06/15/98 THIS INTUIT HUNCH MAY PAY OFF

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THIS INTUIT HUNCH MAY PAY OFF
After a big setback, the Quicken maker takes to the Web
A year ago, (INTU) announced that it would shift its focus from personal-finance software packages to Internet services. That so discouraged Claudia Carpenter, the top designer of the company's flagship Quicken program, that she took a three-month leave of absence. Intuit's stock was in a slump, too, trading in the 20s--down from a high of 84 in November, 1995. It looked like the end of the company's glory days as the No.1 maker of personal-finance software. ''Oh God!'' Carpenter remembers thinking. ''Where are we going now?''
Today, Carpenter knows where Intuit is headed--and she's fired up about the destination. She was coaxed back to work last August, a month early, to design Quicken.com, the financial management Web site that is the centerpiece of Intuit's new strategy. Carpenter couldn't have been more prepared, since she had spent her sabbatical surfing the Net and sizing up its commercial potential. Since her return, she and her colleagues have plunged into the job of transforming a traditional consumer software company into an Internet-based financial-services powerhouse.
It's a bet-the-company strategy that could finally deliver on the vision of its founder, Scott D. Cook. Back in the mid-1980s, Cook could see a day when people would tend to all their finance needs electronically--zapping off checks and handling everything from retirement planning to obtaining a mortgage online. But missteps--including Intuit's 1995 aborted merger with Microsoft Corp. (MSFT) and an initial focus on proprietary online services-- cost the company precious time.
It wasn't until last fall that Cook's vision began taking form with the launch of Quicken.com--a Web site where consumers and small-business owners can go for all of their financial management needs. Since then, Intuit has added mortgage and insurance services--and a payroll service for small businesses is planned for this summer. ''We see it as an interwoven fabric of financial tools and services,'' says William H. Harris Jr., an executive vice-president who will become CEO in August. A former chief operating officer for ChipSoft Inc., a maker of tax software which Intuit acquired in 1993, Harris is the executor of Cook's Web strategy.
BUOYANT STOCK. Harris might as well be weaving his fabric out of gold thread: Intuit has invested more than $100 million to date in its Web initiatives. Those investments already are beginning to deliver. In April, some 2 million home users visited Intuit's financial Web sites, according to researcher Media Metrix. That's a 60% increase since their launch in October--making Intuit the finance leader among home users, topping Yahoo! Finance and Microsoft's Investor.com.
That has buoyed Wall Street's enthusiasm: Intuit's stock has more than doubled in the past year, from 22 to around 47. ''They've turned the situation around,'' says William Blair & Co.'s David Farina, who estimates Web services will add $45 million to Intuit's top line next fiscal year ending July, 1999--and could contribute one-third of its profits in five years.
Still, Intuit's future is far from assured. Since Cook began heralding the online financial revolution, rivals also have gotten religion--even beating Intuit to the punch. Lured by the promise of transaction fees and premium ad rates, Yahoo!, Microsoft, a host of Web startups, and virtually every major bank and brokerage is vying to be a one-stop shop for financial services on the Net.
Complicating the picture, Intuit also is betting on a radically new business model. The company once relied almost totally on software sales. Now, it's shifting to an unproven mix of software licensing, online advertising, and transaction fees. And in the new world of the Net, the company must rely on financial and media partners, leaving it sandwiched between banks and brokerages that do transactions and Web portal sites such as Excite Inc. (XCIT) and America Online Inc. (AOL) that distribute its content. ''We've had to sublimate our own ego and become a part of somebody else's business,'' says Harris.
Intuit has a strong calling card, though, thanks to some 80% market share in its three main businesses--personal finance, small-business accounting, and tax software. The beauty of its new strategy is that each new service is a natural extension of its software products, which let users easily link to services on Quicken.com. That positions the company to take advantage of its strong brands--10.6 million Quicken users, 2 million customers of its TurboTax software, and 2 million small businesses that use the company's QuickBooks accounting software.
For now, online services provide just 5% of the $580 million in revenues analysts project for Intuit's fiscal year ending in July. But Harris expects that to rise to 50% within five years. So far, advertising makes up the lion's share of Web revenues. Intuit sells banner ads and long-term sponsorships to four online brokerages, which have a transaction button on Quicken.com. Intuit's banner ads typically fetch a pricey $50 per thousand viewer impressions, about double the norm. And ad sales have soared, along with an increase in page views from 8 million last June to more than 76 million in April.
The next wave of Web revenues is expected to come from transactions. Intuit doesn't handle trades or other transactions itself. Instead, it ushers customers to its financial partners' sites and collect fees when they secure mortgages or business loans. In some cases, Intuit simply gets a referral fee for channeling potential customers to transaction sites. It gets larger fees for completed transactions--about $800 on a $200,000 mortgage, for instance.
NO ''EUREKA!'' Transaction revenues are just a trickle so far. But there's huge potential: Forrester Research Inc. figures that revenues from online financial services--including banking, trading, and insurance--could total more than $4 billion in 2000. That's why Intuit is racing to forge partnerships with dozens of financial institutions that are selling products and services online.
It was either partner or perish. Both Microsoft and Intuit alienated banks in the mid-'90s with their ambitious plans. Lately, Intuit has tried to convince banks that it's willing to be an ally rather than a competitor--with some positive results. Nearly 80 banks, including Bank of America and BankBoston (BKB), have online links from Quicken. And two months ago, Intuit earned points when it relaxed its stance on forcing banks who license its software to feature the Intuit brand. ''The nut of our concern has been who gets the customer relationship,'' says Trace Poll, a senior vice-president at NationsBank Corp. (NB). ''They've become more flexible. They realize the value of banks.''
Intuit also realizes the value of high-traffic Web portals in building market share. The software maker has entered several exclusive distribution deals where, in exchange for a prominent spot on a portal's site, it creates a tailored version of Quicken.com and shares 15% to 30% of the ad revenues it receives on those pages. Intuit has cut such deals with AOL, Excite, and CNNFN. These don't come cheap, though. Intuit invested $40 million in Excite to seal that partnership, and it pledged to pay AOL $30 million as a guarantee against future ad revenues.
Meanwhile, Microsoft squeezed most of the profit out of the traditional personal-finance software business when it began letting PC makers bundle its rival Money program for a few dollars each--and Intuit was forced to match that. Sure, Intuit's stock looks healthy, says Lewis Levin, general manager for Microsoft's desktop finance division, but ''if you look more closely at the fundamentals, it doesn't look so good.''
To be sure, earnings are erratic. Intuit made $42 million in the second quarter, but because of an up-front payment of $16 million to AOL, it lost $2.2 million in the third quarter, ended Apr. 30. And although Intuit has seen healthy revenue growth for the past several years, its 1998 sales are expected to be slightly less than last year due to the sale of a direct marketing subsidiary in April, 1997. And it's going to be in investment mode for the foreseeable future. That's why CEO William V. Campbell warns: ''There's no 'Eureka!' coming. This is going to be a slow, steady build.'' That's still better than what Intuit seemed to face a year ago--a slow decline.
By Steve Hamm in San Mateo, Calif.

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