What is Intuit’s Competitive Advantage?

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Last week at Intuit’s annual conference, QuickBooks Connect in San Jose, California, I spent time meeting with senior executives, listening to sessions and talking with QuickBooks accountants from around the world.

I also visited Intuit HQ where country managers gave a briefing on the UK, France, India, Brazil, US, Canada and Australia.

The contrast to last year’s conference was palpable. Last year Intuit wanted to ram home the message that it had transitioned successfully to cloud. It was a message aimed at the audience but also, I felt, at Intuit’s employees.

QuickBooks Connect was launched last year as a conference explicitly for the cloud version, QuickBooks Online. One attendee told me employees working on the desktop software were asked not to attend.

Twelve months later and the mood had changed. Less anxiety, more confidence. The Intuit ship has changed course, no-one is going to steal the desktop market, cloud products are shipping and the market is growing.    

The US market is behind Australia and New Zealand in a couple of areas but moving quicker in others. You can read or hear interviews on the future of financing with the head of QuickBooks, the future of accounting with the head of the accountants’ division, and a quick preview of the Firm of the Future concept.

There is one more story to write – what is Intuit’s competitive position? How does its incumbency help or hinder its vaunting ambitions? And if there’s one thing that’s clear from last week, Intuit’s ambitions are epic.

At this stage of the race the global narrative is largely about Intuit versus Xero. The latter is the cloud leader in two of those countries and is going all out to make a dent in Intuit’s home territory. (Sage is out of the gate but well behind.)

Here are some thoughts. Feel free to add opinions and rebuttals in the comments section below.

Where Intuit Does Well?

Desktop software

It looks like the majority of people on desktop accounting software are sticking around for a while yet. This is good for an incumbent’s revenue and good for their brand. Several vendors have told me they can win more customers by chasing new businesses rather than trying to convert existing ones from desktop software.

Over time the advantage of cloud software will cause more people to switch from the desktop, but in the US it doesn’t look like it will happen soon. A country wedded to paper cheques/checks clearly doesn’t handle change well. Older business owners will be buried with their company files.

Uncontested markets

Intuit is sinking resources into new markets for cloud accounting where there are no direct competitors. This is a long-term play that will take time to generate large numbers of customers but will give Intuit a head start.

Take India, a booming market of 50 million small businesses and 120,000 accounting practices. Unreliable internet access has kept the vast majority on desktop software. The incumbent, Tally, holds a staggering 90 percent market share.

The only cloud rivals to QuickBooks Online are Reach and Zoho Books, although both of these are part of suites and lack Intuit’s focus on online accounting software.

Intuit has a team selling in just two cities, New Delhi and Bangalore, and will use that to build a mobile strategy. Intuit will gain valuable insights from experimenting with 200 million smartphone users. Many Indian business owners will use business software on their phones first.

Same story in France and to a lesser extent Brazil. Sage and Xero don’t have localised programs for these markets and Intuit is committing to them very early.

Would you add QuickBooks Self-Employed as a product for an uncontested market? Targeting sole traders, it aims to automatically sort personal and business transactions and calculate your taxes. It includes health insurance advice in the US and just launched in the UK.

An interesting program, it could either flop or boom.

Owning the app ecosystem

Intuit carries a lot of weight in the US. It has wooed the most successful third-party programs from Xero and other vendors to join its own ecosystem by promising access to its US customer base.

Four apps at the conference were announced on stage as best in category. Intuit has given a special partner status to Receipt Bank (accounts payable scanning), Fathom (analytics), TSheets (time sheet tracking) and Bill.com (accounts payable automation). The extra promotion should supercharge the growth of these apps, and Intuit will draw more closer to its chest with the same promise.

Behind the scenes Intuit is sharing a lot of its components of QuickBooks’ user interface. It wants to make it easier for developers to make apps for its platform. If developers use these  components they will start to look like a native app for QuickBooks.

Intuit is also opening up its platform so that developers will be able to add parts of their apps as widgets inside the QBO accounting program itself.

Cashola

Boy, this company has a lot of it. More than US$4 billion a year in revenue, $900 million in net income. No wonder it has a market cap of US$28 billion. The competitive edge is not just the size of the pot but how Intuit’s spending it.

The company has US$1 billion in cash parked in the bank, earning just 0.25 percent interest. It just set up a US$100 million fund to lend to small businesses through QuickBooks which will earn 9 percent to 19 percent, depending on risk.

And it can calculate that risk better than anyone else because all small businesses’ transactions are coded to the general ledger – at no cost to Intuit. (Thanks, accountants and bookkeepers!)

Intuit has so much cash that it can afford to set up teams in new markets and wear the cost until the market turns.

Single supplier

There’s an advantage in owning all parts. Check out the full list of Intuit products; marketing, payroll, point of sale, tax, bank feeds, lending and accounting.

Most of those products have moved or are in the process of moving to the cloud. That’s just the first stage. The second is integrating them all into QuickBooks Online. This brings more services to more businesses and more profit to Intuit.

Intuit already uses sophisticated tools to analyse QuickBooks data that it shares with lenders to reduce risk. It can apply those analytics to other areas of its business and pre-emptively sell products at the time they’re needed. So many secrets can be unwrapped from the accounting file itself.

Xero is pursuing the same philosophy but using third-party products rather than its own.

Where Intuit needs to do better?

Conversion

Intuit has struggled to match the conversion rates of Xero in two markets, Australia and the UK. Admittedly, Xero has had a big head start in both. Yet Intuit sold only 33,000 licences in Australia despite running a year-long promotional campaign that virtually gave away its software at A$5 a month (for life!). Several accountants told me they took advantage of this campaign and stockpiled a number of licences, so the utilisation rate is not 100 percent.

Brad Paterson, Intuit’s VP for Asia Pacific, says the rate of acquisition in Australia has hit a streak and today’s figure is much higher. UK managing director Rich Preece claims that the rate of growth in the UK had surpassed Xero for the first time.

It will be interesting to see whether the next set of numbers bears this out. Until now Xero has been creaming it in both markets and it’s hard to see why that momentum would slow.

   

Practice automation

Intuit is moving slowly to build out practice management for small accountancy practices. The reboot of QuickBooks Online Accountant was a big jump up from a client list but lacked critical features such as workflow.

Xero’s practice management software Xero Practice Manager is rough around the edges and has its own shortcomings. However, accounting firms with high numbers of Xero clients can still drive higher levels of efficiency.

Automation is a huge, emerging theme across small business. Intuit is in a difficult position because so many US accountants see it as a threat. Yet it’s the future, and Intuit must go there.  

Disclosure: Intuit paid for my plane ticket and accommodation to attend QuickBooks Connect.

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