This Upstart Wrote The Book On Electronic Publishing

Information Processing

Interleaf's Boucher Celebrates His New Headquarters -- With A Cake

Companies Are Using Computer Systems To Save Millions On Document Production

Barbara Buell in Cambridge
Business Week

March 17, 1986

The job was big and the stakes were high when GTE Corp.'s Strategic Systems Div. won a $325 million contract to draw up specifications for the Defense Dept.'s MX missile command system back in 1980. Even though GTE engineers had five years to do it, the task was overwhelming: to write two million pages of technical documents, complete with mathematical formulas and design graphics.

Hiring 100 people to type all this--and then retype it after each of four separate management reviews before sending the material to the printer--would have cost about $1.8 million. Instead, GTE bought a so-called electronic publishing system that held the cost of this pre-press work to $650,000. Says Russell J. Hall, who manages the division's in-house publishing: ''Electronic publishing is the only way to go.'' In-house publishing won't drive many printers out of business. Color printing and sophisticated binding, while possible with some new systems, are still prohibitively expensive. But, like GTE, many companies are finding the do-it-yourself approach much more efficient for most jobs. Despite the computer slump, the market for equipment used in electronic publishing zoomed from relative obscurity in 1983 to $473 million last year (chart). Some analysts guess that it could catapult to $4 billion by 1990. With only 50% of the documents cranked out by major U. S. corporations now done by computer, electronic publishing ''has enormous potential,'' says Arlene E. Karsh, director of computer publishing systems at market researcher C. A. Pesko Associates Inc. in Marshfield, Mass. By 1990, she adds, ''Plain Jane typewriter output will go away.'' That's because electronic publishing saves money. Analysts estimate that preparing technical documents electronically in-house costs less than half the $300 per page currently required to do the same job manually. One reason is that hundreds of pages can be stored in a workstation and updated easily--without repeatedly sending fixes to a printing company. For jobs that don't have to be letter-perfect--staple-bound reports or in-house brochures, for instance--an electronic system can do everything from producing charts, pictures, and commercial-quality text to printing and binding the finished product.

Companies generally use electronic publishing at two levels. Desktop publishing systems, built around a personal computer, are for the simplest projects. At $10,000 to $30,000, they seem to be the fastest sellers, analysts say. So-called technical publishing is a more complex approach. It uses more powerful and expensive workstations and software--$50,000 and up--to prepare technical or service manuals or even company handbooks for production by an outside printer or an in-house print shop. Sometimes, the systems overlap. For example, desktop systems can be hooked up to minicomputers to handle documents hundreds of pages long.

The growing popularity of these products is beginning to spawn fierce competition among computer makers. Three of the leaders among the 150 mostly small rivals in the electronic publishing industry are holding their edge. Interleaf Inc. is growing quickly (box). And although analysts say that Xyvision Inc. in Woburn, Mass., and Texet Corp. in Arlington, Mass., face potential trouble because their software runs only on their proprietary hardware, both claim to produce higher-quality documents than other, generic systems do.

'NUMBER-CRUNCHERS'

Still, some big companies are closing in fast on these privately held startups. A survey of 267 customers completed this month by Cambridge (Mass.) market researcher InterConsult Inc. found that 19% thought of Xerox Corp. as the market leader in 1985. Xerox has a wide range of products--from $450,000 systems down to a new desktop model that it expects to start selling later this year, probably for around $10,000. Eastman Kodak Co. entered the market last year with a system for technical and office documents that is stitched together with equipment from other suppliers. Apple Computer Inc., second to International Business Machines Corp. in the personal computer market, is betting it can outperform IBM in desktop publishing with its Macintosh computer, software, and Laserwriter printer.

IBM isn't sitting still. Its Personal Computer family has been held back by a lack of standard publishing software. But that's about to change. A number of independent software companies are attacking the problem. Ventura Software Inc., of Morgan Hill, Calif., plans soon to introduce a $695 desktop publishing package for IBM's PC-XT and PC-AT computers. Big Blue's sheer marketing strength could help it make quick headway. More than a third of the companies polled by InterConsult said they expect IBM to be the dominant maker of electronic publishing systems by 1990.

Eventually, IBM plans to sell a full range of publishing products that can tie together the mainframe and minicomputers in an in-house print shop with departmental workstations and desktop publishers. IBM's RT-PC workstation, unveiled in January, already runs with software from Interleaf Inc. Electronic publishing ''has a very high priority,'' says Ronald H. Eich, IBM's page-printer product manager. But not everyone thinks IBM will overpower the pioneers in the business. ''IBM is not quite sure what technical publishing is all about,'' scoffs GTE's Hall. ''They're number-crunchers.''

ELEVENTH-HOUR SAVE

Within the computer industry, the personal computer segment may be most likely to benefit from electronic publishing. ''Most personal computer sales are not justified in hard dollar costs,'' says Jonathan W. Seybold, president of The Seybold Report on Publishing Systems. ''But desktop publishing can be.''

One challenge for computer makers will be to sharpen their marketing approach. While electronic publishing's merits are relatively easy to sell, the vast array of machines tends to stymie customers. Do they need a high-powered workstation for fancy charts on executive reports or a cheaper desktop system that may not work as rapidly? Concedes Laurence S. Liebson, chairman of Xyvision: ''There's a lot of confusion in this marketplace.''

Jesse R. Lovejoy is one customer who isn't the least confused. A partner at Lazard Freres & Co., the New York investment house, Lovejoy was recently reviewing advertising copy for a client embroiled in a union-management fight. He decided--just an hour before the ad deadline--that the copy could damage his client and had to be rewritten. The firm's in-house publishing system produced camera-ready copy that would have taken hours to deliver had it been sent back to an ad agency, redrafted, and typeset. Without the system, the client would have had to kill the ad and pay $50,000 anyway. ''We saved the client the cost and the embarrassment,'' Lovejoy says. As far as he's concerned, he also paid for his new $50,000 system--in only 30 minutes.

It's not your average computer company. Its president went to Massachusetts Institute of Technology--but he majored in philosophy. His co-founder and vice-president for finance used to write poetry. Neither went to business school. When they aren't talking shop, they discuss literature. No wonder few people took David A. Boucher and Harry A. George seriously back in 1981 when they started Interleaf Inc. Their idea was for a system that would let companies publish technical manuals and reports in-house. Instead of assembling text, charts, and photographs for someone else to print, Interleaf customers would be able to do it all on a computer screen--then simply print out the finished product.

ELUSIVE EARNINGS

The so-called smart money wasn't impressed. At a meeting in New York, one venture capitalist nearly nodded off during a presentation by Boucher. When it ended, the groggy moneyman snapped, ''Now tell me what it doesn't do.'' That kind of frosty reception might have stopped other would-be entrepreneurs in their tracks. Undaunted, Boucher and George took $50,000 in savings, added $200,000 from a venture fund run by the state of Massachusetts, and started Interleaf.

They have proven the skeptics wrong. The company's electronic publishing software is among the most popular for producing high-quality service guides and instruction manuals. Within a year of Interleaf's first shipment in 1984, customers--some as large as Boeing Co. and Caterpillar Tractor Co.--had snapped up $8.3 million worth of its systems. Revenues for the year ending Mar. 31 will more than double, to $20 million, Boucher says, and more than double again in fiscal 1987.

Earnings have been more elusive. Since its first profitable quarter a year ago, Interleaf has wandered above and below the breakeven line. But it did attract venture financing--$17.5 million so far, including $3.5 million from Eastman Kodak Co. The backers are betting on a system that includes Interleaf's software, packaged with a 32-bit workstation and a laser printer that it buys elsewhere. Interleaf expects to cut the price for the package from $50,000 to $30,000 on Mar. 13. Much of Interleaf's success springs from its unusual sales strategy. Although it sells entire systems directly to customers, it also lets hardware makers such as Apollo, Digital Equipment, and International Business Machines sell a simplified, $2,000-to-$3,000 version of its software with their workstations. Kodak even has the right to sell Interleaf's top-of-the-line products. But it's the only company that does. ''We kept control of the top of the pyramid,'' Boucher says.

The partners earned their business wings as co-founders of Kurzweil Computer Products Inc., which sold a device that can read aloud a book pressed to a scanner, using voice simulation. They left Kurzweil after selling it to Xerox Corp. in 1980, clearing $150,000 each. The two regrouped in Boucher's basement. After surveying 25 companies in a six-month hunt for a product, they settled on publishing and started Interleaf--named for ''interleaving'' text and graphics.

Now Interleaf has a new red-brick headquarters in Cambridge, Mass., and 210 employees. It also has its work cut out for it. Apple Computer Inc. and other personal computer makers are moving into publishing with desktop systems that are priced at $10,000 to $30,000.

Interleaf isn't worried yet. It just won a subcontract for as much as $20 million to help automate the U. S. Army's mammoth publishing operations. ''They have good products, people, and timing,'' says market researcher Paul R. Lewis of InterConsult Inc. in Cambridge. ''That has helped them shoot overnight from an obscure position to a dominant force.''

That may gall the sleepy venture capitalist, who put his money on a now-defunct Interleaf competitor. But he could have a second chance: Interleaf will probably go public by yearend. And that just proves that you don't have to go to business school to be good at business.