Little Quarterdeck Throws Its Weight Around

Information Processing

Little Quarterdeck Throws Its Weight Around

A new patent may force big software makers to pay royalties

Patrick Cole in Santa Monica, with Deidre A. Depke in New York
Business Week

June 19, 1989

Therese E. Myers isn't the kind to forgive and forget. Back in the fall of 1984, when Myers, president of Quarterdeck Office Systems, launched the software startup's initial product on a $14,000 budget, she recalls being brushed off by the chairman of Microsoft Corp. ''Bill Gates said we'd never make it,'' recalls Myers. ''Now he's an expert witness to our success.''

Indeed, Myers, 44, thinks she may have the 33-year-old Gates and his Redmond (Wash.) company over a barrel. In April, Quarterdeck won a U. S. patent for technology used in Desqview, its program written by Gary W. Pope, 38, the company's co-founder. The $129 package makes it possible to work on several tasks at once by isolating them in numerous so-called windows on a personal computer's screen. Quarterdeck contends that the patent will force other software makers that mimic its technology to pay millions in royalties. That money is enormously important to Quarterdeck, which had revenues of just $12 million last year and operates from cramped headquarters in the beach community of Santa Monica, Calif.

SWORD FIGHTS

Just when, and from whom, the privately held company is going to get all this money is still open to question. Quarterdeck says its lawyer is negotiating licensing agreements with at least half a dozen software companies--but it won't say which ones. It does say that it hasn't yet met with Microsoft, which expects to remain unaffected by the new patent, according to Microsoft's in-house counsel, William H. Neukom. But that hasn't kept Quarterdeck from beating its chest. ''The patent will be used as a sword against them,'' promises Quarterdeck lawyer Gary A. Hecker.

Quarterdeck's pursuit of Microsoft goes back half a decade. In 1984, an early version of Desqview reached the market just before Microsoft's Windows, which also can perform multiple tasks. Microsoft's huge marketing resources nearly buried Quarterdeck, and Myers considered bankruptcy. ''The survival odds were awful,'' she recalls. Things have improved a bit since then. Market researcher Dataquest Inc. says that last year, Quarterdeck sold 240,000 copies of Desqview, vs. Windows' sales of 1 million copies. Still, only 2% of all PC buyers own Desqview, says researcher InfoCorp, whereas 7% own Windows.

Myers says Quarterdeck did manage its first operating profit in 1988. But it hasn't come close to recouping its $6 million in startup costs. That's why the patent is so important: A Quarterdeck investor projects that the company could reap $50 million in fees within 10 years.

That might give it enough money to build on the small but enthusiastic following for Desqview. ''I couldn't live without it,'' says John R. Garman, an information systems planner at NASA's Johnson Space Center in Houston. Customers say the software can run as many as 65 programs on a screen at once. Windows runs multiple screens, too, but Quarterdeck's Desqview has one big advantage: It already is designed to work with about 90% of the applications programs now on the market. By contrast, to take advantage of all of Windows' features, software packages must be rewritten specifically for it.

Quarterdeck is launching a new sales strategy to communicate these advantages to PC buyers. In the past, it has relied primarily on mail-order sales through ads in trade books. But it plans to double its five-person sales force this year and believes that its new patent will help boost sales to retailers. Next month, Quarterdeck will open a plant in Ireland. That should help it hold down costs and sell more copies of Desqview in Europe, which now accounts for 15% of the company's sales. The goal is to propel overseas sales to 30% of revenues by 1990, Myers says.

Another key part of Quarterdeck's strategy is to forge alliances with computer makers, which will ship the software with their machines. A 1986 deal with AST Research Inc. boosted sales dramatically, and Quarterdeck hopes a new arrangement with Toshiba America Inc., which is bundling Desqview with its T 5200 laptop, will have the same effect. Advanced Logic Research Inc. in Irvine, Calif., also includes Desqview with the 3,000 PCs it ships monthly.

Quarterdeck executives know they need to expand their product line to avoid becoming one of countless boutique software makers--companies that can't get beyond one or two successful products. Indeed, some 70% of Quarterdeck's sales come from Desqview. To guard against the day when those sales slip, Quarterdeck is working on applications software for local area networks.

Many think the company's biggest asset is Myers. Says Quarterdeck Chairman Frank LaHaye, a venture capitalist: ''Terry has the tenacity of a guerrilla.'' That's a fact that Microsoft and others will likely discover as Myers comes calling with her new patent.

Photograph: POPE AND MYERS: ESTIMATES OF LICENSING FEES RUN AS HIGH AS $50 MILLION PHOTOGRAPH BY ALAN LEVENSON Graph: QUARTERDECK'S RUNNING START Data: BW CHART BY RAY VELLA/BW