Microsoft talks software plus services; Intuit actually does it

Intuit's fourth quarter brought the usual grab bag: A loss in a seasonally slow three months, solid revenue growth and an outlook slightly ahead of expectations. But Intuit also talked about it view of connected services and the big picture.

My epiphany: Microsoft has been talking about software and services for what seems like forever. In this vision, Microsoft takes its applications, hooks them up with Web services, creates a competitive advantage and layers in advertising. Intuit's spin on this plan is "connected services." The big difference: Intuit is delivering without getting caught up in advertising. Microsoft is getting around to it. Is the comparison fair? Yes. Intuit is clearly more focused and Microsoft is much larger. But the playbook is the same. It's all in the execution.

First, the numbers (statement). Intuit reported a fourth quarter loss of $94 million, or 19 cents a share, on revenue of $478 million. Intuit makes most of its money during tax season. For the year, Intuit reported earnings of $476.7 million, or $1.33 a share, on revenue of $3.07 billion. In 2007, Intuit had earnings of $440 million, or $1.25 a share, on revenue of $2.67 billion. The results were in line with Wall Street estimates.

For fiscal 2009, Intuit projected revenue of $3.35 billion to $3.43 billion, up 9 percent to 12 percent. Earnings excluding charges are expected to be $1.86 a share to $1.90 a share. Including charges earnings are projected to be $1.41 to $1.45 a share. Wall Street was expecting 2009 earnings of $1.86 a share on revenue of $3.34 billion.

Those figures were solid across the board, but what's notable is Intuit's recent moves into SaaS and hooking its desktop software up with services. Although Intuit still has work to do it has the plan that Microsoft is trying to emulate.

Intuit CEO Brad Smith outlined the big picture on the company's earnings conference call:

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.

That approach is paying off and is much cleaner than what Microsoft has communicated. Intuit's consumer tax business was strong due to 37 percent growth in online units. QuickBooks Online revenue was up 50 percent and the SaaS customer base (QuickBooks Online, QuickBooks Enterprise and Homestead) was up 22 percent. Sure, this growth comes off a smaller base, but it's clear that Intuit's software and services model is more than a PowerPoint slide. Meanwhile, Intuit isn't being distracted by being a search player or advertising--the company is playing to its strengths. "It’s the combination of services and desktop software that sets us apart," says Smith.

The strategy works. And it can work for Microsoft too--if it can deliver.

Also see: Intuit pushes deeper into cloud, points to its track record

Intuit opens its QuickBase platform to developers; Plans to get SaaSy