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Q&A: Intuit VP sees online surge

Fiscal 1999 proved to be a better year than expected for Intuit Inc. (Nasdaq: INTU), and much of that improvement came at the hands of the company's online businesses.

The company's flagship website,, saw page views rise 78 percent year-over-year to 160 million in July. Its mortgage site now generates more loans than any other online. And online revenues soared to $125.3 million for the fiscal year, although large profits remain elusive.

Intuit is counting on the Internet to continue fueling its growth, as Raymond Stern, senior vice-president for strategy and corporate development told to ZDII during a telephone interview following the company's quarterly report on Thursday. Some excerpts from the conversation:

ZDII: Summarize the latest financial results for us.

Stern: E-finance really took off in this last fiscal year. We saw revenues from our Internet business more than double from 1998 and now represent more than 15 percent of our total revenues for the company.'s popularity continues to rise. In July of ྟ our page views were 160 million and that's up 78 percent over the prior July. Quicken Mortgage continued to grow, we closed more loans than our nearest online competitor during the second half of fiscal ྟ, although our revenue was lower than theirs. We successfully launched our online payroll business in fiscal ྟ, we signed up more customers for this service in our first year of launch than Paychex did in its first six years. Our online auto insurance business also saw dramatic growth; today, over 70 percent of the driving population can access online quote comparisons for auto insurance through Quicken InsureMarket. And finally our online tax business took off in this last fiscal year, we saw a tenfold increase in the number of returns prepared using Web TurboTax, our Internet based tax prep and filing product.

And at the same time, as we saw this phenomenal growth in our electronic finance businesses, we continued to strengthen our leadership on the desktop.

QuickBooks had a terrific year and today has 85 percent of the accounting software sales at retail, on a dollar basis. We had two launches of the product in fiscal ྟ, and as a result of that, our revenues grew by more than 40 percent compared to the prior year. We also added 800,000 Quicken users in fiscal ྟ, and Quicken now has more than 11 million loyal users and holds over a 70 percent share of the market. And just finally in the tax, this was a record tax season for us, we sold over 4.1 million copies of our desktop software. We had 1.6 million returns filed electronically, more than double the number from the year before. And our pro series with Lacerte, which is our professional tax preparers' product, did very well; we now have over 75,000 customers for those products.

In short, we had a very successful ྟ. Revenue was up strongly, up 28 percent if you exclude the acquisition of Lacerte. We continue to grow our annuity businesses, repeat revenue businesses such as payroll, consumer supplies, professional tax services. Net income was up significantly to $1.39 on a pro forma basis for the year, on a fully diluted basis, and that exceeded First Call consensus by 6 cents a share. And we have a very strong cash position, over $1 billion of cash and marketable securities, actually closer to $1.2 (billion); that'll enable us to capitalize on the many opportunities we see ahead of us to invest in additional growth in Internet activity.

ZDII: Who does Intuit see as major competitors in its various Internet businesses?

Stern: One of the things to keep in mind is that there is no one that is a competitor with the full breadth of our offering in electronic finance.

If you look at the breadth of what we have in online banking, billing, and payment, investing, mortgage, insurance, payroll, tax services, electronic filing -- there is no one that comes close. There are a lot of folks that have point solutions, people who are in the mortgage only, or insurance only, or are in some more limited set of functionality around online banking and payment. So if you look at the big picture, we think we are by far the leader in electronic finance in terms of breadth and depth.

There are specific competitors in a number of areas. I mentioned mortgage, as an example, E*Loan is one of our competitors there. If you look at insurance companies like InsWeb, relatively newer Internet start-ups, well-funded, and are obviously a set of companies that we view ourselves as needing to compete very aggressively and effectively against.

ZDII: Are you taking market share from them, or are you mainly reflective of overall market growth?

Stern: The fundamental thing is, we've got huge underlying market growth here, which I think is good for everyone in this place. But we are, in the specific case of mortgage, actually gaining share.

We started behind E*Loan in terms of our launch, and in the second half of half of fiscal ྟ, closed 21 percent more loans than E*Loan. And if you were to look back a year ago or so at the same metric, we were closing about 75 percent the volume of loans (of E*Loan), so (it's) a significant improvement in terms of our relative position on the basis of closed loans, versus E*Loan.

But again, I would reiterate that this is a market that's just growing phenomenally. Today, it's estimated that something on the order of one-tenth of one percent of total mortgages are originated online, and that's expected to be something on the order of 10 percent in 2003, if you look at the Forrester Research Group as an example, but there's similar research out there from other folks.

So it's going to be a very, very big market. We intend to remain a leader, but there will obviously be competition there. And you'll see similar kinds of numbers in terms of market sizes for the insurance business.

ZDII:You mentioned you're ahead of your mortgage competitors in certain metrics, but you're not generating as much revenue. Why is that?

Stern: That's a business model choice that we made. We are actually doing some things to address that in terms of increasing the portion of the revenue available that we might get, by further integrating into certain elements of the mortgage business.

ZDII: Can you provide some examples of what you might do?

Stern: It really has to do with some of the degree that you control or own part of the closing process, and all of the handling that goes on in the mortgage process.

I just want to be careful about disclosing things that we're not ready to disclose with respect to the direction in which we're going, and also guiding you in a way that probably is pushing the limits with respect to (predicting) specific revenue growth in certain portions of our business.

ZDII: What do you intend to add to your online offerings?

Stern: I think the critical area where you will see continued robust expansion of what we're doing is in the small business arena, expanding our small business e-finance activities. And the basic notion there is to connect small business finances to the Net.

We have a significant presence in the small business space, with something on the order of 2.7 million QuickBooks users and another 3 million Quicken small business users. So 5 1/2 million-plus small businesses that use our products. And increasingly, we're connecting those products to suppliers, accountants, Web stores, customers, so you should expect a whole host of services built around those. A good example of what we're doing there is our first service we launched this year, which is the payroll service I alluded to before, and we've had great success there.

We think that the relationship that we have with the small business, the fact that we are integral to their running of the business with their accounting data, and our ability to connect that data and the small businesses to various services, is a very powerful strategic data that we have.

ZDII: A lot of your advantage comes from the fact that you have such a large installed base on the desktop, but as the Web becomes more pervasive, might that advantage not be worth as much in the future?

Stern: No, we believe that's actually an advantage that has allowed us to achieve the success that we've had to date and will help us in the future.

As an example, with the connectivity with, we can drive customers -- those 11 million (Quicken) customers and the 800,000-plus that upgraded this year and the equivalent numbers as we move into the launch of our 2000 product -- we can connect those customers directly to our properties.

For example, if you're in Quicken today, we can take you to Quicken Mortgage, we can take you to Quicken Insurance, et cetera. So we see it as a huge asset.

I just talked a few moments ago about Quick Books. There's another example where we have small businesses, small business owners, by the way, spending large numbers of hours each month working with Quick Books. As a very integral part of managing their business, we've built in connectivity to those products, and we will continue to do so.

So we think that presence on the desktop, that desktop application, that connected desktop application, is a huge advantage. We're starting going after small business opportunities on the Web with 5-plus million loyal small business users. That's an advantage that we think is phenomenal.

ZDII: Intuit has relationships with some Web portal sites. Any fear that some of your competitors might sign up some of the other large Web portals and capture more of that traffic than you'd like?

Stern: There's always that risk.

We have relationships with Excite, we have a relationship with America Online. We have a significant presence just on our own website,, which accounts for a large portion of our traffic, so it's not just dependent on those relationships. So we're pretty comfortable with what we have.

Obviously any of those small competitors can get distribution, but it's not just about distribution. It's about the brand; it's about the trust that consumers have, particularly in the whole arena of financial things. And there's no one that comes close to having the relationship with customers in the whole electronic finance arena. Again, electronic finance is also desktop electronic finance, and we've got millions and millions of users.

And it's also about technology. We've invested years of building technologies and perfecting how they work. And those can get ported to the Web.

A great example of that is our tax product, where we've built a very robust tax calculation engine, and we've essentially duplicated and ported -- without significantly increasing the investment -- ported what we've built for the desktop to the Web. So that's an advantage on a technology front.

Distribution matters. We think we have good distribution today, and we will continue to look for ways to build our distribution. We will continue to look for ways to use the breadth of what we have on a product basis to cross-promote our products and services and continue to build the overall set of brands that we have.

ZDII: Your online revenues rose 157 percent year-over-year. Can you maintain that kind of growth going forward?

Stern: I'm not going to predict, but I will tell you that the Internet, as you know, is growing extremely rapidly.

Go back to the example I gave you, of just the mortgage business going from just .1 percent of mortgages originated to 10 percent in a matter of four or five years. I haven't done the math, but that's a pretty high compounded growth rate.

So if we can continue to maintain our leadership position, and if the Internet continues to be what we believe it will be, or most of us or many of us believe it will be, in terms of a phenomenal vehicle for improving the kinds of interactions that consumers have with respect to their financial lives, we believe that we can continue to see very, very robust growth in our Internet businesses.

ZDII: How about a percentage of Intuit's overall revenue? Right now it's at 15 percent. Do you expect to boost that?

Stern: I suspect that that will go up over time. Because what we're seeing is, without going into numbers, a set of businesses that today, as you said, are about 15 percent, but growing at growth rates that are significantly higher than the other 85 percent, so over time, one would expect that. QAFOLKS>