Small Business Wars

Microsoft is trying to get a foothold in the low-end market.


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Despite what many in the industry say about accountants influencing their clients' purchasing decisions, when it comes to low-cost accounting software, it often works the other way, says Lisa McCarthy. "A lot of clients will run out and buy the software and tell their accountants about it after they have screwed it up," says McCarthy. Her firm, Accounting Resource, has been dealing with QuickBooks, Intuit's dominant low-end package, since about two weeks after it came onto the market in 1992.

The Sage Small Business Family

Sage Software has a wide number of products for the low-cost accounting software market, including products sold both at retail and by resellers.

Partner Insights

The one notable difference between Microsoft, which has tried to write products for this market, and Sage is that all of Sage's entries have come through the acquisition of other companies.

BusinessWorks. Sold as a single package, BusinessWorks came to Sage via State of the Art's purchase of the former Manzanita software.

DacEasy. On the market for 20 years, DacEasy was acquired by Sage US, which preceded Sage's purchase of Best Software and State of the Art. DacEasy is the product that won't die. Sage pulled it from the retail shelves years ago and markets it only to its installed base. There are no plans to sunset the product.

Simply Accounting. Simply does not have much market share in the United States. But the product, introduced by Accpac, rules the Canadian arena, just as Accpac does in the mid-market.

Pastel. Sage's one notable low-cost failure in the United States, Pastel was introduced in 2000. It went nowhere, but remains strong in other markets.

Peachtree. Before there was QuickBooks, there was Peachtree, which has gone through a variety of ownerships, including ADP, before the independent Peachtree company was acquired by Sage.

What it gets down to is that the process of using entry-level accounting software is a lot more than it looks at first glance. "Everybody thinks that it's so easy and that they can use it," says McCarthy, who continues that many users can't use QuickBooks and that such software can be "worse than paper" if it's not used properly.

McCarthy, along with her partner Christine Galli, wrote the course and tests for QuickBooks certification training in 1999.

One indication of the difficulty is that McCarthy says she tells small business owners that learning QuickBooks can be difficult for them "even if you've opened the box." That last statement is telling, because when QuickBooks first reached the market in 1999, Intuit said that an amazing number of businesses had purchased software and never opened the box because they were so intimidated.

The role of accountants is an important one, as the battle to sell financial packages to small businesses increases in intensity with Microsoft's recent launch of Small Business Accounting.

Microsoft is leaping into the market with the Microsoft Accountants Network, and claimed that, as of the September 7 product launch, 3,000 professionals had already joined. That program is in competition with the Sage Accountants Network, which has 8,000, and Intuit's ProAdvisor, with 29,000. Accountants are considered key allies in the effort to sell accounting packages.

But the question is, just how important are accountants in driving clients to a low-cost product, seeing as QuickBooks was embraced by users long before accountants jumped on the bandwagon?

In fact, in the early years, one side of Intuit boasted that businesses that used QuickBooks didn't need to hire CPAs, while the ProAdvisor side was trying to recruit CPAs.

McCarthy believes that users drive the process, and that they often switch accountants if their advisors don't support their accounting software.

Moreover, those thousands of accountants involved in the Intuit and Peachtree programs have services they can sell to an installed base. Microsoft's challenge will be hanging onto the accounting channel without having a large installed based, conjectures Doug Meyer, president of Sage's Small Business Division.

"It will be interesting to see if those accountants stay together, since there's nobody to provide services to," says Meyer, whose organization sells the Peachtree line, which has the second largest market share after QuickBooks.

Why are these large companies concerned with businesses that have fewer than 99 employees? For one, it's seen as a big market, with an estimated 5.5 million companies in the category.

"There is a tremendous need for accounting technologies," says Doug Leland, general manager of worldwide small business for Microsoft's small and mid-market solutions and partner group. "There is fairly prevalent research data that 45 percent of the market place is not using an accounting package. They are using spreadsheets, or other database applications such as Access."

Microsoft's Small Biz Efforts

Microsoft's introduction of Small Business Accounting 2006 is the company's fourth effort to penetrate the market for accounting applications below the mid-market. Here is a brief history of its efforts.

Profit. Written for Microsoft by Great Plains, the product was introduced in February 1993. Great Plains, which created a unit to support Profit, predicted that it would create 100 jobs in Fargo, N.D., Great Plains' headquarters. Disappointing results led Microsoft to sell the product to Great Plains in 1994, which in turn sold the product to the former Champion Software in 1997. It was dropped after Champion and RedWing were put together in 2000.

Financial Analysis Pak. This product was designed to complement mid-market accounting products. The name was changed to Small Business Financial Manager before the product went to market and it was folded into the Small Business Edition of Microsoft Office in 1997.

Financial Manager. Announced at the height of the dot-com era, this online service from Microsoft's BCentral was to be offered at $50 a year by CPA2Biz, the AIPCA's online portal. At the time, one CPA2Biz executive said that the product was so weak that the company begged Microsoft not to release it. It was not launched.

Small Business Financials. Designed by Great Plains as a replacement for its Great Plains Accounting DOS line, it was released as Small Business Manager under Microsoft's ownership with plans to go down-market.

That is one area in which Microsoft and Intuit are in agreement. Pencil and paper-and Excel-still rule in many areas of the small business accounting market.

Trying to move those users is not an easy thing. "It's hard for us to shake them from Excel," notes Scott Davison, marketing manager for Rockaway, N.J.-based MYOB, which markets low-cost accounting software to the Macintosh and Windows markets. MYOB is also turning to accounting firms, handing out free copies to attempt to pry users away from their spreadsheets and pencils.

It is also a growing market. Intuit CEO Steve Bennett told attendees at the company's Investor Day that although Intuit lists its QuickBooks installed base at 2.7 million, "My hypothesis is that it's bigger than 2.7 million," with the company adding 400,000 to 450,000 customers a year over the last four years.

Despite that growth, Intuit's market share remains at 85 percent, Bennett told attendees. That means that competitors are also adding users as the market expands.

Microsoft is focusing on a portion of that market-those companies with fewer than 50 employees and 20 PCs. It is betting on its marketing muscle, and also on the links to its Microsoft Office platform. SBA can be purchased as a stand-alone product, but is also available in the new Office Small Business Management Edition.

The Redmond, Wash.-based software giant says that it is not going directly after Intuit, planning to try to capture new businesses rather than persuading the QuickBooks installed base to convert. Bennett's statement suggests that Intuit believes it has the advantage there, because people in new businesses will buy the software they used in their old ones.

The Stack

Microsoft's approach to most businesses is to sell the stack-the combination of products that work together, such as Office, Exchange, Internet Explorer, Sharepoint, and networking and database products.

Microsoft's recent reorganization depends on the relationships between different technologies and the units that produce them. In the case of SBA, that involves Microsoft Business Solutions for the accounting and the Office group. In many ways, Office is the important word for marketing SBA.

"SBA is a collaborative product between the two business groups. We feel the best way to go to market is under the Office brand," notes Doug Burgum, president of Microsoft Business Solutions.

Microsoft argues that the integration of Office gives SBA capabilities not matched by competing products. But the product is still an accounting application, notes Lelland.

"You still know you are doing accounting," says Leland. "You know you are doing an invoice. You know you are doing your inventory."

That emphasis on SBA as a true double-entry accounting system is something that separates Microsoft's marketing message from Intuit's. Intuit is hardly talking about accounting. It is emphasizing simplicity.

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