TurboTax by Intuit: Taxes don’t have be Taxing
By seizing the opportunities afforded by digital technologies, Intuit redefined how taxes are filled.
With its software TurboTax, Intuit has been a winner in tax preparation in the digital age.
Historically, Americans filled their own tax forms once a year using a hand-held calculator and following line-by-line by instructions from the IRS. The forms were cumbersome, especially for those with multiple income streams, and each error required starting all over again.
The need for help with tax preparation led to the emergence of an industry of tax professionals, some working solo, others in small groups or in national chains such as H&R Block or Jackson Hewitt. While these professionals offered valuable expertise, the process had several flaws and many customers had negative experiences. The customer needed to collect all documents comprehensively beforehand, and the fees were high. Many people procrastinated and then had to squeeze into scarce appointments before the April 15 deadline further adding to the stress. If you forgot or could not locate documentation for income, the tax calculations were inaccurate. Discovery of such income by IRS led to audits with potential for penalties. And, if one did not remember or know about all their possible deductions – such as charitable contributions – and assembled the appropriate documentation beforehand, the customer would not get those deductions.
Michael Chapman at Chipsoft, later acquired by Intuit, disrupted this market by creating a software program, TurboTax that could be sold directly to customers on a computer disc and run on a PC at home. TurboTax created value because it was easier to use than the line-by-line paper instructions and did the math automatically. TurboTax was less expensive than the services of a tax-professional. And, the customers could avoid the anxiety and hassle of visits to the tax-professional’s office. People could complete their taxes in multiple sessions at their convenience in the privacy of their homes. The program made it easier to capture all possible credits and provide the educational value of following the flow of personal income and expenses that could inform future choices in earning and spending. As individual use of the Internet became more widespread, the program also became available online.
TurboTax continues to create value for customers by constantly evolving in response to feedback and new market threats. The program was initially most popular with young people who had simpler tax returns, a do-it-yourself mentality, and were comfortable with computers. The market occupied by commercial tax professionals shrank but did not disappear. Those who were uncomfortable with computers and the Internet, and those with complex tax returns still preferred the security of working with a human tax professional. TurboTax continued to modify its products in response to customer feedback to add the option of a review by hired tax professionals for additional fees and even offers a tax audit defense through linkage with an independent tax form, TaxAudit.com.
Just as imitation is the sincerest form of flattery, some of the strongest evidence of TurboTax’s success lies in the response of their competitors. In the spirit of “if you can’t beat them, join them,” tax-preparation chain-stores such as H&R Block and Jackson Hewitt have now copied the TurboTax model and introduced their own products for tax preparation at home. Intuit continues to compete successfully by paying close attention to quality and cost, and by robust advertising in print, online, and broadcast media, even including the Super Bowl.
But threats continue to emerge. Recently, a group of tax preparation companies formed the Free File Alliance and are trying to partner with the IRS to provide partially free electronic tax filing programs such as TaxAct to the public. Another such effort is called “The Simple Return” in which the IRS would send individual taxpayers partially-filled returns prepopulated with the information they already have from employers and financial institutions. The taxpayers would edit and complete the return and send back to IRS for free. Such programs are already being used successfully in Europe and for state taxes in California. Intuit’s future prosperity will require continued innovation and adaption to changing circumstances, as their recent mobile offerings represent. And some defensive practices would not hurt. Intuit has an active, well-funded program to lobby Congress against efforts by the federal government to offer free filing of returns to tax payers.
By using advances in technology to create and capture value, Intuit emerged and survives as a winner in the digital revolution.
Sources:
[1] http://articles.latimes.com/1993-09-02/business/fi-30906_1_intuit-stock
[2] https://www.propublica.org/article/how-the-maker-of-turbotax-fought-free-simple-tax-filing
[3] http://inequality.org/great-divide/call-boycotting-turbotax/
[4] https://www.vox.com/2016/3/29/11320386/turbotax-boycott-lobbying
[5] https://web.archive.org/web/20090516184756/http://people.forbes.com/profile/michael-a-chipman/12618
Thanks for the post Jay. I wonder if there is another type of competitor that could come in. Just as Robinhood has done with the investing world, I wonder if something similar might disrupt turbotax. By nature, the have a very sticky product. I just wonder as time progresses is there might be an easier alternative.