Intuit: software and services. Are you kidding me?

I must admit to have been befuddled by Larry Dignan's interpretation of Intuit's current go to market strategy as analogous to Microsoft's software plus services mantra.
Written by Dennis Howlett, Contributor

I must admit to have been befuddled by Larry Dignan's interpretation of Intuit's current go to market strategy as analogous to Microsoft's software plus services mantra. This is the salient quote from Intuit's Q4 earnings call (my emphasis added):

We’ve talked about the fact that our growth for the past few years has been driven by the performance of the connected services in our three biggest businesses, and that as we look ahead, we see an increasing emphasis on these connected services to serve our customers and accelerate our growth rates over time.

As a reminder, we think of connected services as including three types, the first is SaaS, or software as a service, where our solution is a connected service that delivers revolutionary benefits or a cost advantage, like TurboTax Online, Online Banking and QuickBooks Online Edition.

The second is what we call software advantaged services, where connecting the service we deliver to our desktop software makes the solution clearly superior for what matters most to customers. Examples include our Payroll and Payments offerings and the way they connect to QuickBooks.

And the third is where our ecosystem serves as a platform that connects people to other people, like the TurboTax Live Community and QuickBooks Pro Advisors Community.

Far be it for me to contradict Larry but much of this sounds like marketing speak predicated on a line that doesn't come close to Microsoft's vision. It's a model that is as old as the hills which I could easily argue has been offered by the likes of Sage for many years. And that's a company I believe is hopelessly retarded when it comes to innovation.

The SaaS offerings are not well connected. If I look at Online Payroll for instance, there is an export facility to QB but that's it. I guess they'll get there in providing a proper connection at some point but there's no current evidence. In the meantime, I wonder why, when they make such a noise about this part of the business growing so rapidly, that SaaS doesn't appear to be receiving the engineering attention needed?

The connections between Payroll, Payments and Quickbooks are integrations by another name. Where is the 'service' in this? I guess you can argue the ability to make direct payments is a nice add on but service?

Finally, the communities are close to services but they are listed under the main Intuit support tab and not products and services. In reality, they're forums that pull in external professionals willing to share their experience. In other words, they form free resources for Intuit to leverage with its community of users.

This is interesting but for other reasons. Intuit, like others that operate online support communities are effectively diverting part of their support cost to the community. By providing the platform for doing so, they can legitimately argue they are providing a service, but I don't see it reflected in downward pricing trends. That is another argument for another day but a trend I see growing among software vendors.

The question then comes - what does 'services' mean? Going back to Larry's referring article:

Ballmer’s overriding message was that Microsoft is prepared to tackle technology shifts–and the biggest one is the Internet and how everything will be connected via services.

I don't see much evidence of that in Intuit's statements, even though I agree with Larry's general proposition that Microsoft is long on vision and short on delivery. If anything, I see a repackaging of integration and support and that's about it. If that's the case then why not say so?

The more interesting point however is that Intuit is forecasting 9-12% growth next year. On the numbers Intuit is putting out, that's $250-330 million. A decent chunk of change in an economy that's struggling. Brad Smith, Intuit's CEO explained it in these terms (my emphasis added):

It kind of goes back to the earlier answer with a couple of additional comments, so one is we are very excited about the ’09 release, and we are also excited about the game plan we have for demand generation in free. But the other key element here is opening new front doors to the franchise. So with the acquisition of Homestead, we now have an opportunity to get to a small business owner earlier in their life stage where they are thinking about getting up online and getting a website before they even think about accounting. So that’s a great way for us to get new customers into the franchise.

We also have the [inaudible] of new front doors being opened up in other parts of the ecosystem, like online payroll. So we can get somebody to come in and start using online payroll services and then if they want to have that work with financial software, they will buy QuickBooks.

So when you put it all together, it’s the stronger ’09 release, it’s increased demand generation and free with Simple Start, and it’s new hosted services like Homestead as well as online payroll, and a set of other connected services you’ll hear more about at investor day.

Let's assume Intuit is right and services like Homestead help seed further growth - what does that say about the so-called Web 2.0 world as it applies to Intuit's small business market? FreshBooks isn't doing too shabbily with more than 400,000 registrants and they're only scraping a part of the market with a fraction of Intuit's functionality. In the UK, FreeAgent has the accounts and tax bases covered and is seeing accelerating demand (disclosure: I have a tiny investment in FreeAgent but no day to day involvement.) New Zealand's Xero has just broken the 2,000 customer barrier with accelerated growth in thr last six months. And let's not forget the direction Zoho is heading with its burgeoning stable of business applications. Each of these companies will claim they are operating software as a service, building integrations as they go and building communities of interest.

The combined revenues of these companies would represent a rounding error to Intuit but that's not the point. How long will brand pulling power be enough to keep the upstarts at bay? Or is there enough slack in the market for many players to compete - at least for the time being?

Editorial standards