Details of Microsofts latest foray into the small-business accounting market are coming to light now that the company has confirmed that its working on a new version of Office that will be released in late 2005.
The new Office release will add a new product, Microsoft Office Small Business Accounting, to the current core set of programs included in Office 2003. The update of Outlook 2003 will be integrated with Business Contact Manager, the personal-information-management product that Microsoft first rolled out as part of Office Small Business Edition 2003.
Integrated payroll services are also part of the package, as Microsoft is partnering with Automatic Data Processings Small Business Services. A Microsoft press release describes how users will be “presented with tightly integrated self-service and fully outsourced payroll services, including signature-ready tax forms, integrated checks and other online forms, as well as support for direct deposit.”
In Microsofts sights are the huge market share figures posted year after year by Intuits QuickBooks accounting and business management software. Intuit recently announced its QuickBooks 2005 line of products, which will be released later this month.
The services side of the small-business accounting market is quite lucrative. Among the pieces that generates quite a bit of income for Intuit is its payroll service. Intuit unveiled a new payroll service, QuickBooks Enhanced Payroll Plus, which features automatic completion of state and federal forms, workers compensation tracking, automatic upgrades of QuickBooks financial software, and up-to-date tax tables. Intuit also launched its first payroll service designed for accountants, Enhanced Payroll Plus for Accountants.
With an installed base of over 3 million users, can Microsoft cut into Intuits market share? Sure it can.
The potential number of users of small-business accounting packages is quite large—some estimates put the number of small businesses at approximately 25 million. Around 3 million are currently QuickBooks users, with approximately another million using some other small-business accounting package. That leaves close to 22 million companies using some combination of paper, spreadsheets and word processors—all ripe for the picking.
Microsofts offering is aimed at small businesses currently using a combination of Excel and Word to manage their finances. Though I doubt Microsoft would object to converting some QuickBooks users to their Office-based system, the company is more likely to gain users by selling the add-on to existing Office users who dont yet have an accounting program installed.
Dr. Katherine Jones, research director for the Aberdeen Groups West Coast division says, “The first piece of software a small company usually buys is financials. Now they can buy Office and get financials. That opens the competition for new small businesses—theyll have an option to QuickBooks or Peachtree with a total Microsoft package.”
Generally, once a company picks a financial package, it doesnt tend to leave that package unless it fails the company completely or it outgrows the packages capabilities. New companies tend to use what their accountants recommend. Given that, Jones says, “Microsoft will have to court the accounting professional community, which theyve done with their Great Plains division. The company has some experience.”
Ever since Microsoft failed to buy Intuit a decade ago, it has gone after Intuits core markets. Microsoft Money battles with Intuits Quicken in the personal finance market. And Microsoft has made several other forays into the small-business accounting market over the years, mostly by licensing programs written by other developers. It took Microsoft 10 years to build what it wanted to buy then.
“Theyve had 10 years to figure this out. Im willing to bet that theyve done it,” says Jones. “Who knows? Maybe it will be an abysmal failure, but why should it be? The technology has changed a lot, and theyve had more experience at small-company technology than anyone else.”
In two years, youll probably be able to walk into a computer store and buy something along the lines of “Microsoft Office in a Box” that has financials, personnel tracking (time and billing) and contact management, and that might even keep track of orders and inventory. You can expect it to integrate with Outlook and your calendar, and be able to exchange data with Excel and Word easily.
Given the expected delivery date, I doubt QuickBooks will be erased from the face of the earth over the next year. But dont underestimate Microsofts ability to be very competitive, especially with its track record of low prices as it tries to penetrate a new market. Jones says, “With luck, there will be enough new companies starting up that all of the programs will have a good share of the market.”