MBS SHRINKS LOSS .
The 10-Q is in. Microsoft Business Solution's operating loss for the second quarter ended December 31 dropped to $69 million, down from $87 million in red ink for last year's corresponding quarter. That's still not trivial, as the division went from losing 64.4 cents on every revenue dollar to losing 36.3 cents. The unit better be able to reduce its losses given the previously reported 40 percent increase in revenue, to $190 million from $135 million. If you remember, Microsoft attributed most of the sales to Navision. But a few people, including a least one analyst, wonder how MBS topped 40 percent in revenue growth since for many the strong up-turn in business wasn't that strong. I still think a one-time bump from the change in Navision maintenance policies exaggerated what was already a very good quarter. We'll know that answer when the Q3 results roll in, won't we? If they do 40 percent again, we'll know it's real. But at some point, don't they have to make money the old-fashioned way-by cutting costs?

TECTURA STRIKES AGAIN .
Tectura, which seems to be racing Altara to buy reselling companies, has purchased Sensible Systems, based in Littleton, Colo. Sensible had $3.5 million in revenue and a staff of 15. Tectura had $37.5 million in 2003 sales before this deal and there have been rumors of more. I keep getting tidbits that East Coast reseller EYT, which, at 90 people and probably $13.5 million in annual sales, is a shadow of its former glory days, is going to do something in M&A. I don't know on which side, however. Reports have it that Seattle-based In2Gr8 lost out in the bidding for Sensible to Tectura. In2Gr8's CEO Dan Fine had said he expected to have some funding for the M&A game, but that hasn't been announced yet.

ACCOUNTMATE VS. PRO SERIES .
Let's talk about what's on the resellers' minds given Sage's acquisition of Softline and pending purchase of Accpac. Everyone wants to know what the company will do with two competing source-code products, AccountMate and Accpac Pro Series, that have a family resemblance. This is the first time that a purchase has resulted in its potentially owning packages that compete head-on in the United States. (Well, the company did buy Platinum for Windows, but pushed that towards process manufacturing). There are no answers at the moment. Best will study this situation. It's hard to envision Best taking action quickly-it will let this sort itself out. Remember that the Best/Sage practice has been to keep profitable products alive. That probably also applies to products that might extend market share in terms of niches or geographic regions. AccountMate had stronger overseas sales than Pro Series, as I recall.

ANOTHER MBS MARGIN KILLER ?
Microsoft's penchant for the distribution channel has struck again. Last year, it killed the margins for accounting software VARs by opening up the Microsoft CRM business to its volume purchase program. Despite assurances from product manager Holly Holt that resellers are excited by Microsoft CRM, some complain about the way they were promised one kind of pricing, then given another. Also, the reseller reaction to Microsoft CRM is usually something like "It's okay. … It's an early version product. … We can write around its deficiencies. " Now Microsoft is making the Retail Management System available through distributors Ingram Micro and Tech Data. That ought to eliminate interest for a significant number of its valued business partners if distribution pricing works the way I remember it.

DEATH OF A SALES TOOL ?
Best Software's Act has earned the Willy Award as best CRM SOHO solution. The award was given by the company SellMoreNow.com, and is named after Willy Lohman, the failed salesman from Death of a Salesman who killed himself when he didn't make quota. Just the way you want your product immortalized. If you get more than one award, do you really want someone saying you got the Willies? And if they drop it in the bathtub ahead of time, are they giving you a wet willy?

INTUIT SEES ZERO QB GROWTH .
Maybe this explains some of those executives deciding to pursue other interests in the last few months at Intuit. The company lowered its target for QuickBooks revenue growth for fiscal 2004 from 10 percent to 0 percent as it issued numbers for the second quarter ended January 31. That'll put a hitch in your options. QB revenue growth of 8 percent was below expectations, because a drop in Basic and Pro units was not offset by sales of higher-priced units. Since Intuit is the master of the pro-forma two-step, you have to read every other paragraph in the press release to find out what the GAAP results were. Net income was $149.1 million, up 16 percent from $128.4 million a year earlier. Revenue was $636.3 million, up 14 percent over the prior year. Of channel interest, Intuit's vertical products, which include Fundware and Master Builder, had $26.1 million in quarterly sales, 9 percent organic growth and 22 percent in the fiscal year to date. My memory says that's still below original expectations.

BLACKBAUD EYES SIs .
Blackbaud wants to enlist systems integrators interested in selling, but not implementing, its Financial Edge not-for-profit accounting software line. Systems integrators can still sign up as full-service resellers. But if they enlist as sales agents under the new program, they can get a 25 percent margin on sales and hand off services to resellers. Blackbaud's 43 resellers accounted for about 4 percent of its more than $100 million in revenue last year.

BOB THE TERRORIST .
My favorite letter opener, a Great Plains trophy, is in the shape of a knife, has a sharp edge and also serves as a ruler with the inches marked on the straight side. It also has a good point. So when I left it in my carry-on luggage this month, well, I spent a lot of time with nice folks in security at Newark Airport. It was when I pulled out my Great Plains bayonet that they really gave me a tough time. Moreover, when I was cleaning out my desk, I found my Great Plains Swiss army knife. That's why Microsoft really bought Great Plains, to bring peace to the accounting software market. Reminds me of the time at a Microsoft conference that I found my shirt was a size too small. Upon returning it, I told them that it was a version 1.0 shirt.

VERNI, NOT A ONE-MILLION DOLLAR MAN .
In the last issue, I gave Best Software CEO Ron Verni a significant raise by translating his salary from pounds to dollars, which made it $1.3 million. In fact, it was already in dollars at $720,000 a year. This was his first year as a director, so last year's partial-year salary is not comparable. He also got a chunk of stock options worth more than his salary because it was an initial grant. Okay, the PDF version of the report downloads at 88 percent of actual size. Take a screen that's a little dusty, add a set of middle age eyes … oh well. I also misreported that Ron is getting a lifetime supply of Peachtree software. It was a OneWrite Plus and DacEasy combo pack.

SUPER QUICKBOOKS, NOT BAD ?
There has not been a lot of news about QuickBooks Enterprise Solutions, the souped-up package aimed at mid-market companies that have hung on to QuickBooks. But the story looks more and more interesting as Intuit continues to report sales of 1,000 units per quarter. That is 4,000 per year. Consider that according to the installed base numbers Microsoft gave me (for whatever reason), there were 19,000 installations of all versions of Solomon as of September 2002. There are a number of former mid-market companies that would have done much better with 4,000 units a year. Before this product came out, Intuit said it had 240,000 mid-market users of QuickBooks. If you could convert 2 percent or more a year, you can make a good business doing this. I'm still betting on a new database engine and some more verticals for this line.

ACCOUNTING PUBS ON THE WATERFRONT .
We coulda been contenders, but we've moved from our digs at 395 Hudson Street at the edge of Greenwich Village to the tip of Manhattan where we can see the poor, huddled masses yearning to breathe free. But enough about the morning commute. I think this is where Henry Hudson landed after his British backers found out he was padding his expense account and he introduced the Indians to the cash economy. We're just a block or so from historic Fraunces Tavern where Washington told the troops, "You won't have me to kick around anymore," or something similar in his farewell address. There are no replacements for Rap Watch yet, but I'm thinking of a Wall Street Watch. There are many similarities between rapsters and Wall Streeters. Many are heavyweights; they make a lot of noise; and a lot of them get handcuffed.

RANDOM THOUGHTS .
In the quest sequel, "Ring Around Middle Earth", the Keebler elves depart for the Undying Lands and chocolate chip cookies are no more to be found in the realm of the living. ... And did you see the new country and western Tolkien book, "Hobbit Hoe Down"? ... Howard Dean earns the Gary Hart memorial The Early Bird Gets the Boot Award. ... I think all this publicity about terrorism is having too much impact on kids. At Christmas, I heard a five-year-old singing "Osama in the highest and to all men, pieces of earth." ... Noting the success of John Kerry's account of his war service, "Tour of Duty," President Bush has decided to release his own war memoirs, "Tour of Alabama." ... While in the Cincinnati airport, I noticed that Borders' tourism section had "Kentucky on Ten Dollars a Day." They give you a welfare check and a six-pack. ... Also saw the sign for a store called, "Artistic Taxidermy" in Lawrenceburg, Ind. They have a fox and deer performing the pas de deux from "Swan Lake Ballet". That reminds me of medical arts buildings, places where they sculpt livers and pancreases.

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Consulting Insights February 20, 2004 (next issue mails March 5, 2004)
By Bob Scott, Editor
bob.scott@thomsonmedia.com

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