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The Digital Skeptic: Intuit and Friends May Take Digital Bullet

The big free accounting software donor is, of course, the government itself. IRS.gov offers a full suite of online tax tools that match much of what, say, Intuit's TurboTax does. Features found in sophisticated money management tools such as Mint and Quicken are now given away by credit card shops including American Express (AXP), MasterCard (MA) or Visa (V). And banks including Bank of America (BAC), Chase (JPM), Citibank (C) and Wells Fargo (WFC) all toss in such tools as customer gimmes.

And let's not forget the literally dozens of other tax prep and accounting expense tools that compete directly with Intuit's business products: Outright, FreshBooks and Expensify all offer services similar to Intuit's for either less or nothing at all.

"It takes a significant amount of revenue from a company trying to work in the space," Schmidt says.

The aggregate digital effect on the tax prep market is stunning. In his report, Tax Preparation Software Developers in the U.S., Schmidt estimates that through 2017 the tax prep industry will grow by an average annual rate of just 0.6%, or a fraction of the rate of inflation in North America. Ouch.

The long slow slide of bean counting
The upside, I suppose, is that the air will leak out of the tires slowly.

Schmidt is confident there is no Black-Swan-mortgage-meltdown-flash-crash event ahead for the industry. Big firms such as Intuit or H&R Block (HRB) are not headed for Chapter 11 in the next five years. He said the decline will be slower and the pressure will be felt by smaller firms first.

But the overall trend looks sadly familiar to these tired eyes.

Just as in the digital music or movie or video game business, tax prep in the information age is under that same forces of commoditization as these other forms of digital information. Products that once were bedrock pockets of value will no longer turn the profits they once did. And the industry will need to test pricey unknown territories of ever-bigger and more expensive properties to make up the difference.

It is no accident Intuit and H&R Block now flirt with health care, point of sale and even retirement planning products.

It turns out that the grim business of digital bean counting is just that, a grim business.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.
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