Web and mobile apps, where personal data is far more portable, free is the dominant price, and upstarts can come out of nowhere to gain big market share faster. Intuit won’t be able to deal with every new Mint.com that comes along by acquiring it.
Indeed, the one company that Intuit arguably should have tried to acquire a year or two ago, Square, is probably beyond its price range now. Jack Dorsey’s startup raised $200 million in venture capital in September at a valuation of $3.25 billion, or roughly 20 percent of Intuit’s entire market capitalization. And it’s showing no signs of slowing its growth in the areas of mobile credit-card processing for merchants and, more recently, mobile digital wallets for consumers.
Credit-card processing for small merchants is a market that, by all rights, Intuit should own. It already helps many small business owners keep their books, send invoices, and collect payments from vendors; why shouldn’t it also help them handle transactions at the point of sale?
In fact, that’s the exact reasoning behind Intuit’s GoPayment mobile card reader. Because GoPayment is part of the QuickBooks ecosystem, Scott Cook has argued publicly that there is “not a direct competition” between Intuit and Square; he thinks Square’s main appeal is to customers who are comfortable carving together financial solutions from many different vendors. And Chris Hylen, Intuit’s vice president and general manager of payment solutions, has said that GoPayment is mainly for small businesses, not big enterprises like Starbucks (one of Square’s biggest investors and customers). But that hasn’t stopped Intuit from precisely matching Square’s pricing—both companies keep 2.75 percent of each swiped transaction.
Mark Goines, the former Intuit consumer and banking head, says he’s “investing pretty actively” in digital payments startups, and he calls Square “the poster child” of the small-business payments market. He says Square is overtaking Intuit because it’s more risk-tolerant. In essence, the startup has either figured out ways to mitigate chargebacks, fraud, and the other hazards that go along with a major processor of credit card transactions, or it figures it’s got so much cash on hand it doesn’t need to worry about it. “Square has a very aggressive pricing model and terrific marketing, and they take on a lot of risk in taking on new customers,” says Goines.
“Intuit has essentially all of the same capabilities—they have a big payments infrastructure, they have this Square-like device, and they service merchants better than just about anybody on the planet. But it’s very difficult for them to take on the type of credit risk that Square is taking.”
It’s not just about technology or platform innovation, Goines says. “It’s about a full understanding of the innovation around the business model, and the willingness to sustain losses for a long time in a new business to establish a foothold. If you said to stockholders, ‘I’m going to lose $50 million a year for five years to be the biggest player in micropayments, is that okay?,’ what would they say? They would say ‘No, that’s not okay.’”
Goines stresses that he has “heard nothing but great things” about Brad Smith’s leadership at Intuit. “The success they’ve had at transitioning the organization toward creating new products and new business models is clearly evident,” he says. “And when they are not being internally successful, they are smart enough to find people who have done a better job and grab them, like they did with Mint. So they are doing a lot of the right things. I just think the innovator’s dilemma is such a powerful force that they are always going to have to keep a watchful eye on what others are doing, and do better, either by buying them or by trying to do it internally.”
That’s a tall order. But Intuit has been written off before, only to come roaring back. (A 1998 quote from then-CEO Bill Harris is instructive: “Isn’t it amazing how quickly you can become a company of the past—or a company of the future?”) And the company has the advantage of a loyal, enthusiastic employee base—everyone I’ve met at Intuit seems to love their job, which is no small thing.
“I feel like very few companies are able to reinvent themselves, and Intuit has shown again and again they can,” says Kaaren Hanson, the designer. “Right now we’re in the middle of reinventing ourselves once again. This is Silicon Valley at its best.”
