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How Intuit competes with Microsoft, IRS

Madison, Wis. - Mark Schar has had better days than August 1, 2005, but when your two largest competitors are Microsoft and the Internal Revenue Service, every day can be a bit taxing.

Schar, senior vice president and CMO of Intuit, developer of personal finance software like Quicken, QuickBooks, and TurboTax, said that's the day the company entered into an agreement with the IRS to take part in the Free File Alliance, in effect agreeing to give away its products to households earning $50,000 or less.

That was also the day it learned that Microsoft planned to launch its own Small Business Accounting package by giving away millions of free copies of the product, which promised to become the chief rival for QuickBooks and TurboTax.

Other than that, it was a red-letter day, but the ensuing weeks and months have been well spent. The company went into full-throttle strategic mode to fend off Microsoft, and while it's still early in the game, it looks like the strategy has paid off.

Schar, whose responsibilities include Internet marketing, explained how this was accomplished during Brandworks University 2006, presented by the Madison brand development firm Lindsay Stone & Briggs. The Internet would play an important role in Intuit's competitive response modeling, but not a central one.
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It was clear from the onset that Intuit's task was a daunting one. Microsoft has fought this battle before, and emerged victorious in competitions involving its operating system, its Web browser, and its Excel product. "They don't lose when they set their minds to a marketplace," Schar said.

The fact that the software giant can bundle its small business accounting product with Microsoft Office didn't ease his discomfort, but Intuit began to develop a winning mindset by convincing the public early on that QuickBooks already had won the battle.

Protecting the ecosystem

The company identified what Schar called "key influencers" to be advocates for QuickBooks, facilitate conversation, and build a customer community that creates loyalty and connections. He referred to that community as Intuit's "ecosystem," and it includes the 4.5 million small businesses that use QuickBooks, plus accountants, retailers, and the popular and trade press.

The company consented to 300 interviews with the trade press alone, and even encouraged "bake offs" in which QuickBooks 2006 was compared with Microsoft small business accounting.

The ecosystem also included Intuit employees, who used Internet blogs to strengthen connections with their customer base. The company also created a Web-based community forum where users could communicate with users, and it instituted an account referral program in which Intuit-registered accountants were recommended to users.

"The Web was an important facilitative tool," Schar noted, "but it was really about the ecosystem."

Intuit also promoted the addition of a tracking product to QuickBooks when it rolled out the 2006 version, and its marketing plan made sure that influencers and everyone else knew, in the company's view, that the tracking add on made QuickBooks superior to the Microsoft product. The product also was designed to address the needs of various user types, from those who actually enjoy doing their taxes to worry warts who fret over everything.

All of this ecosystem building was supported by a culture that romanced failure, which Schar considers to be a crucial part of innovation. The applicable concept here is "swings at the plate," or attempts at innovation. Every employee is empowered to recommend a test, which must begin with a hypothesis, but part of the calculation is for the company to determine how many swings it can afford to take.

The results of this strategic plan sound too good to be true. Schar, who serves on the board of the Center for Brand and Product Management at the University of Wisconsin School of Business, said Intuit now processes 60% more online tax returns, and Microsoft got less than 3 percent market share at the release point of its small business accounting software.

What's more, IRS free filing declined by 23 percent, while Intuit's revenues rose 13 percent, and profits are up 18 percent, Schar said.

Clearly, the anxiety of Aug. 1 is starting to fade from view.

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