Aggressive Marketing Stance Sometimes Backfires, Analysts Say : Quadratron Gets Mixed Reviews
The figures that Quadratron Chairman Karl Klessig ticks off are impressive.
Some $10 million in revenue this year for the Sherman Oaks-based computer software company, $30 million next year and maybe as much as $100 million in 1987. Much of that, he says, is as good as money in the bank, because it will come from contracts already signed with major computer makers.
No one questions Quadratron’s skill in getting business. The company, which was founded 2 1/2 years ago, has signed 59 contracts with manufacturers, outpacing all of its competitors in the business of providing software for makers of office automation systems.
“When we start discussions with a hardware manufacturer,” Klessig boasted, “we conclude it with a contract.”
But some customers, competitors and market researchers are not impressed. They say the company gets many of those contracts by promising software packages too long before they are developed. The result, they complain, is software that is delivered late and that doesn’t always work properly.
“They’ve rushed ahead so fast in development that there are bugs in the software. Some people think that Quadratron is great. Others think it’s terrible,” said Michael Millikin, associate editor of Seybold Report on Office Systems, a Boston-based newsletter.
Klessig Defends Marketing Strategy
William Kiely, president of R Systems, a Dallas-based competitor, said: “Quadratron is the best marketing company I have ever run across in my eight years in the computer business. Their marketing approach is to go in, get the contract and worry about getting the product done as time permits.”
Klessig, however, said his customers don’t mind the way Quadratron sells its products.
“It is true that we get the contracts before the products are finished,” he said. “The reason people are willing to make major commitments is because of the superiority of the product and the design of it.”
Quadratron has built its business primarily by marketing a software package used in Unix-based office automation systems--computer networks that link terminals, printers and other machines for office workers.
Unix is a software operating system developed by AT&T; that runs the basic functions of the computer. Quadratron’s software gives the system such functions as word processing, graphics, calendars and electronic spreadsheets used for financial calculations. Quadratron was one of the first companies to offer a word-processing system for Unix-based systems.
Klessig, 43, who previously owned a firm that packaged computers with software for customers with special needs, founded Quadratron in 1983 with Stefan Zimberoff, 42, who had developed software for Fortune Systems, a San Carlos, Calif.-based computer maker. They brought in accountant Les Kristoff, 38, as a third partner, and raised $750,000 to get started.
Unix historically was a favorite system for educators, but its acceptance in the office automation market was slow. Demand has picked up, however, largely because government agencies and regional telephone companies like Unix. As a result, Quadratron has profited.
Move to New Offices in Sherman Oaks
Klessig estimates that after-tax profits this year for the privately held company will be 30% of revenue, or about $3 million.
Company executives are confident they will become a force in the software industry. Said Klessig: “It’s no longer a goal. We know we are going to become one of the largest and most significant software companies in the world.”
In July, the company moved to the 18th floor of the new American Savings building on Ventura Boulevard in Sherman Oaks, which boasts one of the best views of the San Fernando Valley, a far cry from the one-room office in Encino where it began. About 45 of its 70 employees work in the new office, which is decorated throughout in Quadratron’s burgundy and pearl-gray colors. Visitors are greeted in the lobby by a neon sign bearing the company’s name that looks as though it came from the set of “Miami Vice.”
Despite all of the confidence that Quadratron exudes, the company has some dissatisfied customers.
Executives with Plexus Computers in San Jose, a Quadratron customer since February, 1984, are furious with the company over its failure to meet deadlines. Cynthia Pilkington, Plexus’ product marketing manager, said Quadratron missed “at least three” deadlines to deliver software in the last nine months, including one last week. The deadlines were verbal, not contractual, agreements.
“They haven’t made any friends here,” she said. Pilkington added that she recently signed a software agreement with rival R Systems but hasn’t ended Plexus’ relationship with Quadratron.
Another computer maker that said it has had problems with Quadratron is Charles River Data Systems in Framingham, Mass. The company said it has been waiting since April, 1984, for a trouble-free word-processing program.
“The frustration has been getting them to produce a complete product. When they have produced some part of the product, it has been bug-ridden,” said one executive with the company, who requested anonymity.
About What Is Expected
On the other hand, Robert Vernon, vice president of office information systems for New York-based Sperry, one of Quadratron’s three largest customers, said the number of bugs his company found in the software has been about what is expected for new software.
Klessig said the problems stemmed from the unexpectedly strong demand for the company’s products.
“Once we start selling it in the marketplace, they got very, very anxious to get the product sooner than we could deliver it,” Klessig said. “We think we have delivered it in a remarkably short time.”
Klessig said he is looking into Plexus’ difficulties and acknowledged that there have been problems with the software sold to Charles River. He said the company recently fired three of its 17 engineers because of those problems.
Some industry experts reject the idea that Quadratron’s problems stemmed from heavy demand for its products. They say Quadratron stretched itself thin by signing more agreements than it could reasonably expect to meet.
“They introduced a whole range of packages and hadn’t ever really completed one. I would think it would have been more prudent to introduce one package, have it completed and bug free,” said Jean Yates, vice president with International Data’s IDC West division, a Palo Alto-based market research firm.
Quadratron’s complete office package--including such functions as word processing, spreadsheets, and calendars--has a base price of $1,960.
Manufacturers who order numerous packages receive discounts, sometimes as much as 60%.
Typical contracts, the company said, are four years long and require manufacturers to buy a minimum of 400 to 1,000 software packages. Those agreements, Quadratron said, might require the computer maker to pay Quadratron $500,000 in the first year and from $1 million to $2 million in later years.
Contracts Can Unravel
Many other software companies have customers make major payments only after the customers actually sell their products. Quadratron President John J. Theiss, though conceding that his company’s contracts are structured differently than most of its competitors’ deals, said that Quadratron’s contracts are solid.
Competitors warn, however, that contracts in the software business can unravel quickly if there are delivery or quality problems.
“Agreements are about as good as . . . your last delivery,” said Jim R. Smith, president of rival Handle Technologies in Houston.
Amy Wohl, president of Wohl Associates, a Bala Cynwyd, Pa.-based office automation consulting firm, predicted that outside pressure may force Quadratron to improve the delivery of its products.
“I think what will happen is that the competition will force them to clean up their act,” she said.
“I’m sure they would like to stay in the business. They’ll either have to come closer to delivering on time or get better at estimating when they will deliver,” she said.
