Payroll services are something that a wide range of vendors are competing to provide to small business customers. There are payroll processing vendors like ADP and Paychex, banks of all descriptions and accounting professionals. In fact, the consensus has been that the number of accounting firms providing payroll services to their clients has been rising.
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Payroll looks attractive and is widely held to be a very "sticky" application. Once an entity provides payroll services to another company, it is harder for the client to switch advisors.
But payroll has had its share of casualties. In 1999, Intuit purchased Computer Resources for about $200 million, then tried to fix that by acquiring CBS Payroll in 2002 for about $78 million, and finally ended up selling what had become its complete payroll service to ADP for $125 million last year to concentrate on QuickBooks D-I-Y Payroll.
More recently, Sage Software went forcefully into the payroll business under its former CEO Ron Verni, who had worked at ADP before he ventured into the accounting software business years ago.
Sage took a different track than Intuit, building its system from the ground up and having a lengthy field trial. It had three years of testing with Peachtree and then another year with the mid-market accounting products, before being fully introduced in 2006.
Then in August, Sage announced that it had reached a deal with CompuPay to provide software services to Sage's customers. Karl Grass, the VP who leads the group that included payroll and the Abra human resources business, said it was a matter that although payroll was growing rapidly, the amount of investment required could be put in other areas for a better return.
Payroll may have a siren call, but perhaps companies should read Paychex's financial results for some cautions. Payroll isn't doing badly. It's just that Paychex's strongest growth is in its still small human resources business, an area where Sage has long had a strong entry with its Abra line and Intuit isn't yet playing.
For the record, for the year ended June 30, Paychex payroll service revenue rose 8 percent to $1.5 billion and human resources revenue rose 19 percent to $500 million, both of which are good in anybody's book.
Sage and Intuit's experience with payroll makes Microsoft's approach look better, since Microsoft decided to partner with ADP in providing payroll for its Office Accounting and with PayCycle for Microsoft Money.
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