by John M. Covaleski

Mountain View, Calif. - Intuit Inc. has made a giant step into the nonprofit industry software market by acquiring Flagship Group, the parent of nonprofit software developer American Fundware.

Intuit plans to operate American Fundware as a separate business unit, retain its channel and continue its current products and services under the Intuit brand and the Fundware product names. It is also mulling the development of a nonprofit industry version of its QuickBooks accounting software line, along with strategies for migrating non-profit industry customers to Fundware products as they outgrow the functionality of QuickBooks.

The deal is noteworthy to the accounting profession, as about 4,000 of the 13,600 accountants who are certified as QuickBooks Professional Advisors have nonprofit industry clients. There are 24,000 certified QuickBooks Professional Advisors in total.

Also, Intuit estimates that its QuickBooks and Quicken software products are used by 265,000 nonprofit organizations, or 16 percent of that market. American Fundware has

3,000 clients, according to

data it submitted for Accounting Today’s 2002 Top 100 Prod-ucts report.

However, the companies reach entirely different segments of the nonprofit world.

While QuickBooks costs a few hundred dollars, the average cost of Fundware installations ranges from $12,000 to $15,000.

Fundware resellers reacted quite favorably to the news. "This is great, we now have a lot more money behind the prod-

uct for development and improvements," said Amanda Boyd, president of Tribrit Technologies, a three-person Fundware reseller in New Braunfels, Texas.

However, the resellers typically doubted seeing many QuickBooks customers migrate to their product because of the vast differences in technologies and prices. "It would be like moving from a Volkswagen to a Ferrari," said Patti Bohonowicz of NonProfit Perspective Inc., in Severna Park, Md.

Reaction from rival nonprofit segment software vendors was mixed. "When you give a product a channel that large [as QuickBooks’ Professional Advisors], it could eventually be an issue," said Edward M. Roshitsh, sales and marketing vice president for Charleston, S.C.-based Blackbaud.

He also said that since Intuit is a newcomer to nonprofits, that could become a marketing advantage to Blackbaud, which is dedicated to that market. "Blackbaud, focused entirely on nonprofits, presents a different option than Fundware, which is now a division of a more commercially broad software manufacturer," he said.

Doug Meyer, chief operating officer of Best Software, which last year acquired nonprofit industry specialist and Fundware competitor Micro Information Products, noted that Intuit’s deal is part of a broad consolidation of the business software industry. "The market is becoming mature; and when that happens, companies consolidate. it’s a natural process," he said.

Indeed, the Fundware purchase was sandwiched between Microsoft Corp.’s early May acquisition of accounting software vendor Navision and its later acquisition of Sales Management Systems, a point-of-sales technology company. Intuit in May also acquired Fort Worth, Texas-based CBS Employer Services Inc., a payroll-processing service.

Intuit paid $78 million for CBS and $26 million for Flagship in separate cash-and-stock transactions. It expects Fundware to contribute between $15 million and $20 million in revenue in fiscal year 2003, which begins Aug. 1.

There appears to be plenty of money around for more deals. Prior to the $1.3 billion Navision deal, Microsoft had $28 billion in cash available, while Intuit had roughly $1.6 billion before its latest acquisitions.

The acquisitions are being finalized as Intuit prepares to roll out a higher-powered version of QuickBooks this summer. The deals are also part of a strategy to expand QuickBooks’ market reach. For example, the upcoming Enterprise version is designed for companies of up to 250 employees, which compares to QuickBooks’ current end-user sweet spot, which stretches from home offices to 20-employee shops.

"With American Fundware, we will now be able to meet the needs of larger and more complex organizations," said Intuit chief executive Steve Bennett. He noted that most of QuickBooks nonprofit users have budgets of $1 million or less.

In the CBS deal, Intuit plans to combine that vendor’s payroll services with its existing outsourced payroll services business, and to give customers the option of having CBS programs integrated with QuickBooks.

Strategies for Fundware will not be finalized until that deal’s completion, which had not occurred as of press time. However, Intuit officials indicated that Fundware could be assimilated in a manner similar to that of OMware Inc., a construction industry software vendor that Intuit acquired in late 2001.

OMware has since been run as a separate business unit, Intuit Construction Business Solutions, based in Sebastopol, Calif., and its product has been renamed Intuit Master Builder.

Since the acquisition, Intuit has more than doubled the former OMware’s distribution channel, which numbered about 100 before the deal, said Rich Walker, director of Intuit’s professional accounting solutions. It has also augmented the channel by adding a section of non-selling "recommenders," who receive a fee for referring sales prospects to Intuit.

According to the Intuit Construction Business Solutions Web site, the company’s channel of Master Builder Pro Advisors are not considered "resellers," but they receive payments of between 15 percent and 40 percent of the Master Builder sales that they handle. They can also set their own rates for implementation and consulting services.

"If Intuit does the same thing with this new company [Fundware] that it did with OMware, it should be a big plus," said Jodi Wagoner of Quantum World Technologies, a nine-person Master Builder Pro Advisor company in Millbury, Ohio. "They’ve put a lot of money into R&D for our products."

Intuit does not plan to tamper with American Fundware’s channel operations. "They have done a terrific job, we just have to make sure their customers know that their same products will continue to be available," said Intuit’s new market development general manager Steven Aldrich.

He also stressed that Intuit is counting on getting nonprofits that outgrow the functionality in QuickBooks to migrate to Fundware products.

"We have about 265,000 nonprofit firms in our customer base today," Aldrich said. "The key is, as those folks grow, to make them aware of American Fundware through direct mail or through our advisors."

Best Software is also grappling with migrating nonprofit clients from a low-end, general-use accounting software to an industry-specific product. In addition to nonprofit specialist MIP, Best also owns a low-end accounting company, Peachtree, which, according to senior vice president Connie Certusi, has some 40,000 to 50,000 nonprofits among a base of 1.2 million registered users.

Best also has a middle-market division that includes the company that was formerly known as Sage Software - the developer of accounting and enterprise software products, MAS 90, BusinessWorks and Best Enterprise Suite.

One of the major distinctions between accounting software for nonprofits and for for-profit businesses is that nonprofit systems must be able to track funds from multiple-funding sources, and those sources can have disparate reporting requirements, such as different fiscal years. Those are likely to be the Fundware functions that Intuit would incorporate into any industry-specific version of QuickBooks that it designs.

Phyllis Panzeter, of Reality Check Inc., a QuickBooks Advisor in Santa Fe, N.M., said that she would like to see Intuit incorporate some of QuickBooks reporting technologies into Fundware’s products. She noted, "QuickBooks’ reporting is phenomenal."

However, echoing the refrain of Fundware resellers, Panzeter said that she expects few QuickBooks users to migrate to Fundware because of the wide difference in the products. She said that she has consulted some nonprofit clients who have outgrown QuickBooks, but they moved to nonprofit-specific products that are less robust and cheaper than Fundware.

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