Reckon Limited (ASX: RKN) has announced that its licence with Intuit to sell Intuit’s products will be terminated on 10th Feb 2014. After 2014, Reckon will not have access to the Intuit brands – including Quickbooks and Quicken. Reckon’s Business division brings in 62% of revenues ($55.8m according to 2011 report). Of that, 55% relates to Quickbooks/Quicken products.

No wonder Mr Market hammered the shares, down 10% on 22nd March 2012, and down almost 4% in early trade today.

While it saves Reckon $6m in annualised royalties, the company will need to spend more to develop its own products and services further, as well as losing revenue from Intuit products.

CEO Clive Rabie said “The sharemarket is not our primary consideration. We had to decide what is in the best interests of our business.” And I applaud him for doing so. More CEO’s should pay less attention to their company’s share price and more attention on their business.

Rationale

One of the issues for making the decision was that user data hosted by Intuit’s products would be held offshore in Asia, meaning that data would be subject to the legal jurisdiction of the country in which it was hosted. Reckon didn’t want to go down this track, and this contract termination appears like a smart move.

Another issue was with localised changes to the online programs. Reckon don’t have complete control over the product, so changes take much longer to be implmented.

Where to from here

The company will also focus more on subscription based services, rather than “buy once, own forever” licenced software, which means more recurring revenues. Reckon will have to market its own versions of Intuit Products and not use Intuit product names. Instead it will pursue its online products and services such as:

  • Quickbooks Hosted (which will have to be renamed), giving end users and their accountants or bookkeepers the identical functionality to desktop products but with all the benefits of a cloud offering.
  • Reckon Cashbook Online, targeted at smaller end users.
  • APS Private Cloud which enables accounting practices to host all their software requirements in the cloud.
  • A POS (Point of Sale) product as a cloud offering.
  • Elite Practice Management Software for smaller accounting firms as a cloud offering.

The Foolish bottom line

Reckon have shown that they can produce and market their own products and services. This looks like a logical step to me, and while it might have short term consequences to revenues and profits, in the long run, it’s probably a good move for Reckon the company, as a business.

If you’re looking for ASX investing ideas, look no further than “The Motley Fool’s Top Stock for 2012.” In this free report, Investment Analyst Dean Morel names his top pick for 2012…and beyond. Click here now to find out the name of this small but growing telecommunications company. But hurry – the report is free for only a limited period of time.

More reading

Motley Fool contributor Mike King doesn’t own shares in Reckon. The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Click here to be enlightened by The Motley Fool’s disclosure policy.

OUR #1 DIVIDEND PICK FOR 2016...

Forget BHP and Woolworths. This "dirt cheap" company is growing like gangbusters, and trading on a 5.6% dividend yield, FULLY FRANKED (8% gross). With interest rates set to stay at these low levels for years to come, for hungry investors, including SMSFs, this ASX company could be the "holy grail" of dividend plays for 2016.

Enter your email below to discover the name, code and a full investment analysis in our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2016.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our https://www.fool.com.au/financial-services-guide">Financial Services Guide (FSG) for more information.