Windows Tips Software Firms' Power Balance

G Pascal Zachary, Staff Reporter
The Wall Street Journal

September 28, 1990

The rapid acceptance of a new version of Microsoft Corp.'s Windows is changing the balance of power in the $6.5 billion business of supplying software applications for personal computers.

Windows is expanding the domain of Microsoft while constraining the growth of Lotus Development Corp. and WordPerfect Corp., currently the two largest applications suppliers.

Microsoft's Windows program adds a set of graphical commands to DOS, the basic software that controls the operations of International Business Machines Co.'s personal computers and compatibles. Instead of controlling applications through keystrokes and strings of letters, users of Windows can choose commands from menus and point at icons to launch operations, such as a picture of scissors standing for a command to delete information. However, new applications -- such as spreadsheets or word processing programs -- are required to take full advantage of Windows.

Lotus and WordPerfect were caught without their flagship products tailored to the new version of Windows when Microsoft introduced it in May. Now they are starting to pay a price as sales of both Windows and Microsoft's applications for it are taking off.

"They're losing some of the new market for applications because they didn't realize how important Windows would be or how quickly it would catch on," said Andrew Seybold, an analyst at Dataquest Inc., a market researcher. Both Lotus and WordPerfect say they'll ship Windows versions of their most popular applications in the first half of next year.

WordPerfect, which supplies the most popular DOS word processing program, acknowledges that it is losing business because it lacks a Windows version of its word-processing program. "Windows is taking away incremental growth we would have had through the end of the year," said Willard E. Peterson, executive vice president at WordPerfect, a closely held firm that expects $425 million in revenue this year.

Mr. Peterson added that he believes he can regain lost share with a solid Windows product next year, but "if we should do a bad job, our sales will level off or drift down."

Lotus, which has a networking product called Notes but none of its popular spreadsheets on Windows, said it is too soon to gauge the effect of Windows on its business. But Jim Manzi, Lotus's chief executive officer, said "getting out our Windows applications is the most important project at the company."

Other software suppliers without Windows applications also are feeling the pressure.

"It's very clear that every major account is evaluating Windows, and they've all called me in to explain my Windows strategy," said Fred Gibbons, chief executive officer at Software Publishing Corp.

Mr. Gibbons said his concern, one of the 10 largest suppliers of PC software, plans in its coming fiscal year to spend more money on Windows development than any other applications projects. In the year ending Sunday, the company spent virtually nothing on Windows development.

With interest in Windows running high, companies that offer Windows applications are drawing buy-out offers from larger competitors. Earlier this year, for instance, Mr. Gibbons offered to acquire Micrografx Inc., which supplies two Windows graphics programs, for $80 million in stock, according to J. Paul Grayson, Micrografx's chairman. Mr. Grayson said he refused the offer and his firm later completed a public stock offering. Mr. Gibbons declined to comment.

Some customers are so enthusiastic about Windows that they've even stopped entertaining sales pitches from software companies that don't offer Windows applications.

"If a company doesn't have any Windows applications, I don't even want them to visit," said Darrell Owen, who heads an office automation group for the Bonneville Power Administration in Portland, Ore. Mr. Owen said he recently refused to see salespeople from Lotus and Ashton-Tate because neither were peddling Windows applications.

Prospects for a sea-change in the word processing and spreadsheet markets -- the two biggest in PC applications -- isn't likely, however, provided Lotus, WordPerfect and other suppliers of popular DOS applications can quickly deliver Windows versions of their products. Most customers say they don't want to abandon products with huge followings, but "the day will come when we will switch vendors if Windows applications aren't available," warns Sheldon Laube, national director of information and technology at Price Waterhouse.

A new study by International Data Corp. underscores this. In a poll of 200 corporate PC users, the company found that more than 60% plan to buy both word processing and spreadsheet software tailored to Windows.

In the meantime, Microsoft hopes to expand its own applications business, which in recent years has grown more rapidly than its bread-and-butter operating software business. William Gates, Microsoft's chief executive, said the company posted "a significant increase" in applications sales in July and August, and he hopes to increase the pressure on competitors next week by offering a bundle of three Microsoft Windows applications at a 50% discount.

Prior to the introduction of the new Windows version in May, many Microsoft competitors were skeptical about its prospects, asserting that OS/2 would emerge as a stronger alternative. But in the past four months, Microsoft has shipped more than one million copies of Windows while OS/2, another Microsoft operating system, flounders. Last week, IBM, one of the staunchest advocates of OS/2, even agreed to license Windows.

Copyright Dow Jones & Company Inc