Intuit investor day was last week, and like Stripe’s investor day, if you are into B2B SaaS and payments, it is well worth reviewing.  With an estimated 80% market share of the SMB accounting market, Intuit has a unique pulse on America’s small businesses.  It’s also a fascinating case study on how a SaaS incumbent is responding to the AI wave.

In the rest of this post, I will focus on Intuit’s Small Business and Mid-Market Business Groups, which sell QuickBooks and Mailchimp.  Intuit also has a consumer business, TurboTax and Credit Karma, which is quite formidable.

Intuit Fan Boy

I’m an Intuit fan boy.  I’m a customer, yes, but the company’s stock is the best investment I have ever made (h/t Peter Goldmacher).   I bought the stock in 2010, and it is now up approximately 15 times.  At the time, Peter’s thesis was that if Intuit adapted to the cloud, it would be a huge tailwind for the company. Adapt they did.  Five years after I invested, about 46% of customers were online QuickBooks users, and now it’s 90%.  The company has improved its profitability and growth as it has grown larger.  In the chart below, compare its results in FY 14 when it had under $5 billion in revenue to its current performance as it approaches $20 billion in revenue:

Intuit’s investor day demonstrates the company intends to turn AI into a tailwind just as it did with the cloud.  The company recognizes QuickBooks is a system of record, and they plan to become a system of intelligence through the integration of AI and human intelligence.  I’m sticking with them through this wave as well.

Intuit’s Three Growth Bets

Intuit Investor Day highlighted three big bets the company says it is taking to accelerate growth:

1.  Deliver done-for-you experiences.  Meaning Intuit will use AI and human intelligence (e.g, embedded accounting and tax experts) to drive outcomes and take actions on behalf of users.
2. Accelerate money benefits.  The company means tax refunds and credit-related products in the consumer business, as well as receivables and payments in the business segment.
3. Fuel success for mid-market businesses.  A year ago, Intuit introduced a mid-market product, Intuit Enterprise Suite (IES), but now it is one of the top three initiatives in the company and had plenty of airtime at the investor day.

It’s these latter two initiatives I will focus on, as they have implications for Bill.com, NetSuite, and many others.

Pay and Get Paid

For many years, Intuit tip-toed around payments, payroll, lending, and banking, ceding these areas to others, such as Bill.com.  The company admits that 65-70% of prospects did not know that QuickBooks offers payments or payroll.  But now, on its own, and with partners, it seems to be committed to these offerings:

As you can see, Intuit is rapidly growing in the payments, and bill pay space, moving $174 billion in the last year.  That amount is still small relative to Bill.com’s AP/AR segment, which processes a $300 billion run rate.  However, Intuit’s payments growth rate is about 3x Bill.com’s.  There’s good growth in financing and accounts receivable acceleration as well.  The company is really making good on its promise to focus more on “money benefits” rather than just accounting.

The “Mid-Market” Definition and Pitch

For me, the most interesting aspect of Intuit’s investor day was the portion about the mid-market business; the company’s third growth bet. The company provides additional insight into the size and nature of its customer base.

Intuit defines “Mid-Market” as companies with $2.5 million to $100 million in revenue.  The company seems to further segment the market into businesses with $2.5-$10 million in revenue as Emerging Mid-Market customers.  Companies with $10 million to $100 million or more in revenue are considered “Mid-Market”.  (Companies with less than $2.5 million in revenue are Small Businesses.)  Essentially, Intuit has created a kind of “Good-Better-Best” offering of solutions for companies as they grow (the callouts in the chart are mine):

Intuit has about 8.7 million QuickBooks online customers (and about 600k still on desktop).  (It also has about 300k customers on a desktop Enterprise edition.) But Intuit also tells us the company has 800k core customers that already have more than $2.5 million in revenue. (Interestingly, that means they have about 8.5 million customers with less than $2.5 million in revenue, a figure I have wondered about for a long time.)

Seven years ago, the company added QuickBooks Advanced.  A year ago, the company added Intuit Enterprise Suite (IES), effectively enhancing the QuickBooks Online offering to a comprehensive “Good, Better, Best” solution for growing companies.

For years, most companies started with QuickBooks. It was generally understood that if a company were successful, it would eventually “graduate” to a mid-market solution.  (NetSuite, Infor, or Microsoft Dynamics.)  Intuit now wants to hold on to customers for longer, perhaps until they reach $100 million in revenue or more.   This is especially true if they are in the target verticals, such as professional services, construction, wholesale, and non-profits.

The pitch is essentially this: we have a product that has a familiar look and feel, but is an all-in-one platform that now includes AP/AR, payments, payroll, CRM, multi-entity reporting, and accounting.  This will allow you to consolidate vendors, have fewer applications to integrate, and fewer data silos.  Additionally, we are easier and faster to implement than typical mid-market ERPs.  Add to that built-in AI and human intelligence, and you have a fairly compelling pitch for the low end of the mid-market.

The Mid-Market Results So Far

It appears that the primary goal at present is to upgrade the 800k larger regular QuickBooks customers to Advanced or IES.  They are successfully achieving this. (However, it is not clear why QuickBooks Advanced has not made more progress in 7 years.)  Intuit says it has 349k Advanced and IES customers. It reports that 90% of IES customers are upgrades of QuickBooks Core or Advanced customers.  The upsell uplift is impressive.

Revenue from QuickBooks Advanced and Intuit Enterprise Suite, plus services, grew by 40%.  The average revenue per contract for IES is $27k. This is well below NetSuite’s average but well above the typical SMB customer.  For companies upgrading to IES, the revenue uplift is 2x. Half of the IES customers have more than $10 million in revenue. The company is seeing higher attach rates for payroll and payments in this market, so the suite message appears to be working at least a bit. With 800k existing customers to target, there is plenty of runway left for upselling.

What we don’t know for sure yet is whether Intuit can sustain this and can learn to sell IES to greenfield accounts.  The company tells us there are 1.8 million businesses with $2.5 million or more in revenue in their target market. If 800k are already QuickBooks core customers, there are another 1 million to target, where IES is not an upsell.  That’s a SAM of $27 billion at average IES prices.  Intuit claims to be building that sales muscle, leveraging its accounting channel, and creating vertical playbooks to capture these prospects, but we shall see.

Summary

I find Intuit endlessly fascinating.  It’s a huge B2B business and an almost entirely unrelated huge B2C business, both of which are only indirectly associated with the Intuit brand name.  It’s a company that the SaaS revolution could have wiped out, but instead turned it into a tailwind.  Now they are trying to do the same with AI.    Over the years, it has proven the ability to raise prices aggressively on a like-for-like basis, and now it is trying to prove it can monetize AI and upsell its customer base as it grows.  They are clearly taking on Bill.com (a former partner) and beginning to nibble at the low-end of mid-market ERP.  It will be interesting to see how they respond, if at all, to the growth of Brex and Ramp.  That’s a lot of fronts to fight on at once.