Making Mint.com: Aaron Patzer on the one-click future of personal finance
Which is not terribly surprising. In a valley of hyper-focused achievers, he's one of the more focused people I have ever met. During a span of roughly two years, Patzer had completely upended the staid and massive personal-finance software movement.
He had also scared the incumbent giant Intuit (INTU) into buying Mint for $170 million in September. (As a measure of the hotness of Mint, a vocal-yet-influential minority castigated Patzer for selling out cheap -- in the middle of the worst economic downturn in 50 years and for an all-cash offer.) The deal was completed on Monday.
Patzer himself likely took home 30 percent of the $170 million final transaction, roughly his holding at Mint.com, where he had been careful not to dilute his own position. True, he has to hit some performance benchmarks before he gets his full share. But not a bad haul for two years work.
I sat down with Patzer a week ago to discuss the deal: how it happened, what it means and his visions for the online personal finance market in the near future. We talked about how Mint could create a system of one-click tax returns, how it could help you get a better deal at your gym by telling you what other people are spending there, and even about maglev (for magnetic levitation) personal vehicle systems. (Not a Mint skunk works project, don't worry.)
Online Finance Made Simple
Briefly, Mint is a personal-finance tracking tool that has made it ridiculously easy to do just that. Input the account information for your checking, savings, credit card, home loans and investments, and Mint will automatically categorize every single transaction for you. It can do this more or less in real-time. Mint can also help with long-term financial planning and goals.
Then Mint takes the information and puts together a comprehensive, unified view of what is happening with your finances: how much you owe, how much you spend, how much you spend each month at Starbucks (SBUX), how much you spent last year on travel.
The categorization engine isn't perfect, but it takes most of the drudgery out of tracking expenses and makes it much easier to see eye-popping trends. In fact, users can set up Mint to warn them about large transactions, a feature that can make it much easier to spot early signs of identity theft. I'm a heavy Mint user, and most of the people I know in Silicon Valley are using it.
Meandering Path to a Powerhouse
While no one said it, the Intuit deal was partly an acquisition of Patzer's brain and an admission of defeat. The peripatetic CEO had gone to Duke University, where he'd worked as the lone undergrad on a team building a chip to process genetic sequences. He then started graduate school at Princeton University, where he worked in advanced optical networking technologies and took a masters, but decided not to pursue a Ph.D. Patzer next worked at IBM (IBM) in Austin, helping to design what became the Cell 3 processor -- the main engine inside Sony's (SNE) PlayStation game console.
Throughout this time, Patzer contemplated launching his own business. It wouldn't be the first time. He had started his first company at age 16, a Web development firm. He had also run an early version of a search engine optimization company. Running those businesses was where Patzer got an early taste of personal-finance software. "I used to use Quicken on Sundays to balance out my transactions for my businesses and my personal finance," he explained.
Then, after taking a month away from using Quicken due to a heavy workload in a semiconductor design tools software startup, Patzer fired up the software and found 500 uncategorized transactions. "It would have taken me all afternoon to sit there and balance everything. The desktop tools only updated when you opened the program. And I realized more and more that Quicken doesn't categorize transactions accurately, so I can't get this a nice pie chart showing what I am really doing," he said.
Patzer decided fixing Quicken would be his startup. He officially launched Mint.com in September 2007 and won immediate accolades.
Over the course of the next year Intuit upgraded Quicken.com, its online offering. But it struggled and failed to match the performance of Patzer's team at Mint.com. The secret? Patzer & Co. correlated transactions with Yellow Pages listings and then used sophisticated matching algorithms that parsed the transaction entries and made best guesses at the actual identities and name of the businesses. "Quicken had something like a 75 percent transaction identification accuracy rate. We were closer to 92 percent or 93 percent. And we had a much better customer-retention rate," explained Patzer.
Why and How Patzer Sold
Patzer is now the general manager of Intuit's personal finance division, a sprawling multibillion dollar unit that has completely dominated the segment between its Quicken and TurboTax product lines. Dominated, as in, forced Microsoft (MSFT) to shut down its own personal-finance software products after decades of efforts. Quicken's boxed software still reigns supreme in revenues, dwarfing the eight-figure revenues Mint is bringing in primarily with lead generation to credit card companies and insurance companies.
But the acquisition of Mint and Patzer's brain was a clear indication that Intuit and its CEO Brad Smith know which way the wind is blowing as more and more personal finance goes online and to a software-as-a-service model. Intuit had initially contacted Patzer in the fall of 2008 and asked if he might be free to discuss potential partnerships. "But aren't we competitors?" was Patzer's reply.
The channel went silent until later that year, when Patzer got a nasty letter from Intuit's legal department demanding that he cease and desist on marketing claims that showed astronomical growth of 3,000 new users per day. This was an unusual request with little legal basis, particularly since Mint actually was growing that fast. The conflict, highlighted on tech blog TechCrunch, further highlighted Mint's advantages over Quicken.com.
Quite a Bit in Common
At that point, Patzer figured he was in for a long battle with Intuit. Then, in the late spring, CEO Smith called Patzer and apologizes. "He called me up. He said 'I'm sorry about it, it was dumb of us. I didn't authorize it. We've taken you as a model on how we can innovate in an area we had thought was dead. You've been a wake-up call for us.'" said Patzer. When the two CEOs actually did sit down a few weeks later, they found they actually had quite a bit in common. "I am a small-town guy from Indiana. He came from a small town in West Virginia. We got along fine. When we talked about where the industry was going, we agreed on most things," says Patzer.
Smith put out an open-ended acquisition offer. "He said, we are trying to transform ourselves from a desktop company to one that is more software-as-a-service with a subscription base. We've done that with TurboTax. Would you be open to an acquisition?" says Patzer. "The truth is, I had never thought of it. You work so hard and things move so quickly in a startup, and then you look up and you have millions of users."
Patzer brought the idea to his board of directors and admitted there was some hesitation over accepting the offer. "I thought it over, and it made a lot of sense for me and for my employees. It was a good offer, considering the times. It also made strategic sense. There is always reluctance to join a big company. As in, 'Oh, we're going to be bogged down.'" Patzer admits.
"But when I talked to Brad Smith about what they were doing, he got it. For example, they bought PayCycle, a cheap-and-easy online payroll service. If I were in their shoes, I would have done the same sort of things. The top management is very shrewd about what they want to do going forward. And the company is very well run financially. Even in the stock market crash, they are down only 8 percent."
Minting a New Future: One-Click Tax Returns
Patzer also believes Intuit's scale will help Mint.com achieve things it wants to do. "There are certain economies of scale. The more users we have, the more data we can get. Right now, we only have enough data to be statistically significant for cites of over 100,000 people. But if you have 10 million users, you have a sample point down to the neighborhood level. That's very powerful. And with a higher numbers, the more leverage you have with banks or credit card companies to broker good offers for your members. If we say we can deliver you 4,000 customers, that's not much. If we can deliver 100,000 customers, it gives us huge leverage as a market maker," says Patzer.
Which brings us to some of the more far-out future possibilities for Mint. First, there's the obvious. Patzer wants to take Mint and Intuit global (about 95 percent of Intuit's revenue is in the U.S.).
He's also envisioning a one-click tax return service that would grab all the necessary data from Mint and move it into an online tax-preparation system. To do this, a Mint user would need to properly mark items as tax-related and deductible. They would also need to have Mint track their mortgages and investments, both of which are already features.
The only missing pieces, he says, are the W-2s or tax forms that users might need to enter manually. "Literally, it could be one click, and you have most of your taxes done. That would be a very powerful proposition. It also could introduce ways to up-sell. Users could do a 1040EZ for free, but would have to pay more for more complex forms. And with something like TurboTax, we are going to be able to do powerful cross-marketing promotions. Think of the message: Use Mint and you'll have the benefit of having half your taxes done for you," says Patzer.
Hints of Mint's future strategy and benefits are beginning to appear in dribs and drabs. "We've started to do some experiments. If you were in the top 20 percent spending for auto insurance, we might send you a little alert saying 'Hey, you spend more than 80 percent of the average Mint users.' And we can then connect them with better auto insurance deals." This role of market-maker implies a powerful future for Mint as an intermediary and buyer's advocate.
Another emerging role is provider of key economic data based on fine-grained spending patterns. Mint has started to release data to a handful of media outlets and is planning to do more of this, including efforts to track consumer electronics sales during the holiday season. Of course, some organizations pay lots of money for this type of data, and Patzer remains coy on his exact plans in this area.
If I Built a Car
As a parting question, I asked Patzer what type of business he'd like to start next, maybe in five or 10 years. He didn't hesitate. "Personal magnetic levitation transportation systems. Trains are huge and expensive, and if you miss them by 30 seconds, then you are 30 minutes late. Cars can go anywhere at any time. But they sit idle 95 percent of the time. And they pollute. I think we could do a system that combines the best of both worlds using magnetic levitation pods. We could blanket an area with pods that weigh 400 pounds," says Patzer.
"They could zip along an elevated magnetic line held up by standard utility pole. All the pods would be computer-controlled and could travel at 300 miles per hour. It would eliminate all traffic, all accidents. You would get hours of your life back each day because you would get places much faster. You would only need one-tenth as many as cars. It would be there whenever you needed them. And it would use less energy."
I noted that it sounded a bit more hardware intensive than Mint.com. Patzer agreed. I told him my 6-year-old son's favorite book is "If I Built a Car." Patzer smiled and nodded deeply.
Alex Salkever is Senior Writer at AOL Daily Finance covering technology and greentech. Follow him on twitter @alexsalkever, read his articles, or email him at firstname.lastname@example.org.