Software start-ups flourish

Press, 5 December 1989, Page 44

Software start-ups flourish

Will the software industry never grow up? Even the youngest bit of the computer industry, personal computers (PCs), enters the 1990 s in the trappings of respectable middle age: dominated by a few big firms, burdened with the responsibility of getting wellestablished technology to do more for less. Not so for software.

Though big firms have got bigger, the number of newcomers in software has grown faster still. New technologies now being announced will make the industry yet more welcoming for blue-jeaned youngsters who want to change the world. Big firms had better beware.

Many of these start-ups sell out to a big competitor as soon as they can. In America nearly 450 software firms changed hands in 1988, 50 per cent more than 1987. Half of those deals were worth SUS4M (about SNZ6.BM) or less, and the mean-average sale price was a mere SUSI9M (SNZ32.SM). By cashing in, the small fry avoid the risks of challenging the big fellows’ established brandnames and global marketing technology. The big fellows get bright new ideas and technology. What could change the equilibrium between big and small is new technology which, though long expected, should in 1990 at last begin to make a real impact on software markets. Until this year, PC software could be neatly divided into two camps: Apple (10 to 15 per cent of the market) and IBM-compatible (the rest). Now the IBMcompatible market is about to split. Operating systems define the competitive arena for software because programes written for one system will not run on another. The standard operating system in the IBMcompatible is Microsoft’s DOS. Now Microsoft itself is confusing the scene with two new entrants which, although they can run old DOS programs, require specially-written software to take advantage of the snazzy new features they offer. The most important newcomer is OS/2, the first really usable versions of which were recently launched jointly by IBM and Microsoft. OS/2 lets a computer work on several things at the same time — so that an executive can type the text of his sales report while the computer automatically fetches the sales numbers from his company’s mainframe. OS/2 also provides standard interfaces which make it easier for programs to cooperate and to share data automaticlly among themselves. Most important of all, the new operating system eases the task of learning new programs by allowing a neophyte to pick commands from a menu, or by pointing to symbols, rather than typing them in from memory.

Microsoft hopes to sell about 1 million copies of OS/2 in 1990, compared with about 7M to 8M copies of DOS. Some time in the 19905, OS/2 should replace DOS completely. Meanwhile Microsoft also offers Windows as a sort of halfway house between the two. Windows, of which Microsoft also hopes to sell about IM copies next year, provides an easy-to-use interface very much like OS/2’s and helps programs to co-operate — but does not allow a computer to do many things at once. Microsoft faces a hard task getting the market to go along with its plans. AT and T’s Unix operating system offers many of the same technical advantages as OS/2. Some users think Windows is more trouble than it is worth. But even Microsoft’s rivals accept the basic technical goals Microsoft is pursuing: a standardised user-interface which makes computers of all brands work more or less alike; standardised interconnections between programs; and an operating system that can do several things at once. The snag is that progress in these directions will also wipe out many of the advantages on which big firms new rely to defend their empires. Lotus’s greatest competitive edge is the fact that 7M people already use its 1-2-3 spreadsheet and have got used to its way of doing things. Because so many people are familiar with it, companies keep buying more. So powerful is this drive for conformity that 1-2-3 accounts for about two-thirds of the spreadsheets sold each year. But standardised user-interfaces will make it easier to get people to use new computer programs, and standardised interconnections between programs will make it easier to swap data, too. This means that, just as companies switch to the new software they need to take advantage of their new operating sysems, they will be increasingly tempted to change brands as well. For big firms, keeping their technology up-to-date is already hard. Lotus was about a year late in bringing out new vesions of its spreadsheet, and Ashton-Tate’s sales are sagging as it gets the final bugs out of the newest version of its database. As it becomes easier for customers to defect from the fold, each stumble will become increasingly costly. Even before the simpler point-and-click programs prevail, some big firms are changing tack. Instead of trying to keep rivals from copying their proprietary way of doing things, they are encouraging- them to do so. Instead of competing on style, they will compete on function. Lotus recently signed an agreement with Word Perfect that will help its word processor to work more closely with Lotus’s spreadsheet. A few years ago it might well have sued anyone who had tried to do the same thing. Though such things make the most of big firms remaining strengths, they are also a boon for young upstarts, who get access to the giant’s established customer base. The big firms in return get some of the benefit of the newcomers’ innovations for free. But openness is risky. Co-operating with newcomers just encourages more to enter the market So does buying, them up. The industry’s giants were all tiny and hungry themselves less than a decade ago. One mistake, and even the biggest software firms could find a new pair of Reeboks underneath the boss’s desk. — Copyright, the "Economist”

7 million 1-2-3 users at stake