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Intuit: an installed base model for the '90s.

We've always felt a special fondness for Scott Cook, perhaps because he's built a company that regularly--and successfully--challenges conventional wisdom about how software companies should work. Ten years ago, Cook and Intuit co-founder Tom Proulx insisted they could sell lots of copies of an inexpensive check-writing program called Quicken; venture firms and retailers were convinced Quicken was a dead-end idea. And in an industry that worships technology, Cook describes himself as "a former fat salesman" (he used to be a brand manager for Procter & Gamble's Crisco line) and sees a great future in low-tech items like printed checks and window envelopes.

Cook may break a few rules, but he still gets results. Last year Intuit racked up $94.7 million in sales, dominated the top of most reseller hot lists, and even chased off a determined attempt by Microsoft to capture the Quicken market. Wall Street, at least, seems willing to like Cook's unorthodox ideas about how to run a software company: Intuit's upcoming public offering, tentatively priced around $16 a share, will leave the company with a valuation of $174 million, 32 times fiscal 1992 earnings.

Browsing through the Intuit prospectus, we're struck by the fact that Cook once again seems to have a somewhat contrarian view of where the software industry might be headed. Instead of focusing on sales of single retail units, Cook's business model presumes a broader-based "life cycle" relationship with its installed base customers. In an Intuit-style company, technology doesn't drive product development; rather, the company invests most heavily in support services and aftermarket products, which may not even be software-based.

Intuit is certainly not the only company to recognize the growing importance of an installed base marketing model. (Coincidentally, MathSoft--a $14 million company that has also built a successful installed base business--last week went public with an $83 million valuation.) But Intuit has taken this model further than any other company we've seen, and its prospectus is unusually revealing about the the kind of company-building strategies Cook has followed. Some examples:

* The role of follow-on products: Most versions of Quicken carry a $69.95 retail price, and are often sold for less through various channel promotions. That's not much revenue, but Intuit has also built a portfolio of aftermarket products, many of which yield a good deal of recurring revenue. These include checks ($43.95 for 250 checks, plus $23.95 for matching envelopes), pre-printed invoices, a payroll tax update service, an electronic bill paying option, and even a newly-introduced Quicken Visa card. Many of these aftermarket products and services are still ramping up, but Intuit reports they already account for a hefty 30% of total revenues. In addition to its supplies and services offerings, moreover, Intuit has an active upgrade business and is beginning to see follow-on sales from products like QuickBooks, a new small business accounting package. "On average," the prospectus notes, "within two years of the original software purchase a customer buys follow-on supplies, upgrades, and services that generate revenues in excess of the original software revenue."

* Upscale migration of the product line: One of the key lessons of consumer marketing is that customers over time tend to become wealthier and more interested in upscale versions of familiar products (witness the evolution of the once-inexpensive Honda Civic). "A large portion of the population," says the Intuit prospectus, "is entering its years of greatest earnings, savings, and financial complexity, when financial software is most valuable." Thus, Intuit's aftermarket products--in particular, QuickBooks and other small business offerings--have tended to focus on the requirements of upscale customers who might otherwise outgrow Quicken itself. One important consequence of this strategy, incidentally, is that higher-priced products like QuickBooks ($139.95) have helped boost the overall average selling price of Intuit's product line--despite a temporary price reduction on Quicken for Windows that Intuit offered last year to counter Microsoft Money's arrival in the market.

* Intensive customer service: Intuit has an almost obsessive concern with keeping users loyal and enthusiastic. The company regularly polls customers about usability issues and ideas for new features, and it dedicates more than half of total headcount to "full-time customer service activities." But that's precisely the kind of investment that makes sense for a company based on an installed base marketing model. Moreover, the intense loyalty of Intuit's installed base--which currently includes more than five million users--has become a major factor in attracting new buyers through word-of-mouth recommendations. A 1992 survey of customers, says the prospectus, "indicated that 47% of Quicken users first learned about the product from a friend or colleague." Most traditional software companies don't expect that kind of payback from customer service investments--but if Scott Cook's vision of the future is on target, service and support could end up being one of the leverage points that separate the winners from the losers.
COPYRIGHT 1993 Soft-letter
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Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Publication:Soft-Letter
Date:Feb 19, 1993
Words:802
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