Gates’ Brave, New World of Finances

Just how serious is Microsoft about its future in the multitrillion-dollar personal finance marketplace?

“Well,” says Scott Cook, who simultaneously became the software juggernaut’s latest centimillionaire and its first vice president of electronic commerce when Microsoft acquired his Intuit for $1.5 billion, “the idea of Microsoft buying a bank is kind of loony.” That should come as a welcome relief to Alan Greenspan.

Then again, like a bank, Intuit offers a credit card to complement customers who use its popular Quicken brand of checkbook software. So when will Microsoft credit cards--replete with frequent-flier, frequent-caller and frequent-on-liner tie-ins--start popping up in people’s wallets and purses?

“Microsoft is not going to have a credit card,” insists Cook.

Why not? After all, what’s strategic for Intuit and AT&T; ought to be at least as strategic for Microsoft.

“We want to support everyone else’s credit cards,” Cook says. That should come as a welcome relief to the folks at Visa and American Express . . . or maybe not.

Microsoft doesn’t enter markets with the goal of becoming a profitable niche player; it enters markets with the intent of redefining and dominating them. The Intuit acquisition neatly crystallizes Bill Gates’ latest intuition: peddling client-server software is nice and video games may be good at sucking discretionary dollars out of asocial adolescents, but the real money will be found in managing money. Personal finance--not interactive entertainment or high-bandwidth groupware--will be the “killer app” of the next decade, the one really useful thing that will get millions of people to buy a new technology.

Consequently, while Microsoft may not become a bank, an insurance company or a mutual fund, it is clearly prepared to invest billions to become a new kind of financial institution. Microsoft’s failures--despite tremendous resources--to turn its own personal financial software into a market leader have now been completely obscured by its ruthlessly pragmatic decision to acquire not only Intuit but Scott Cook’s vision as well.

“Simply stated,” says Cook, “our goal is to revolutionize how people manage their financial lives.”

But how will the Microsoft that dominates desktop operating systems evolve into a Microsoft that dominates desktop personal finance? Clearly, the answers will be found as much in the networks Microsoft creates as in the software it designs. Indeed, it can fairly be said that the evolution of personal finance in America over the last 25 years is as much the byproduct of new network technologies as the result of deregulating old financial institutions.

Under the leadership of Dee Hock in the 1970s, for example, technology enabled the regional BankAmericard to be transformed into a global Visa; banks collaborated to create a technical standard for credit transactions and settlements. The 1980s saw an explosion of automated teller machines--in no small part due to the recognition that networks of ATMs made more sense than each bank having its own proprietary technology.

By contrast, reservation systems like American Airlines’ Sabre created new kinds of competition in the travel industry that gave a competitive edge to the network provider. More recently, mutual funds and banks have begun offering touch-tone transactions for their customers.

All of these technologies have combined and converged to create the infrastructures for today’s overwhelming array of personal financial services. Intriguingly, these network technologies frequently demand new organizational structures to manage them.

But the technical infrastructure for fulfilling Scott Cook’s vision of revolution does not yet exist. The financial service companies don’t yet understand software, and the leading on-line service companies don’t yet understand financial institutions.

H&R; Block--which owns CompuServe--has recently acquired MECA, a leading personal finance software house, but it’s not clear if and how the two might be combined. There’s a huge infrastructure gap. That’s the marketplace Microsoft wants to create, define and dominate.

Microsoft, Cook predicts, will become an “honest broker,” a digital intermediary that will let individuals virtually sample mutual funds, annuities and other financial instruments on their personal computers as if they were shopping in a financial services mall. “Mall is an old-fashioned metaphor,” he says, “and I think we need to come up with a better one.”

In fact, picking the right metaphor is Microsoft’s real challenge. Cook promises that Microsoft will work cooperatively and collaboratively with financial service companies to help build this infrastructure. But does Microsoft want to become like Visa, coordinating a consortium of hundreds of financial institutions? Or does it want to be more like American Airlines’ Sabre--a proprietary transactions network? Or does Microsoft expect to set the personal financial operating systems standards for Bank of America and Citicorp, much as it does computer operating standards for IBM, Compaq and thousands of independent software developers?

Bill Gates has shown himself to be good at everything except creating the kinds of alliances needed to build the personal finance infrastructure. And the Justice Department is likely to look askance at any effort to buy the infrastructure and control it--the kind of alliance building Microsoft seems to prefer.

So the question becomes whether Microsoft has really bought into Scott Cook’s more cooperative vision and plans to let him implement it--or whether the software giant really is, as its rivals insist, seeking nothing less than world domination.