NEW YORK ( TheStreet) -- Tax and accounting software firms such as Intuit ( INTU) are getting ready to step well ... into it. "We are at a point now where we see the world shifting once again," Brad Smith, president and CEO of the Mountain View, Calif., company, told analysts in September. "End users no longer want to be consumers. We want to be participants." But if what analysts are saying back to executives such as Smith is any indication, what consumers really want is to not be customers at all. Never mind that Intuit's products handle something like 2 billion invoices, 1.6 million vendors and 30 million employees; the overall tax prep and accounting software market is going just one place. Nowhere. "The sheer number of competitors is so high that revenue will be hard to come by in this industry," said Dale Schmidt, an industry analyst for IBISWorld, based in Santa Monica, Calif., who has written a definitive report on the topic. Tax business now like the music business
Schmidt spent a good hour over the phone with me explaining his research into the eroding economics of tax prep and accounting in the information age. It was a familiar call, since I have seen the same trends grind the music, publishing and legal professions to a similar fine, white powder. "It is pretty much the emergence of the free online tax filing systems," he explained. Just like in music and books, there seems to be no end to the number of outlets offering all or part of Intuit's products for free or at no incremental cost.
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.