It's less than a month until the Apr. 15 tax-filing deadline, and as the bills get tallied, American taxpayers aren't the only ones breaking out in a cold sweat: This is make or break time for Intuit (INTU), too.
Sure, the Silicon Valley company has a gold mine in TurboTax, the dominant consumer and small-business tax-preparation software. It brings in about a quarter of Intuit's annual revenue. Trouble is, the TurboTax business has been slowing. Last year's 16% increase was down from a 29% rise two years earlier. This year, the forecast is for a 5% to 10% jump. It's the curse of being the top player in a market the IRS estimates is growing less than 1% per year.
HOLDING THE CORE. This year, Intuit is trying to break that curse. Researchers for the software provider spent the last year talking to thousands of folks who file taxes every year. They found that people fit into one of five profiles -- from the "simple and know it" filer who just fills out his or her own 1040EZ tax form, to the "too hard for me" individual who would never attempt to do his own taxes and pays someone else to prepare them.
As it turned out, Intuit was dominating only one category: The confident and informed "do-it-yourselfers" who are comfortable doing their own taxes year in and year out, but need a little more than the basic tax form. That group includes about 26 million filers, and more than ever, Intuit needs to do a better job of holding on to that core. For every 3.1 million new TurboTax customers, Intuit estimates that it loses 2.4 million from the year before.
So Intuit execs are trying to do a better job of making their traditional customers happy, while bringing in the "Simple and Know It" crowd. They've got two new products, a bigger marketing budget, and pricing incentives. It's a gutsy, all-out effort led by Brad Smith, senior vice-president of Intuit's consumer tax group since last March.
Smith recently talked with BusinessWeek Online reporter Sarah Lacy about his first full tax season, how TurboTax has changed from last year, and how Intuit expects hip-hop impresario Russell Simmons to give its staid brand street credibility. Following are edited excerpts of that conversation:
Q: What was your challenge when you took over this job?
A: Accelerating growth. That's what we've been single-mindedly focused on for the last year. There are 132 million tax filers in the U.S. - that number grows less than 1% annually. But inside of that you'll see those people who do taxes themselves and use a software product to do them is a small piece of that overall pie. We have a real opportunity to expand that part of the market by making people aware and giving them confidence in their own knowledge and in our software.
Q: How much of the market uses software now?
A: About 26% of total tax filers use a Web or software product.
Q: What did you do to prepare for this tax season?
A: We actually watched real consumers enter their tax information into our software during [the last] tax season. We observed what was working well and what wasn't, and what came out was a complete surprise. We asked two simple questions: "Are you capable of doing your own taxes?" And second, "Are you willing?"
We were stunned to see five distinct consumer groups emerge from that. We've only been serving one of those [groups] for the last 20 years.
Q: Can you describe that group?
A: They are the do-it-yourselfers. They buy our software for one of three outcomes: Saving them time, saving them money, or maximizing their deductions and refunds.
But we learned we had a real opportunity to reinvent our [core] product. What had happened over the last 20 years, as the tax code got more complex, we ended up with an offering that for some people was pretty intimidating.
Q: So what did you do about it?
A: We had to do several things. The first was rewrite the language so that it was easy for any consumer to understand. The classic example was a lady who had written a check to her church as a charitable donation. I was personally watching her do this, when she entered it, the program asked if donation was cash or noncash. Having donated with a check, she clicked noncash. Then she had to go through several screens asking about fair market value.
She was completely confused. She looked me in the eye and said, "Your software is great, I'm just not smart enough to use it." We rewrote 90% of every screen people would see based on this, and so far feedback has been outstanding.
Q: So, that's all to benefit your core group of tax filers who are comfortable using software or a Web product. What about the other four types of tax filers?
A: There's real opportunity for growth in each of those. This year we're focused on the core TurboTax user and the "Simple and Know It" user. They have the capability of doing their own taxes, but they feel existing tax software is too complex for them. We put SnapTax into the market for them. The average time it takes for a consumer to use SnapTax is less than 15 minutes, if they do their taxes with a 1040EZ form. That compares with three to four hours with pencil and paper.
Q: What are the forecasted sales for this product?
A: We're treating it as learning lab. We only put it in a handful of Wal-Marts (WMT) and retailers to test it and also put it on our Web site, but not in a premium position. The numbers right now have exceeded expectations, but it won't have a material impact on our financials this year.
Q: Where else are you focusing your efforts this year?
A: One group that cuts across many market segments is the young tax filer. There are potentially 5 million new filers coming in each year, and two-thirds of them are 18- to 24-year-olds. They have no knowledge and no interest in learning taxes, but unfortunately, they've reached adulthood, and it's something we all get to do in the U.S. We met with over 1,000 young tax filers over the summer, and what they get excited about is how they're going to be spending their refund. The average refund is over $900 for this group.
Q: How do you market to them?
A: This is a viral community. These people are the reason TiVo (TIVO) exists. You can advertise, but they will TiVo it out. You can e-mail them, but they'll stop it as spam. But they talk to each other and to their parents. The neat thing is out of 10 million TurboTax users, 1.5 million of them are mothers or fathers doing taxes for 2.5 million collective children.
We're giving the parent the opportunity to pass TurboTax on to their children for $5.95 this year. And, through Best Buy (BBY) we're offering discounts of 10% on things this group is interested in. And we've also partnered with Expedia (IACI) to give $200 discounts on spring-break trips and travel home.
We've put that together on one Web site built just for them. We actually had young tax filers come in and build it. It's called "Rock Your Refund." We've teamed up with certain pied pipers for this age group. One of them is Russell Simmons, the hip-hop mogul with tremendous influence. He's talking about this everywhere he goes, and it generates more traffic to the "Rock Your Refund" site. We're seeing significant increase year-over-year with kids using TurboTax.