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The Lotus comeback.

For a painfully long time, Lotus has been the preeminent Gang That Couldn't Shoot Straight. While Borland and Microsoft walked off with big chunks of 1-2-3's market share, Lotus fumbled around in new categories that never seemed to yield much revenue. A merger with Novell collapsed at the last minute; a grandiose cross-platform strategy somehow neglected to include Windows and the Macintosh products. Wall Street analysts grumbled constantly about poor earnings, and our own industry poll (Soft.letter, 12/8/92) ranked Lotus near the bottom of the industry's top ten companies in senior management, technology, marketing, and customer support.

But Lotus is suddenly back on the offensive, armed with a new "Release 4" version of 1-2-3 for Windows that promises to restore much of the company's lost credibility. Release 4 won't ship until next month, but the previews--from the trade press and customers--have been solidly enthusiastic. (Release 4 "leapfrogs Excel," PC World said; the Version Manager "makes Scenario Manager in Excel 4.0 look like a toy," said PC Week.) Wall Street promptly reacted by bouncing the stock price up 40% in a little over a week, and the consensus among Lotus-watchers at this week's annual meeting in Boston was that the company finally has turned the corner.

Still, Lotus has turned a lot of corners in its eleven-year history, many of which led only to dead ends. So it's reasonable to question how well Lotus can convert the likely success of Release 4 into real momentum for the company as a whole. Our sense is that this time the answers are mostly positive:

* Is it too late for 1-2-3 to make a comeback? Probably not, though Lotus has come perilously close to losing its place as the standard-setter for spreadsheets. Release 4 still has to survive the kind of demolition-derby laboratory testing and benchmarking that sank Lotus's first Windows version, but this time we suspect Lotus hasn't skimped on testing and performance tuning. And Release 4 also makes its debut at a time when its chief competitors

happen to be most vulnerable. New versions of Quattro Pro and Excel are due some time in the fall, but right now Borland is distracted by financial problems and Excel's technology looks increasingly shopworn. If Lotus's marketing efforts can create a bandwagon effect over the next six months, we think there's a reasonable chance that Release 4 will capture more than 50% of new Windows spreadsheet sales (not an impossible target, given the 30% share that Lotus achieved with its lackluster first try at a Windows spreadsheet).

* What about other categories? Release 4 fills a gap in a product line that is otherwise remarkably robust. In a half-dozen major categories, Lotus now has either a top-rated product technically or a strong market share leader. Moreover, Lotus products have come to share a good deal of genuine integration and comanon interface design, so Lotus's "working together" theme is more than just marketing hype. Judging from the sales figures, the company's investment in diversification finally seems to be paying off. At this week's annual meeting, Lotus chairman Jim Manzi reported that non-spreadsheet products last year contributed 38% of Lotus's revenues, and he predicted the percentage could top 50% by the second half of 1993.

* Can Lotus compete without a database? Microsoft and Borland have begun to bundle high-end databases with their suites, leaving Lotus conspicuously absent from the database category. For the moment, we suspect there's not much profit left in high-end databases, or much customer demand for a bundled database solution. (In fact, Lotus can plausibly claim that Release 4 itself is a decent querying tool and report writer for low-end users.) On the off chance that databases may become a checklist item for corporate customers, Lotus will probably have to cover its flanks by buying a mid-range Windows database company; the Wall Street Journal reports that a deal with Approach Software is in the works. But it's hard to see how any database product-- considering the depressed prices in this category--will add much to Lotus's overall competitive position, growth or margins.

* So where's the next growth engine? Ah, that's the tough one. Like most big application companies, Lotus booked a good deal of revenue last year from Windows products. But, Manzi admits, Windows revenues were offset, virtually dollar for dollar, by a $140 million plunge in DOS sales. If the DOS plunge continues and the Windows market reaches near-saturation (both likely scenarios, we believe), Lotus could have trouble sustaining even 10% growth in 1993. Many of Lotus's rivals will have to cope with equally sluggish conditions, but Lotus has a unique growth engine waiting in the wings--Notes. Manzi says Notes and cc:Mail together contributed a relatively modest 13% of 1992 revenues. But Notes has definitely reached critical mass. The Notes customer count has jumped from 70 sites in 1990 to more than 2,000, and many of these customers are just beginning to roll out company-wide installations. The result should be growth rates of at least 100% to 200% per year over the next few years. Jim Manzi has spent four years trying to convince skeptics that Notes wasn't just an expensive boondoggle; now it looks like he was right all along.
COPYRIGHT 1993 Soft-letter
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Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Lotus 1-2-3 for Windows signals renewed marketing effort
Publication:Soft-Letter
Article Type:Product Announcement
Date:May 21, 1993
Words:872
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