A couple of news items in the last month relate quite nicely. Best Software is retooling its Abra payroll line to provide online processing, expanding beyond its traditional in-house software and services offerings. Intuit, already in the processing business in a big way, purchased CBS Payroll.

Companies that we used to think of software companies are far more diverse than in years past. Intuit’s Reno, Nev.-based operations already had the capacity to employ 850 and payroll has shown strong revenue growth. In the second quarter ended January 31, its payroll business increased 32 percent to $40 million and the company expects a 25 to 35 percent increase in revenue growth.

So what’s going on? The accounting software market is fairly saturated. There are not a lot of businesses of any type, which don’t have some kind of accounting software package.

On the other hand, the business of providing outsourced payroll to companies has a lot of room for growth. The numbers that were sent our way by ADP last year showed that 27 percent of all businesses outsourced payroll in 2000, up from 25 percent in 1996. Two percent of all business is a lot of revenue.

The allure of payroll also includes the repetitive nature of the business—once a processor, whether a major company or a CPA providing processing, signs on a client, that revenue keeps coming in. It also seems logical that payroll represents a good foot in the door. Get a client to trust you with something as sensitive as payroll and that client will trust you with more services. CPAs in the business say that payroll clients stick around for a long time.

The increasingly diverse accounting software vendors are also looking to cross sell products. Just look at Best, whose parent Sage, reported that in the last fiscal half Peachtree customers represented 31 percent of all new MAS 90 licenses while users of its FAS fixed asset line represented 21 percent of such sales.

In fact, the only surprising thing is that we haven’t seen Microsoft or its Microsoft Great Plains Business Solutions division get into the payroll processing wars. But if these three powerhouses--Microsoft, Intuit, and Best--are going to compete on a broad front, we shouldn’t be surprised to see Microsoft make a run at the payroll business this year.

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