Intuit to Pay a Mint for Unclear Gain

Intuit Inc. and Mint Software Inc. both appear to have struggled to generate revenue from online personal financial management software. Teaming up might help them succeed in a market where neither could thrive alone.

Though the Mountain View, Calif., companies have both built strong brands — Intuit offers the popular Quicken desktop PFM software, and Mint's free online service has attracted 1.5 million consumers — some have criticized their efforts to generate revenue from online PFM services. And rivals such as Wesabe Inc. and Geezeo Inc. have been adamant that the way to make money in this space is to license their financial management software to banks.

But Mint has resisted this model, in favor of recommending financial products to consumers and earning referral fees when consumers choose to follow its suggestions and open new accounts. On Monday, Mint announced it had agreed to sell itself to Intuit for $170 million.

But even with Mint set to have a new deep-pocketed parent, analysts were skeptical that its business model would deliver significant revenue from its two-year-old Web site, which enables users to track their finances and manage their spending.

"There's no question here that Intuit bought the product and the customer base, not the business model," said Jacob Jegher, a senior analyst at Celent.

A drawback to Mint's business model, Jegher said, is that consumers are not open to repeatedly switching bank and credit card accounts. As a result, Mint gets most of its money from each user when they first join.

"Mint's business model is questionable in the sense that they are basically making money off of referrals … it's a one-shot deal," he said. "Where is the recurring revenue?"

Aaron Patzer, Mint's founder and chief executive, said that Mint's business model is sound, and that the scale of Intuit would help his company expand its user base.

"Right now, Mint's business model is we only make money if we can save the user money," Patzer said in an interview Tuesday. "With Intuit, you can apply that same savings engine across a bunch of Intuit properties, and it essentially allows them to monetize a bunch of free products."

Patzer said Mint expects to introduce a feature next month that will monitor bank account rates, potentially generating subsequent referral fees on existing Mint users.

Patzer would not disclose Mint's revenue figures.

Edward R. Woods, principal of Mindful Insights LLC, said that even if Mint generates more fees from users, earning revenue from referrals is unlikely to be as lucrative as licensing software to banks.

Woods said the prices banks could pay to use a vendor's PFM software could vary widely. Small financial companies could pay as little as $20,000, but for bigger banks, "you can quickly go into the millions, depending on the depth of the functionality and the scale that it has to provide."

Intuit said the cash deal is expected to close in the fourth quarter. Intuit said that the acquisition would lower its diluted earnings per share guidance by 3 cents for fiscal 2010, and that would not "have a material effect on fiscal year 2011 earnings."

Mint and its rivals once looked quite similar, offering free online financial tools to consumers.

However, Geezeo changed its model this year in favor of licensing its software to banks. Peter Glyman, a co-founder of the company, said he realized referrals would be unsustainable because consumers were coming to his Web site for the wrong reasons.

"It wasn't so much that people were seeking out Geezeo or Mint or any other PFM because of who we are," he said. "It was more because they weren't getting it at their financial institutions."

Online PFM providers have reported significant gains in usage this year, in part because the poor economy and rising unemployment have prompted consumers to keep better track of their finances.

Intuit has made several attempts to duplicate online the success it has had with its Quicken desktop software. Its Quicken Online service, launched in January 2008, initially carried a monthly fee and targeted Quicken users. By October 2008, Intuit had dropped the fee and revamped the product to appeal to different users.

Intuit also offers a PFM product called FinanceWorks that banks can host on their Web sites. This too suffered some early hiccups, and by the time the product went live Intuit had replaced the original code with a modified version of the Quicken Online software.

Patzer said FinanceWorks is "maybe the biggest opportunity" for Mint. He plans to implement Mint's Ways To Save recommendation engine with FinanceWorks, so that Intuit banks can use Mint's software to cross-sell their own products.

When the acquisition closes, Patzer is expected to become the general manager and head of Intuit's personal financial division.

Woods said that whatever the benefit to Intuit, Mint is the chief beneficiary in this deal.

"Something had to change," Woods said. "It doesn't appear on the outset that" Mint's business model "would be sustainable at the clip that they were growing. Monetizing would require a transaction like this."

Scott Gulbransen, an Intuit spokesman, said: "Mint's model today is not going to change. Could it be added to? Perhaps."

One option is that Mint's existing revenue system will be applied to existing Intuit products; these choices will be Patzer's to make.