Electronic distribution makes a comeback.

Every time a brand-new electronic software distribution scheme pops up, we're reminded of those endless Hollywood movie sequels, whose characters keep slogging through adventures that become less convincing with every new release. Electronic distribution has come back from the dead more times than Jason, absorbed more technology transplants than RoboCop, and suffered more knockouts than Rocky. (The big difference, of course, is that movie retreads make piles of money; electronic distribution still has an unblemished record as a financial black hole.)

So here we go again. It's back. It's bold. It's Software Without The Box.

This time, though, the story just might have a happier ending. InfoNow Corp., a company built on the remains of two failed electronic distribution predecessors, recently floated a $6 million IPO and already has several pilot customer sites. Lotus will unveil Lynx, a Notes-based software distribution system, at a splashy PC Expo event next month. And Ziff-Davis has several new ventures--a recently-acquired shareware catalog, a CD-ROM demo disk library, and an on-line buying service--that are likely to coalesce into a true electronic distribution business.

Much of the reason for this influx of money and talent, we suspect, is that electronic distribution increasingly fits the needs of a corporate marketplace dominated by sales to installed base customers. The traditional retail box still works as a merchandising tool for reaching new software buyers, but fancy packaging is largely irrelevant to the installed base customer (who mostly buys upgrades, incremental network licenses, or perhaps a few extra fonts or add-on utilities). The retail channel has become swamped with thousands of low-volume SKUs that appeal primarily to installed base buyers (Soft.letter, 2/22/92); in many ways, on-demand distribution is a much better delivery medium for these SKUs.

Moreover, electronic distribution solves one of the corporate world's most annoying problems--how to keep track of PC software. MIS managers don't know how much software their companies own, how much is pirated, how much has been upgraded, and how much is simply erased from hard disks when employees move on to new assignments. If nothing else, electronic distribution is the only software delivery system that provides a reasonably comprehensive audit trail.

So there's a good chance, we think, that electronic distribution will finally carve out a significant place for itself in the distribution channel. (Worst case, on-demand distribution will be hard to ignore, since at least three electronic services--InfoNow, Lotus, and Ziff--will be out there pitching developers and corporate customers.)

We've been looking at the latest round of electronic delivery systems, and it's clear that the developers of these systems have remarkably similar notions about how on-demand distribution will work. Typically, a user browses through a catalog of available titles, then fills out a purchase form that is either stored on the system (to record the sale) or is transmitted to an external reseller. In some cases, the software is downloaded directly from a CD-ROM disk, a local server, or a phone line--or, alternatively, the package itself is shipped to the buyer.

At the same time, electronic vendors already have found ways to differentiate their systems. InfoNow provides strong comparison tools for evaluating products, Ziff's Select Demos provides a huge collection of demos, and Lotus's Lynx seems to assume that electronic buyers already have a pretty good idea of what they want to order. Lotus also is eager to place its systems in the hands of independent resellers (a necessary strategy, since competitors like Borland and Microsoft won't want to give Lotus direct access to their customers), while InfoNow and Ziff aspire to be resellers themselves.

Our guess is that these differences in design and strategy will become key success factors as more electronic vendors--especially the major dealer chains--move into the on-demand business. Corporate buyers aren't going to install six or eight rival electronic distribution systems; they'll adopt only those that have the richest product selection (including the most up-to-date selection of free patches, upgrades, DLLs, add-ons, templates, and drivers) and the most "usable" features.

There's one other success factor that we're convinced is critical to the future of electronic distribution: competitive pricing. Even if corporations install on-demand systems, it's inevitable that their purchasing agents will still make day-to-day buying decisions based on price. That leaves the deck stacked in favor of conventional resellers, who--by virtue of volume discounts and incentives--will almost always start with a price advantage over start-up electronic vendors. And if electronic vendors can't build sales volume with price-competitive titles, it's hard to see how they can grow beyond the boutique stage.

Ultimately, then, the fate of electronic distribution may depend a lot on the willingness of publishers to create separate "electronic SKUs" that carry slightly deeper wholesale discounts. Retail dealers are bound to complain that these discounts are unfair. But in fact electronic distribution squeezes out real costs of packaging, manuals, diskettes, and fulfillment. Trim these production costs from a good chunk of a sales and a few extra points of profit could fall to the bottom line.

InfoNow Corp., 3004 Arapahoe Ave., Boulder, Col. 80303; 303/442-6666; Lotus Development Corp., Michael Mirsock, senior marketing manager, networked applications, 55 Cambridge Parkway, Cambridge, Mass. 02142; Ziff Desktop Information, Michael Kolowich, managing director, 25 First St., Cambridge, Mass. 02142; 617/252-5000.