H&R Block Inc.'s hasty retreat from the personal finance software business sends a cautionary message to companies aspiring to play key roles in home banking.
If you can't stand the competitive heat, Block seems to be saying, then just get out of the way.
H&R Block announced last week that its Block Financial Corp. subsidiary has put Block Financial Software up for sale.
Block is selling the unit, formerly Meca Software and best known for its Managing Your Money computer program, after owning it for a little more than a year.
Block officials say they decided to sell the business because personal finance software does not mesh with the organization's focus on tax preparation and on-line services.
Industry observers read the move as an indication of the extremely intense competition in the still emerging market of computerized financial services.
Since acquiring Meca Software in late 1993, Block had been striving to align the activity closely with banks, emphasizing its willingness to look after the banks' interests against anticipated assaults from the likes of Microsoft Corp. and Intuit Inc.
Microsoft announced an agreement last October to acquire Intuit and its market-leading Quicken personal finance software for $1.5 billion. The deal, still pending and under regulatory scrutiny, led many bankers to conclude - and Microsoft and Quicken to deny - that the two software giants would make a play for consumer banking relationships.
Block's message went over well. It forged alliances with Visa International and Interactive Transaction Partners - a joint venture of Electronic Data Systems Corp., U S West, and France Telecom - to help deliver home banking services.
NationsBank Corp., a participant in the Visa Interactive home banking system, has said it will continue with plans to roll out Block's Managing Your Money package to its home-computer customers by midyear.
But the Microsoft-Intuit announcement changed the home banking and personal finance landscape, raised the stakes, and underscored the high costs involved in playing for keeps.
"My tactical (aim) was to refocus Managing Your Money to being in the bank client software business," said Bill Anderson, president and chief executive officer of Block Financial Corp. "We never intended to be a custom software house."
As it moves to leave the personal finance software arena, Block stands to benefit from the rising cost of entering the business, and the perception that its existing package would be a relative bargain. Using the Intuit price as an indicator, one source said Block officials can expect a quick and tidy profit by selling a business it bought for a reported $45 million.
The source suggested that Block might also be seeking to offset the millions of dollars it is losing as consumer advocacy groups and regulators crack down on the high-margin business of refund anticipation loans to taxpayers.
Edward Furash, president of the Washington-based consulting firm Furash & Co., said Block may well have decided to cut its losses. The software unit had been steadily losing $6 million to $7 million a year, although Mr. Anderson said its performance improved after the Meca acquisition.
Mr. Furash said H&R Block, with $1.2 billion of total annual revenue, may not have felt its pockets were deep enough to compete with a giant like $5 billion Microsoft. Further, the product had not received a strong enough market reception to distinguish itself from other financial software offerings.
"If this were a blockbuster product," Mr. Furash said, "I doubt (the unit) would be on the market."
Mr. Anderson said Block has been approached by about 40 potential buyers, including a few banks. Salomon Brothers Inc. is negotiating the sale.
Various experts say that though a handful of banks with savvy in electronic services - such as Citicorp, NationsBank, and perhaps even Mellon Bank Corp. - may be in the running, the ultimate buyer is more likely to be found among the nonbank service companies edging into the market.
These bidders may include AT&T Corp., Deluxe Corp., American Express Co., Electronic Data Systems Corp., and Reuters - which may use the software to expand its Reality Technologies product line - and Lotus Development Corp., which was rumored to have been courting Intuit before Microsoft.