Google-Intuit Deal Should Bring Many Small Businesses Into the Google Family

Brian Bolan, research analyst at Jackson Securities, released a note to clients regarding the recently announced Google (GOOG) and Intuit (INTU) alliance. His note follows:

Google and Intuit announced a partnership Wednesday that brings together the online search leader and the small business accounting software leader. The implications are far reaching for this partnership and we believe that this deal will be a major driver of revenue for years to come.

Among the highlights of the partnership:

* QuickBook users have access to Google AdWords. For a $5 setup fee, a new customer to Google AdWords will receive a $50 credit to foster further use of the advertising medium.

* Even if the QuickBooks business does not have a website, it can create and manage an online business listing through Google Maps.

* Businesses can make their merchandise searchable on Google through Google Base by enabling users to transfer inventory information to Google Base.

* Google Desktop will also be available in QuickBooks 2007.

Deal Analysis

This deal is likely to be the one that brings many small businesses into the fold for Google, as Quickbooks is the dominant small business software tool. There is a high probability that a Quickbooks user, even one with an existing homepage, will see the opportunity to have an integrated accounting system / advertising and customer generation page all in one easy to use format.

In turn, this will boost the amount of content available to advertising via Google AdSense platform in a meaningful way. The best example would be of a very small business (generally a service related field) that has five or less employees that does not currently have a website but does use Quickbooks. The advantages of this deal will allow that business to create a profile page (think Google Page Creator) list its products / services for sale (think Google Base) and be located easily (think Google Maps). This new content will allow for a myriad of related content or complementary services to be sold as well through the ads on that profile page.

The integration of Google Desktop may not be the most important of features, but it shows where Google is heading next. Working within software programs has been a push for Google, as first witnessed by the deal with Adobe, but this deal has a more small-tomedium size business effect. We expect that Google will continue to seek more non-Microsoft software business partnerships.

We liken this deal to those during the days of Web 1.0 that carried a headline similar to that of “B-2-B Deal Brings Web Services to Current Software Customers” – easily enough for a 20% move in a stock back in the day. Today, we view this as a significant deal that shows that the full complement of Google services (Ad Words, Base, Page Creator, Maps) can be easily integrated into existing systems to help amplify adoption.

As we begin our review of the third quarter and look forward to future quarters, we believe that this deal will result in higher revenues for Google even as the TAC rate is likely to be pushed higher. The revenue sharing portion of this deal is one that should not be overlooked, and while the top line gains will likely be meaningful, the bottom line effect may be less than expected. We will not really be able to gauge the full effect of this deal for several quarters to come, but we believe it is a significant one that will affect the stock over the next several trading sessions.

Disclosure: Jackson Securities, LLC seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.