Yesterday, I spent the day at the Intuit SMB SaaS conference, a great event where 30 companies pitched software developed on the Quickbooks Online platform.

During the conference, I had the opportunity to meet Scott Cook, Intuit’s CEO. He’s a very congenial leader with an inviting demeanor who exudes compassion for the ecosystem of 4M SMBs using Intuit products. He introduced me as the eclectic VC and told the story of how I had to pass my sandwich through an x-ray machine I was working as an engineer at the Department of Homeland Security, a story he picked up in a passing conversation in the green room. We got a few chuckles from the audience on that one.

Before the conference, I researched Scott a bit too. Scott has been at the helm of Intuit since its founding in 1983. In the following ten years, the company would grow Quickbooks to occupy 85% of the market and file for IPO. Nearly 25 years later, Quicken is still the unqualified market share leader in this software segment. That’s staying power.

In between startup judging sessions, I had a chance to write notes on all the products entrepreneurs are building on top of the QuickBooks online platform: expense management, hiring, invoicing, income analytics and forecasting, fleet management, anti-fraud tools and many more

It’s rare to find any company that is able to build a product which garners tremendous market share. Rarer still is the company that is able to build and nurture an ecosystem around it. You can count examples on just a few fingers (Facebook, Salesforce, Intuit, Google, Apple …)

These companies have all started by creating databases essential to the success of their customers. Companies like Intuit and Salesforce have collected company financial and sales data. Google collected a public dataset, provided the simplest access to it and eventually built an advertising ecosystem. Facebook collects data, photos and updates about friends and opened an application ecosystem around it. Lastly, Apple’s success is driven by the single richest content database in the world and the 200M credit cards to pay for access.

These kinds of ecosystems are incredibly difficult to displace for obvious reasons: they are the gatekeepers to the most valuable data sources. To build such an ecosystem, a company must first collect the data and then nurture an ecosystem around it. In Intuit’s case, Quickbooks is the financial operating system for businesses. From the first order value proposition of collecting financial data eventually blossoms the second order value proposition of extending this data into other workflows necessary to the business.

The effect that allowed Facebook to grow quickly is the network effect, friends inviting each other, eventually increasing the network size exponentially. You could bend the concept to apply to these other ecosystems, but it wouldn’t apply neatly. After all, Intuit won its customers one at a time.

The motive force behind Intuit’s market power is much better called an ecosystem effect, whereby Intuit captured the most valuable part of the ecosystem, the data root system upon which other services could eventually be built and allowed a software ecosystem to flourish atop.

Ecosystem market power makes for very successful companies. I’m going to keeping my eyes out for companies who are targeting this kind of go-to-market. Let me know if you see other examples.

Posted in: AnalysisComments Off on The ecosystem effect: thoughts from the Intuit SMB SaaS conference