It may have taken a few years to turn the ship around, but Intuit is now steaming ahead towards a mighty vision. A vision that, to be frank, is far grander than I or many others would have guessed. To the point where it’s hard to imagine that one company can do it all.
ERP software, banks and other lenders, practice management software – Intuit plans to tackle all these markets.
At this year’s QuickBooks Connect conference in San Jose, I interviewed the irrepressible Sasan Goodarzi, head of Intuit’s Small Business division, about the various initiatives we had heard about over the past three days.
Each one of those initiatives turned out to be quite monumental. Let’s go through them one by one.
1. Will QuickBooks Online target larger businesses?
Intuit has always said QuickBooks was first and foremost designed to help small businesses. The company's totem is founder Scott Cook's kitchen table where he first wrote the software for his wife's business.
While Xero was the first to announce that it would target “slightly larger” companies and not just small businesses, QuickBooks Online was always in a better position to do so. Xero has a soft limit of 1,000 transactions a month; once you hit 1,200 or 1,500 transactions it takes longer and longer to run reports.
Intuit says that QuickBooks Online doesn’t have a transaction limit. A bold claim that is unlikely to be true at the extremes, but I’ve never heard people complaining about hitting any limits in QBO.
My question to Goodarzi – does Intuit have plans, like Xero, to sell QBO to the lower end of the mid-size business market? In short – absolutely. In fact, Intuit wants to take on cloud ERP NetSuite!
Goodarzi: Remember, today we serve enterprises. Most of our revenue in desktop, which is a US$1.7 billion business, a lot of it is enterprise. We know those customers. We know how to serve those customers. And we have apps for those customers today. And that’s how high up we're willing to go (with QuickBooks Online).
D1: So you want to take on ERPs?
Goodarzi: Yeah, we're not going to go compete with Oracle. But we believe that we already are a disruptor for companies like NetSuite. We're building the capabilities right now (to sell QBO to enterprise).
Intuit is working on two areas in QBO before it is ready to take on NetSuite and other mid-market ERPs. Performance (handling high numbers of transactions, and other data), and a roles and permissions module to control which parts of QBO staff can access.
The second question on QBO is whether Intuit plans to charge extra for features such as project costing and expense management. (Xero introduced modules in these areas this year at an additional cost per user.)
Goodarzi’s response was that Intuit wouldn’t “nickel and dime” small customers and always provide all features under the price of the accounting software. The implication was that Intuit would charge larger businesses more for these features, at some point.
Goodarzi: When it comes to enterprise, our approach is obviously making sure they have the capability that they need. And of course they are far less price-sensitive. What we try to avoid is nickel and diming our customers for everything that they want to use. Because that becomes an aggravating factor for the customers at some point, right? [...]
But you never know. We're all so early in this game that we want to leave ourselves room to deliver the benefit to the customers willing to pay for it.
2. Will QuickBooks Online Accountant target larger firms?
QBOA is Intuit’s fledgling practice management software. It is following a similar approach to Xero HQ – a modular, API-driven model, although QBOA has a very neat workflow management tool that filters jobs by customer, type and accountant.
Intuit claims that 15,000 firms are using or have used QBOA, and while it is still under-featured compare to desktop competitors it is maturing quite quickly. It has another killer advantage – it’s free (like Xero HQ).
I asked Rich Preece, Intuit’s global accounting segment leader, what size firm QBOA was made for. Preece said it was only for small and medium firms. “We’re not going to compete with JetPack and Karbon”, two cloud-based practice management apps, Preece said on Tuesday.
His boss sees things a little differently.
Goodarzi: The larger accounting firms that have 200,000 or 300,000 customers, we want to be able to provide that capability to them. We are not going to go as high as the Big Four or five accounting firms because in many cases they have the capability themselves.
D1: Wow, so everything outside of the Big Four?
Goodarzi: Pretty much. But don't put a timeline on that. [...] We'll go as high as the platform delivers for customers. That's why my answer may seem vague. We don't want to limit ourselves based on what we think the platform could be capable of.
This has huge implications for the practice management space. Intuit is building a modern, modular practice management platform that plugs into an ecosystem of apps, for firms of almost any size. And wants to give it away for free (for now, at least).
The incumbents in practice management have largely worked on replicating their desktop suites in the cloud. Genuine innovation is rare (CCH IQ an obvious exception). It is hard to see how conventional PM vendors will match the momentum and funding of Intuit.
Then again, firms don’t change practice management more often than every decade or two, so there is probably a chance for rivals to catch up.
3. How far will you take lending in QuickBooks?
Intuit introduced lending within QuickBooks Online last year in a partnership with one of its ecosystem apps, OnDeck. Intuit supplied $100 million and customer data from QuickBooks Online files, while OnDeck brought the analytics and know-how.
Fast forward 12 months and the partnership with OnDeck appears to have been replaced with QuickBooks Capital (here's the press release). Now Intuit has the know-how, US$1 billion in cash sitting in the bank – and tonnes of data to make lending decisions.
The last part is crucial. The more data you have the better you can predict the likelihood of a business repaying the loan. That means you can lend to more businesses, and you can lend them more money.
So the company with the most data wins the game. Is there anyone else out there with as much data as Intuit?
Goodarzi: No. No one has the data that we have. And the reason is we know your past income. We know your past expenses. And we know your future. We know the number of invoices you have outstanding. We know who they're outstanding with. We know the creditworthiness of those customers. We know when they pay. We know when you have to pay your vendors. We have a 360 view of you as a customer, and nobody has that.
Our losses are so low – we don't publish the number – that we're actually trying to figure out how we open up the top of the funnel even more. [...]
And how did the OnDeck partnership go? Well it was a success from Intuit’s perspective. It is running artificial intelligence algorithms over 26 billion data sources – external data such as credit reporting bureaus as well as QBO files. Consequently, Intuit accelerated its lending in the past 12 months and now is trying to work out how it can speed it up even further.
Intuit’s research shows that 70 percent of businesses in their first five years need money to survive. Of that 70 percent, only 20 percent can get a loan from financial institutions. Intuit can rely on the accuracy of its algorithms and depth of data to lend to the 80 percent that miss out.
Goodarzi: No financial institution can actually lend them money because they don't have the confidence that we have based on the data that we have. [...] We think we're actually expanding the pie for us and our partners (i.e. financial institutions) versus stealing share, because this is money that's not being lent today.
So cloud accounting software companies are really in a winning position on business loans. Intuit can lend money with a far lower rate of default, which means fewer losses and higher profits from lending. It also means Intuit can offer the lowest interest rates, which will again expand its market share.
Goodarzi: We deliberately provide very low rates because we want the customer to be successful, versus we want to make a tonne of money off the customer. And so it will be more competitive versus others. But really, our singular goal is I want to give you a loan, specifically, you can't get.
D1: So what's your estimate for Intuit’s market share of the lending market over the next couple of years?
Goodarzi: We think the size of the pie is huge. And even if I had a specific number, I couldn't give it to you.
Intuit’s moves in lending were foreshadowed two years ago. Xero then added bank loans to its accounting software through a partnership with the National Australia Bank. Either directly or indirectly, lending will become a staple in accounting software.
The second most valuable commodity after data is attention. Not only do cloud accounting software companies have all the data, business owners are spending more time in their accounting software.
The software is becoming far easier to use not to mention more attractive than its desktop forebears. Business owners are looking at reports, clicking “ok” to reconcile their bank accounts, and submitting expense receipts with their mobiles.
Each glance is an opportunity to throw up an offer to borrow $25,000, effectively pre-approved. (Intuit won’t show these offers to businesses it won’t lend to.)
Look how easy it is to borrow money in this demo from the media event at QuickBooks Connect 2017 last week.
It’s no wonder that banks are releasing reporting analytics dashboards for bank accounts. They are part of a battle for attention of the customer.
Check out CBA’s impressive DailyIQ for a great example. (For international readers, this Australian bank is one of the world’s largest and it is investing heavily in technology platforms.)
Where will business owners view that information? Who will they prefer to discuss their finances with – their banker or their accountant and bookkeeper?
It can only be a matter of time before direct bank transfers follow bank feeds into accounting software. It feels like the banks are in a tough position and it’s only getting tougher.
4. How do you plan to make money from QuickBooks Self-Employed?
QBSE is an unusual product. Built for mobile only (and sold only on mobile in Australia), it is designed for the casual contractor who puts all their business and personal expenses through a single bank account.
The so-called “gig economy” of Uber drivers and Fiverr freelancers is enormous – but they don’t require much in the way of accounting software or accounting services. Intuit must surely have plans for this new market. But how exactly will the company make money from QBSE? And, for that matter, how will accountants and bookkeepers?
The short answer is that Intuit can sell QBSE for less than $10 a month and still make a good recurring revenue. The longer answer is again a platform play. QBSE will become a labour-for-hire marketplace modelled on Upwork or Freelancer.com, or closer to LinkedIn.
Goodarzi: Over time, we believe we can go outside of that, even connecting them to work. For 30 to 40 percent of our customers say their biggest inhibitor to growth is that they can't find great workers. So we can match supply and demand. With that said, if we didn't do anything else today, our ARPU in the U.S. is about $120 after the promotion period is done.
And you know, there’s 700 million self-employed around the globe. If we don't do another thing other than $120 a year, we're actually quite happy with that. This is a huge market.
Accounting software companies are turning their products into powerful platforms. If Intuit’s expansive vision is fulfilled, accounting software will broker business loans, power medium-sized businesses, and locate your next employees.
Can Intuit develop and support so many ideas simultaneously? All while pushing into overseas markets such as France, UK, Canada, Singapore, Australia and elsewhere? How will all these competitors respond? The next 12 months will be a strong indicator of whether Intuit can match its vaulting ambitions.
What are the implications for accountants with the rise in power of accounting software? Good questions, worth exploring in a later article.
For those that can keep pace, it spells enormous opportunity.
Sholto Macpherson travelled to QuickBooks Connect in San Jose, USA as a guest of Intuit.