Justice Department Blocks Microsoft’s Acquisition of Intuit

question 50

Essay

Justice Department Blocks Microsoft’s Acquisition of Intuit

In 1994, Bill Gates saw dominance of the personal financial software market as a means of becoming a central player in the global financial system. Critics argued that, by dominating the point of access (the individual personal computer) to online banking, Microsoft believed that it may be possible to receive a small share of the value of each of the billions of future personal banking transactions once online banking became the norm. With a similar goal in mind, Intuit was trying to have its widely used financial software package, Quicken, incorporated into the financial standards of the global banking system. In 1994, Intuit had acquired the National Payment Clearinghouse Inc., an electronic bill payments system integrator, to help the company develop a sophisticated payments system. By 1995, Intuit had sold more than 7 million copies of Quicken and had about 300,000 bank customers using Quicken to pay bills electronically. In contrast, efforts by Microsoft to penetrate the personal financial software market with its own product, Money, were lagging badly. Intuit’s product, Quicken, had a commanding market share of 70% compared to Microsoft’s 30%.

In 1994 Microsoft made a $1.5 billion offer for Intuit. Eventually, it would increase its offer to $2 billion. To appease its critics, it offered to sell its Money product to Novell Corporation. Almost immediately, the Justice Department challenged the merger, citing its concern about the anticompetitive effects on the personal financial software market. Specifically, the Justice Department argued that, if consummated, the proposed transaction would add to the dominance of the number-one product Quicken, weaken the number two-product (Money), and substantially increase concentration and reduce competition in the personal finance/checkbook software market. Moreover, the DoJ argued that there would be few new entrants because competition with the new Quicken would be even more difficult and expensive.

Microsoft and its supporters argued that government interference would cripple Microsoft’s ability to innovate and limit its role in promoting standards that advance the whole software industry. Only a Microsoft–Intuit merger could create the critical mass needed to advance home banking. Despite these arguments, the regulators would not relent on their position. On May 20, 1995, Microsoft announced that it was discontinuing efforts to acquire Intuit to avoid expensive court battle with the Justice Department.
-Explain how Microsoft's acquisition of Intuit might limit the entry of new competitors into the financial software market.

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Definitions:

Return on Investment

A financial performance measure used to evaluate the efficiency or profitability of an investment, calculated as the net profit divided by the cost of the investment.

Investment Opportunity

An asset or item that can potentially generate a significant return or profit through appreciation, dividends, or interest.

Operations

The day-to-day activities involved in running a business, focusing on producing goods and services efficiently and effectively.

Variable Maintenance Costs

These are expenses that fluctuate in direct proportion to the level of activity or production, such as the costs of repairing machinery which increase with more intensive use.