the entry level products. They don't mind that they are not moving to a "real" mid-market solution. The ease of migration, familiarity of the UI, minimal training requirements, etc, make it a compelling option.Without this feeder system the product would not fair nearly as well. It would be just another functionally deficient solution fighting for space in a crowded market and winning deals on price and usability (simplicity), albeit backed by a strong corporate parent. Sort of like SAP Business One.

However, Intuit is once again losing a lot of customers to Microsoft - not the kind that outgrow QuickBooks and leave, but the kind that Intuit doesn't see in the first place because they are buying Microsoft Office Accounting. Yes, Intuit still reports capturing about 90% of the share of shrink wrapped accounting software sold at Staples, Best Buy, etc. But that statistic misses all the people like me that just go to and download Office Accounting. The numbers make it clear what kind of impact this is having already.

There is a noticeable shift in the mix of QuickBooks customer adds over the last few quarters. While the Premier and Enterprise units continue to trend nicely up, adds on the entry level stuff (Simple Start, Basic, and Pro) are not as strong. Actually that is understating it quite a bit. Over the last 6 reported quarters customer add growth on entry level QuickBooks has been as follows: 34%, 30%, 14%, 4%, 2%, -8%.

The seamless experience of working in an accounting app that is basically part of my office productivity suite is huge, and Intuit cannot expect over time to hook into Microsoft Office as well. That comparison is a losing proposition for them. Today the market presents them with a number of alternatives to Office, from small start-ups like Zoho to a well funded player like Google.

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