Is there an impending day of reckoning for Australia’s leading small business accounting software developers as global giant Intuit muscles in? That question weighs on the minds of Reckon’s shareholders as the $291 million market cap local squares off against its $16.5 billion US-listed “frenemy”.
Reckon is the exclusive distributor of Intuit’s accounting software in Australia but the companies have decided to sever links after 2014.
Reckon’s share price has been in a funk since as the market tries to work out how big a dent Intuit could make on its former partner.
What’s worse, there is not much room for mistakes as Reckon trades at a close to 20 per cent premium to the information technology sector.
Investors are used to paying a premium for Reckon given its enviable track record. Its marriage with Intuit has allowed the company to deliver a return on invested capital of 35 per cent on average over the past five years, the third best in the IT sector and well ahead of the 22 per cent industry average.
Whether Reckon is still worth its premium depends on how successful Intuit is in exploiting a perceived weakness in the micro-business market.
Intuit has launched a cloud-based accounting solution for this niche called Quickbooks Online, and product leader for Quickbooks Online, Barb Anderson, says the solution is a lot easier to use than current desktop-based solutions such as offered by Reckon or MYOB.
Reckon chief Clive Rabie concedes the company has been slow to meet the needs of micro businesses, which typically have fewer than five employees, but notes Intuit is not competing in its core small-to-medium business segment.
Of the two million small businesses here, about half can be classified as micro businesses, and this market is worth $100 million to $200 million to accounting solutions suppliers.
Micro business owners do not need the full functionality of the desktop software, and Intuit’s move puts about a third of Reckon’s $90 million revenue at risk. While that is sizable and Ms Anderson’s plan to make Intuit the third force in small business accounting software will rattle investors, Intuit won’t find it easy to wrestle market share.
Firstly, and most importantly, Intuit has difficulty articulating a differentiating strategy for the Australian market. The global giant has a strong track record in listening and being close to its customers (this usually give it a competitive edge), but Reckon owns the relationships in Australia. The fact that Intuit has no staff or offices in Australia will also prompt questions about how close the giant can be to end users.
Intuit may hire down the track, but the high costs of operating in Australia and its small addressable market will pose some challenges.
Secondly, the market has difficulty distinguishing between Reckon and Intuit’s Quickbooks brand.
Business software users also tend to stick to what they know best, and it is yet to be seen if Intuit can replicate a similar work-flow and experience to minimise any learning curve.
The real opportunity for Intuit is perhaps end users who use non-accounting software for book-keeping as about 500,000 micro businesses are believed to be using Excel.
Reckon plans to offer a cloud solution to micro businesses by year end or early next year, while MYOB has just introduced a web-based version of its desktop software.
