Going Vertical

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At the AICPA's Tech 2002 conference, a friend engaged me in a debate about Intuit's third-party strategy. The acquisition of OmWare, which makes MasterBuilder, was a dead end and Intuit wouldn't make any headway into vertical markets, he argued. Intuit simply isn't capable of developing a channel to sell products upstream for QuickBooks, he continued.

Leading in eBusiness

Accounting Technology takes a look at what it takes to be a leader in eCommerce applications with its Third Annual "eLeaders."

This year, the focus is on end users who have implemented systems offered by mid-market accounting software companies. How well are the needs of these progressive companies being met?

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Also, it's time to start thinking of the 2002 rendition of tax preparation software. Senior Editor Richard McCausland questions if Internet-based systems continue to make gains among tax preparers during the next tax season.

In "Pay for Payroll," Staff Writer Carly Lombardo examines the increasingly common practice of payroll processors offering accountants commissions for referrals. Do these programs really work?

And in "Taking Abroad View," McCausland details the global reach of accounting software companies. Has globalization of ownership caused vendors to add a more international flavor? Are vendors urging VARs to think globally?

I was back in the office two days when Intuit sent out the notice that it has acquired American Fundware, the not-for-profit software manufacturer which sells through a reseller channel. Intuit's vertical market strategy--and its move up-market--are quite real. And should we mention that last year Intuit opened up the QuickBooks code to development by making a Software Developers' Kit available? (Let's also not forget its launch of a $1,500 POS bundle this year.) But it's hardly alone in its direction.

In March, Great Plains president Douglas Burgum told a meeting of press and analysts attending Convergence, the company's end user conference, that "there will be an explosion of ISV opportunities to build programs that tie into the .Net platform." Granted, this was more a defense of Microsoft's anti-trust position than praise of third parties, but Burgum was emphatic about what he saw as the opportunity for the development of new vertical products.

Everybody is going vertical. BusinessVision is offering templates that fit its accounting software to different markets. Companies such as Accpac and Open Systems are organizing Web pages to focus on niche markets.

Last year, Best Software acquired Haitek, a third party that provides manufacturing software. Of course, Best also has purchased Fundware rival MIP and one flavor of Intellisol's Project Accounting software.

Why the interest in third-party apps and vertical markets? Burgum himself expressed it best ten years ago at the AICPA Tech conference in Atlanta when he said that core accounting--GL, AR, AP--was pretty much the same in all the vendors' products. Things haven't gotten more distinct in the last decade. In fact, the core feature sets have become more similar.

Buyers are also getting more discerning. They want software that fits their needs, their terms, their way of pricing and shipping. This kind of solution used to be ruled by the source-code application vendors. But as software tools have gotten more sophisticated, packaged software suppliers are providing more and more of these capabilities. Look at the market. There just are not that many source-code providers and they are not in a dominant competitive position.

Everyone has been interested in vertical markets before, so why the round of acquisition? It is very clear that relying on third-party suppliers is risky. Many are small and poorly funded. Some GL vendors just don't want to tie their reputation to those kinds of players. Earlier this year, Dave Butler, president of Best Software's Mid-Market Division, outlined Sage's reason for buying key third parties.

"My perceptions of what customers really want is they want one company to take as much of the responsibility as possible," he said. Acquiring the code for such products enables Best to ensure products meet its development standards.

There's more to come. Intuit has put one of its executives, Steve Blundell, in charge of acquisitions. It also seems unlikely that either Great Plains or Best will lose their interest in developing new markets and trying to gain an advantage.

Robert Scott
Editor-in-Chief

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