Intuit's grip on small-business accounting has been virtually unchallenged for years, but Microsoft wants to grab some customers from Intuit's hold. Since Intuit introduced its QuickBooks software in 1992, the company has seen its small-business accounting business grow to almost three million users. The company, largely identified with taxes and personal finance, relies on small-business accounting for a significant chunk of its livelihood: QuickBooks generated almost 18 percent of Intuit's revenue in the quarter reported last week. At this point, there are almost no other packaged-software competitors competing directly in the market. But QuickBooks could soon see pressure from above. Microsoft hasn't succeeded in past attempts to compete head-to-head against Intuit. The software giant's Money program for personal finance made so little headway against Intuit's Quicken franchise that Microsoft tried to buy Intuit in 1996, a deal that was stopped by government antitrust regulators. But the government had no problem with Microsoft buying its way into another market, so this time, the software giant is aiming at Intuit with an acquired company, rather than with a homegrown product like Money. Microsoft Great Plains -- known simply as Great Plains before Microsoft bought it earlier this year -- formally began selling its Small Business Manager software last week. It's the new low-end product for the Great Plains accounting line that includes Dynamics and Solomon, which are applications for midsize businesses. Small Business Manager's target audience -- businesses with less than 25 employees and no more than $5m in revenue -- is the QuickBooks audience. But Great Plains says it doesn't expect to displace QuickBooks among most small businesses -- just to replace it for customers starting to grow out of that market. The next step for businesses paying $150 to $250 for QuickBooks is accounting software costing several thousand dollars. At the price of $1,500 per individual and $4,000 for a licence that covers up to five users, Small Business Manager fits that niche. It won't appeal to new businesses that just bought a copy QuickBooks 2001, but some longtime QuickBooks customers may want to upgrade to accounting software with more features as their companies grow. Expanding companies have different filing requirements, new accounting standards and more data in general. "I don't think we're looking to compete head-on with QuickBooks," said Tom Eide, general manager for Small Business Manager. "What we're really looking at is the space between QuickBooks and products such as Dynamics." Intuit's answer on the way Not that Intuit is standing still. The company expects to release its competitor to Great Plains' Small Business Manager -- accounting software called Hercules -- in summer 2002. Small Business Manager represents a new product on the lower end of the market for Great Plains. Hercules will be a more high-end version of QuickBooks. Intuit also has two new products, QuickBooks Accountant and QuickBooks Premier, aimed at the higher end of the market, though not at the highest portion targeted by Small Business Manager and Hercules. Premier will sell for $500, or twice the price of QuickBooks Pro 2001. In addition, updated versions of basic and deluxe QuickBooks are set for launch this month. The Microsoft approach rests on the theory that growing businesses will need enterprise-level software's added features and ability to handle increasing data loads. With the help of resellers and other partners that Great Plains worked with long before Microsoft snapped it up, customers will have a relatively easy time switching from QuickBooks to Small Business Manager, Eide said. And Great Plains argues that more sophisticated products can handle a company's accounting even if the company continues to grow. "We're a pretty straightforward migration," he said. "Once a customer gets into our product line, they're basically secure for life." Intuit argues that those same businesses will want to stick with the ease of use and familiarity of the accounting program they're already using. Stern believes that QuickBooks' huge following is a built-in advantage. "We understand the needs of this segment in a way that we believe Microsoft and Oracle do not," Stern said. "We really make it more of an easy-to-use product that talks to small businesses in the way that they think." Adding it up
Most analysts don't expect Intuit to lose any ground to Great Plains anytime soon. "Microsoft lacks a client base for its new SBM product," Jefferies analyst Craig Peckham said. "Intuit's 'bridge' is easier to sell, in our view." The biggest hurdle Intuit and Microsoft face may not be each other, but the market itself. Accounting software is typically billed as a way to save money, but even that pitch is drawing less attention in a difficult economy. Despite the new products, Intuit doesn't expect its QuickBooks revenue to grow at all from the quarter just reported. And even without real competition, QuickBooks has been a problematic business for Intuit all year. Company executives said growth in the July quarter was disappointing, and the October quarter saw QuickBooks sales fall 8.8 percent year over year. Intuit executives initially blamed this year's slump on an unexpectedly large number of upgrades in 2000, which obviated the need to buy software this year. Even with positive feedback from testers of the new QuickBooks products, Intuit remains cautious with its financial forecasts -- though it's still hopeful. "We're doing prudent planning in our business for QuickBooks," Stern said. "But there's an assumption of doing more (than predicted) over the next two quarters." Although large corporations have drastically scaled back purchases of accounting and human resources software this year, Intuit and Microsoft argue that small businesses are more interested in accounting programs because the savings are greater. A small change may not affect the bottom line of a big corporation, but the ability to replace even a part-time worker with an accounting program results in noteworthy savings for a small business, Eide said. "Certainly we didn't all predict what was going to happen with the economy this fall," he said. "But small businesses seem to move forward." See the Software News Section for the latest headlines on everything from peer to peer clients to Office software and beyond. Have your say instantly, and see what others have said. Click on the TalkBack button and go to the Telecoms forum. Let the editors know what you think in the Mailroom. And read other letters.