Earlier this week I attended Intuit's UK first customer event. That may seem strange for a media title that concentrates upon the enterprise but as someone who used QuickBooks Online while based in the U.S., I wanted to see how it is working in the UK. I'm also interested in understanding how the entry level back office market might serve as an influence for similar solutions further up the food chain.
Kerrching goes the marketing budget
It was clear from the get go that Intuit had thrown a lot of money at the event. Lining up multi millionaire Lord Alan Sugar, he of The Apprentice fame as the keynote inspirational speaker and having TV presenter Gabby Logan as the MC doesn't come cheap. Neither does putting on an event at Tobacco Dock complete with hipster style food for close to 1,000 attendees. It's equally clear that Intuit is intent on being a winner in what is a highly competitive market.
If you are based in the U.S. and are a small or medium sized business (SMB) then one of Intuit's products will likely be your default choice. Put another way, I don't know anyone among my peer group in the U.S. who doesn't use something from the Intuit stable. It is by far the brand leader.
Given what I'd heard over the years, I fully anticipated that QuickBooks Online would be a shabby product but much to my surprise, it was very good even if I was forking over $16 a month for a basic system. In the UK, things are very different - at least from a pricing standpoint. I'll get to that later.
Having Lord Sugar as the keynoter was inspired. He hammered home the message that every business needs to have a firm grip on price and cost, carving out a differentiated position that allows the business to deliver maximum value back to the owners. And of course a solution like QuickBooks is central to that proposition.
It was interesting that the crowd seemed to be mostly comprised of millennials or Gen Y small owner managed businesses. There was a good sprinkling of customers who I found to be much more knowledgable about what they need from an online business accounting solution than I expected. That is a big change from my days as a practicing accountant/adviser to SMBs. If this crowd is a representative sample then vendors had better be prepared to face tough questions.
Equally interesting was the number of familiar partners like Receipt Bank, Shopify, MyWorkpapers, Expensify and local credit providers iwoca. I say interesting because a number of the competitors in this market have partnerships with many of those named above. Backing multiple horses just makes sense and demonstrates what can be achieved when developers are not constrained by programming languages and databases but have access to APIs that do the heavy lifting between applications.
The company led presentations were the expected melange of 'We're great and here's why' messaging but one vision piece caught my eye.
In a 'made for event' short movie, we see a passenger in a Tesla (what else?) talking to their QuickBooks system on their smartphone having been alerted about a potential supplier who could offer goods at a much reduced cost, provided the customer could pay up front. In turn that led to a need for credit which, of course, was available online through another connected service, while she was also able to take advice from her accountant via a built in video call service.
It's exactly the kind of thing I'd want to see in a forward thinking application of this kind where everything I need to do is seamlessly connected. Sadly however, it is only vision and far from QuickBooks reality. According to Sasan Goodarzi, EVP and GM Intuit:
We have a number of discovery teams that are focused on elements of what you saw. They're working on platforms whether that's a voice platform, whether it is a conversational UI platform, there's a mixed reality platform. We believe there will be a combination, it could be a voice command, it could be a conversational UI where you're talking to a bot. We're also thinking about how you can use the data using machine learning. Right now we have 100 patents on machine learning, 60 of them approved and 30 of them that make recommendations to you...We've got Smart Look technology in Turbo Tax that we're bringing to QuickBooks that allows you to do the kind of interaction with the accountant as you saw in that video.
Exciting? I think so but although the company talked vaguely about elements of it today, they chose not to be drawn on timelines. That is understandable if conservative. The road to artificial intelligence hell is paved with great intentions and I suspect we will see a number of massively failing projects before the realité of the video kicks in.
Go to market
I asked about how QuickBooks differentiates in go to market in what is already an incredibly crowded and competitive market and where the influence of the professional accountant remains remarkably strong. The answer was jaw droppingly dull. Rather than concentrate on the exciting vision which - OK - is heavily technology dependent, I got a prosaic answer.
Dominic Allon, who heads Intuit's EMEA operation said that as it relates to accountants, the company hosted some 600 professionals prior to the main customer event and that Intuit has a significant advertising campaign in place designed to seed a large audience along with business development managers who are 'co-creating' partnerships with the profession on a 'one by one' basis.
We've been through the early adopter stage and I think the next wave will be the early majority, the next 35-40% of accounting firms and small businesses and that will happen quickly. The reason it will happen quickly is because making tax digital will be an accelerant in the next two to three years.
There can be no doubt that the UK government push to online tax handling and an increase in the tax reporting frequency will act as a flywheel for online accounting sales but if that's the main thrust from a professional perspective then it is an approach that's rooted in the past.
Simply speeding up what already exists, albeit in a manner foisted by government edict isn't enough. That may be on the mind of professionals who are concerned about clients' ability to keep up to date but that's not what business people see as top of mind. Every random customer I spoke with said that ease of use, ability to understand their financial condition as part of their day to day decision making and cost are their top of mind issues.
Pushing for change
My view has consistently been that online accounting in the 21st century fundamentally changes the dynamics of the professional accountant's business and pushes to the back, the grind of managing debit and credit, rather than representing 70% of billable work as was the case in my day. In that context I have argued that the nature of professional accounting has to change to that of trusted adviser.
It is perfectly conceivable that the move to digital tax can be part of that equation, although one of the main stage customer speakers said they felt confused about the variety of tax advice they had received in the past. Why am I not surprised?
Of far more pressing importance among the client audience are matters of cash flow management, on time billing and payment, knowing that the business is profitable or having early warning about potential loss. If professionals don't understand that need then there is a clear disconnect between professional and client. This was something that Xero understood a long time ago and addressing this as part of the go to market model has contributed significantly to their growth.
As I see it, Intuit has a big problem in the UK which cannot be solved the way it is doing so right now. According to the company, QuickBooksOnline grew 49% in the last quarter compared to a year ago and by 60% in the U.K., its fastest area of growth. So far so good.
By its own admission, QuickBooks Online is pitching at early majority users in competition (mostly) with Sage and Xero but it is doing so in a manner that must be leading to masses of red ink.
Predatory pricing won't win the day
QuickBooks Online is not simply a discounted product, it is priced at suicidal rates that can only be supported for a limited period. Its 'Starter' solution is offered at £1.80 per month for the first six months while its 'Essentials' solution that bundles payroll and VAT reporting comes in at £7.50 per month. The 'Plus solution that includes stock and budgeting is priced at £10 per month. These represent discounts of 50-70%. I'm aware that gross margins for online services can be high but that matters littlee when you're also pouring money into marketing and sales.
Predatory pricing only works for a limited period and requires that you crush the competition. In the UK market, Xero is the dominant player with both Sage and Intuit playing catch up. QuickBooks is certainly forcing its competition to think again about current pricing but a race to the bottom is not on the cards any time soon. It doesn't make sense and any attempt to crush competition in this way is a one way street to investor hell.
But accounting apps are very sticky. Once you've won the customer the propensity to change is limited. As example, I met a customer who uses both QuickBooks and Xero, one for each of her businesses. Asked why use both and the answer was interesting - to assess which delivers better value for the long haul. That same customer feels that QuickBooks provides a better UX, but then it still has work to do to achieve the equivalent level of automation that Xero has already achieved, a product she saw as more fitting to the accountant. (Xero? Take note!)
Similarly, I'm not convinced the message to accountants is as attractive as QuickBooks would like me to believe. I will follow up on this but again, in my experience, professional firms in the UK usually prefer to make a single choice and are not sold on sales incentives. Add on products like My Workpapers certainly help, but alone, they're not necessarily game winners. What's more, with more than 25,000 accountants under its belt already, Xero is very well positioned and established to use that as the marketing base which will lead more into the Xero fold.
QuickBooks brand recognition and dominant position in the U.S. coupled with a development style that is clearly able to take advantage of new technologies is a significant point in its favor. The fact they got so many things right in the U.S. and are bringing the learnings over to the UK is absolutely the right thing.
The digital tax initiative in the UK helps all boats rise, but QuickBooks is coming from behind with what I see as a fairly conservative approach to market that belies some incredibly interesting ideas about the future of accounting as much more than a back office function.
I worry that there is an emphasis on advertising sprinkled with a bit of social media output will likely go right over the heads of the millennials I saw as dominating attendance at this year's customer event.
At the end of our conversation, the company asked my opinion about the professional market and the kinds of thing that it might consider going forward. I cannot comment to the extent Intuit might wish since I am not as in touch with the UK professional market as I was, although from early soundings, I doubt things have changed much in the years I've been away beyond what we've already seen among the competition. On the other hand I am a strong believer in early verticalisation and here, Intuit could do a lot to leverage its experience in higher level functions for markets like retail.
Now that Intuit has committed to a customer event in the UIK, you can bet they are taking it deadly serious. It will therefore be interesting to see how they make the solution more than simply 'good enough.' There is work to do on bank feeds and that's a basic 'tick in the box' item they desperately need. The UI/UX is compelling and clearly attractive but then so are others.
As always, it's a case of 'watch this space.'
UPDATE: I've just come off a call with Richard Preece who heads Intuit's global professional accounting push. He argues that a combination of awareness raising through multi-channel advertising coupled with both fiscal incentives to professional accountants and a much improved product has led to a change in the perception of QuickBooks in the UK professional market. He also argues that having a clear pathway for customers along with both free bank feeds (rather than as a paid for add-on) and upsell opportunities for payroll and payments puts Intuit in a good position.
According to Preece that approach creates a business model that is sustainable in the long run. Preece also says that in the UK, there is a growing trend towards professionals offering multiple products. This makes sense because despite the similarities at the baseline functional level (debits on the left, credits on the right) there are plenty of ways in which the vendors can differentiate and, therefore provide justifiably competitive solutions.
It will be interesting to test how this all plays out because in one sense, he is arguing for the eventual commodification of baseline functionality in 'at scale' environments. This is something that I argued way back when because in my mind, the real prize has always been the aggregated data contained in many thousands of accounts. Once again, let's see how this plays out.