Lotus Counts on New 1-2-3 Program : Other New Products Challenge Microsoft
For Jim Manzi, chairman of Lotus Development Corp., revenge may finally be at hand.
For years, the sardonic onetime journalist and McKinsey & Co. consultant has been criticized--even ridiculed--for allegedly squandering one of the richest inheritances in modern business: the Lotus 1-2-3 spreadsheet program.
But now, Lotus seems to have the products and the strategy to battle industry leader Microsoft on a number of fronts. A new version of 1-2-3 for Windows, to be released today, has received rave reviews and should finally give Lotus a competitive offering in the fierce battle with Microsoft’s Excel and Borland International’s Quattro Pro.
Wall Street, anticipating a quick earnings boost from the product, has sent Lotus shares soaring. The stock closed Monday at $31.875, up from $25.50 since April 30.
Even more important for the long term, Lotus finally has some significant products besides 1-2-3. A groundbreaking program called Notes is starting to take off. A new type of spreadsheet, dubbed Improv, is gaining a following. Acquisitions, some of which didn’t look very smart at the time, have given Lotus strong electronic mail and word processing programs.
“We think we have a very robust future,” says Manzi, maintaining that Lotus is about to reap the benefits of years of heavy spending on Notes and other products. “Some of our industry brethren who have not been making equivalent investments are pretty much on a slab.”
Of Lotus’ outlook, Manzi says: “It almost sounds too good to be true.”
Critics say that at the end of the day, it won’t be true. Some believe that it is simply suicidal to compete head-to-head against Microsoft, which is four times the size of Lotus and willing to press its many advantages at every turn.
Moreover, Manzi and Lotus have always been better at conceiving grand strategies than executing them. While adept at tweaking Microsoft--recent newspaper ads compare Microsoft to the emperor with no clothes--the company hasn’t proven that it knows how to compete in the brutal software trenches.
One reason may be that, for a long time, Lotus didn’t have to. The company and its founder, Mitch Kapor, were seminal forces in the early days of the PC industry, with the 1-2-3 spreadsheet establishing itself as perhaps the most important software product of the personal computer revolution.
But like many software pioneers, Lotus had terrible trouble building a successful second product. Kapor handed the reins to Manzi in 1986, and over the next few years came a slew of problems: The company bungled an important 1-2-3 upgrade, failed to complete a merger with Novell Inc. and experienced a series of high-level executive departures.
Most damaging was the company’s late start in developing a version of 1-2-3 for Microsoft’s Windows personal-computer operating environment. Lotus had bet on IBM’s OS/2 as the likely successor to the DOS software operating system that controlled basic PC functions and was caught off guard by the success of Windows.
It was a hugely expensive mistake, compounded when the first Windows version of 1-2-3 arrived in 1991--and turned out to be a dud. Microsoft now has a big lead in the Windows spreadsheet market.
Many have blamed these problems on Manzi, 41, who lacks a technical background and sometimes seems to suffer from being a cynical New Yorker in a business dominated by sunny Californians. Last year, in an “open letter” to Manzi in the influential PC Letter, Infoworld Editor Stewart Alsop told him that he should resign.
“The truth is,” Alsop wrote, “if properly managed, Lotus would now be a much larger and more profitable company. Worse, the issue that faces the company has changed from how fast the company will grow to whether it can survive.”
Manzi says he has “a lot of scar tissue” from the years of criticism, and acknowledges some of his mistakes. But much of the turmoil, he says, was a result of other executives refusing to accept the strategic direction he had chosen--and the disloyal opposition is now going to be proven wrong.
The centerpiece of Manzi’s strategy is Notes, widely recognized as the pioneering product in a nebulous category known as “groupware.” Notes functions as a sort of integrated database and communications system for PCs tied together on a network, enabling people to work together on documents and maintain access to a common set of files.
A key feature of Notes is a technology known as “replication,” in which Notes files in different PCs are automatically kept current with one another. That kind of function is especially valuable for things such as customer tracking, where a company wants to keep records of all its interactions with a customer in a single file. The idea is that companies will install hundreds or even thousands of copies of Notes on all their PCs--as Chase Manhattan, Arthur Andersen, and a number of other companies have done--and then developed customized applications that utilize its power.
In Manzi’s vision, customers won’t stop there. They will also buy Lotus’ electronic mail software--cc:Mail--to facilitate routine messaging. And they’ll buy Lotus spreadsheets and word processors and presentation graphics programs, all of which are designed to work with one another and can serve as building blocks for Notes applications.
There’s broad agreement in the computer industry that products such as Notes--which harness the power of groups of computers rather then just a single machine--are the wave of the future. Microsoft even agreed recently to introduce features making its products work better with Notes.
“Notes is very creative,” says John McCarthy, an analyst with Forrestor Research. “It is enabling new uses of computers.”
Still, Lotus has been flogging Notes for three years, and annual revenue from it remains well under $100 million. Moreover, Microsoft is pushing hard to integrate more and more networking functions into its operating system software, including Windows and the upcoming Windows NT and Cairo programs, with the aim of rendering Notes superfluous.
McCarthy says it is critical that the new version of Notes be top-notch and that Lotus aggressively develop the new distribution channels needed to disseminate the product. Otherwise, he says, Microsoft will eventually be able to kill it off.
Meanwhile, Lotus can’t afford any more stumbles in the spreadsheet business, which still accounts for more than half of revenue. Manzi has high hopes for the new version of 1-2-3 for Windows, but competitors profess to be unfazed.
“Our real competition is Microsoft,” Borland Chairman Philippe Kahn says. “Lotus’ share under Windows is negligible.”
Kahn says the newest 1-2-3 is playing catch-up to Borland’s current version of Quattro Pro for Windows and will be left in the dust when release two comes out later this year.
Improv, which replaces arcane spreadsheet formulas and rules with a common-language, common-sense approach to modeling financial data, is considered a wild card: Reviewers are impressed, but it isn’t clear whether the market is really interested in a completely new kind of spreadsheet.
And whatever the technical merits of the products, Lotus will also have to cope with the collapse of the traditional price structure of PC software. More and more products are being sold as low-cost upgrades or as part of multi-product “suites,” and Microsoft’s size and broad market presence gives it some formidable advantages.
Lotus’ Rocky Ride
Shares of Lotus Development Corp. have had their ups and downs during the last 10 years. Once the dominant force in personal computer software, the company’s stock is up again lately thanks to favorable reports on its new 1-2-3 for Windows spreadsheet, due to be released today.
Lotus share price, monthly closes except latest
Monday: $31.88, down 0.13
