Fifo was acquired by Intuit the other day. Fifo - who? Right.
Fifo is/was a cloud based workpapers startup focused on the Australian professional accounting market. Founded in 2011, it launched in 2012 but had been running largely under the radar for the last year. Then - bang - Intuit swoops and makes them an offer they can't refuse.
Sholto Macpherson quotes Rich Walker, director accounting and book-keeping strategy Australia as saying:
“Our aim is to focus on the key areas accountants need to improve in order to run a more efficient and profitable practice. Our commitment to an open ecosystem and decision to keep Fifo platform-agnostic will ensure that existing users continue to run their business and collaborate with their clients with no interruptions.”
I have a different take on this.
Alongside the announcement, Intuit announced that it is giving the solution away. That is something that brings it on par with other solutions that see the professional accountant as the essential conduit for growing market share. This has, for example been Xero's strategy for quite some time. Put simple: in a commoditizing market, vendors must provide the professional accountant with reasons to remain loyal to the core offering by giving them something that makes their lives easier and which provides opportunities to develop outside basic number crunching and tax services. They can pick up volume revenue from the customers the professional accountant brings to the table.
Viewed in that light, Intuit is flattering Xero and others. Even that doesn't tell the whole story.
Intuit's cloud problem
Intuit knows it has to get into the cloud game. It has had several goes at this but so far, the upstarts have outgunned them. That's because like all other incumbent players, they don't have the solutions that meet the expectations of the modern SME. Instead, they have repackaged (largely) for the cloud in solutions like QuickBooks Online. Our Phil Wainewright calls this SoSaaS - Same old Software as a Service.
This acquisition provides Intuit with expertise in cloud businesses and an understanding new professional business models that was previously not available to them.
You might well ask - who cares? It's Australia - a tiny market that's at the end of the world? That would be a very short sighted view. Australia used to be 'owned' by MYOB but since its acquisition by private equity, it has lost market share as Xero in particular, but also others like SaaSu, have encroached on its turf.
Regular readers will know that in the last 18 months, I've visited Australia twice, checking in with Xero customers. They are world leading in the way they're approaching the new reality of professional accounting. The new business models they are adopting would not be possible without access to cloud solutions. Workpapers are an essential part of that equation because good though it is, Xero (and others) are not designed for the professional accountant's day to day needs.
But this of itself does not buy Intuit cloud 'cred' in the SME book-keeping space. My sense is that they know they have to do something beyond QBO but have yet to figure out how. Acquiring Fifo is a good first step but I suspect they will need to make another acquisition in order to acquire the necessary cloud DNA.
But then what? If Intuit looks to SAP as an example, it could learn that ring fencing the cloud unit is a good way to let it into the market without it necessarily creating too many waves at the core. Some colleagues will disagree but when you look at what's happened at SAP, that's exactly the outcome they have achieved. Now, SAP moves forward with more confidence in what it's doing.
In Intuit's case, it has the opportunity to consider how in the long term it can combine book-keeping, workpapers and other professional services management processes with tax handling. It is this three way combination I see as representing the best possibility for Intuit to make the transition in all its markets.
Of course nothing is that simple and in fairness I am speculating but the logic stands up. The only problem comes in identifying the right opportunity. In the professional world, there is enough fragmentation and slow footedness for Intuit to have made the right choice with a little known solution that is portable to any market. The same is not true for the main book-keeping solution where brand and marketshare remain a fiercely contested landgrab in every major English speaking territory.
Intuit doesn't have a lot of time. As proxy for valuations in this market, Xero stands out at an insane NZ$ 2 billion valuation. That puts it out of reach. I cannot see FreshBooks fitting into the Intuit portfolio for similar reasons albeit the company remains private but also because FreshBooks is not a complete book-keeping solution.
There's a plethora of other choices, most of which are deficient in one way or another, mostly on the grounds that they are little more than consumery money management solutions. Attractive though these may be, they don't meet business needs. That only leaves a small number of other possible contenders.
Tilting for a UK acquisition?
Daft though this might sound, I'd be seriously thinking about a UK contender. Why?
- Fifo has already shown that it can integrate with more than one solution. Therefore additional integrations pose less of a risk in non-Australian markets.
- The UK market leaders are still in private ownership and so while Xero may be the proxy for valuation, shareholders in the alternatives can be made an offer that is sufficiently attractive but without breaking the Intuit bank.
- The UK market is very similar to the US market but of manageable size. Intuit can use experience gained there as a springboard to both applying learnings in smaller English speaking markets while considering how to ramp in the US.
- Intuit needs to do this. Its core 2013 tax business cratered and it failed to grow the online share the way it anticipated. 2014 doesn't look much better. A quality, yet affordable acquisition will please the market.
- Intuit has had a devil's own job gaining traction outside its core US market. It needs a fresh approach both in product and marketing. While there is plenty of opportunity in the US, that market needs a large brand like Intuit to enter the fray. That's because of all markets I follow, the US is most loyal to the Intuit brand but...it will not move to SoSaaS.
- The worst case scenario is that Intuit blows $100 million topside in acquisitions that don't work. I can't see that given management's shrinking options but it's always a possibility.
That's my two penn'orth. Now let's see what happens in the coming months.