Slaying the Giant : Microsoft Dominates the Vast Market for Computer Software. But by Knowing What Consumers Want, Two Bay Area Firms in Important Niches Are : Broderbund Nurtures Its Knack for New Games
In the software business, fear and loathing of Microsoft Corp. is the order of the day.
Proprietor of the crucial DOS and Windows operating software, Microsoft is too big, too strong, too ruthless for anybody’s good, critics say. Bill Gates and company, they prophesy, soon will wipe out competition in one of the world’s fastest-growing and most influential industries.
Yet even Microsoft has its weaknesses, and nowhere are they more evident than in the burgeoning consumer software market. When business customers are looking for word processors or spreadsheets or database programs, they increasingly turn to Microsoft. But when they are looking for computer games or educational programs or personal finance packages, they turn elsewhere.
It is not for lack of effort on Microsoft’s part. Powerful consumer software is a key element of Gates’ ambitious long-term vision, which he has dubbed “information at your fingertips.” Plummeting PC prices, moreover, are rapidly increasing the number of PCs in the home, making consumer software the biggest growth segment in the industry.
But a handful of nervy and capable upstarts have shown that they understand consumer software far better than the Redmond, Wash.-based behemoth. Two Bay Area companies in particular--Broderbund Software of Novato and Intuit Inc. of Menlo Park--have demonstrated that it’s possible to take on the giant and prosper.
Both are small companies. Both recently went public. Both are consistent innovators who understand customer service far better than most software firms. And though both live in fear of Microsoft, they’re rarely heard to complain.
At Broderbund Software, arguably the world’s preeminent consumer software company, the secret to success is that there is no secret. The strategy: Buy or develop interesting products, market them well, keep costs low, aggressively expand successful lines, and quickly jettison failures.
It all seems so simple that it is easy to underestimate Broderbund’s accomplishments. In a business where most companies are built on a single hit product, Broderbund has had a string of hot sellers: the educational game Where in the World is Carmen Sandiego?, a home publishing program called Print Shop and more recently the children’s products Kid Pix and Living Books.
Now Broderbund finds itself extremely well-positioned to exploit the hottest new areas in computing--multimedia and interactive entertainment. Investors, not surprisingly, are thrilled. After going public in November, 1991, at $11, Broderbund shares soared as high as $50 and closed Friday at $35.75.
Yet building on this success won’t be easy.
Microsoft is taking aim at a number of Broderbund product lines, and traditional competitors such as Electronic Arts and The Learning Company are stronger than ever. Broderbund must show that it knows how to cope with the cultural and organizational issues that inevitably arise when a small company gets big.
“This company is a product company, driven by quality,” says Ed Auer, an avuncular former CBS executive who serves as president and chief operating officer. “How do we maintain our creativity? How do we maintain our edge with 350 people? The old timers say the company isn’t what it used to be, but we try very hard to maintain the culture.”
As with many software companies, that culture is built largely around the founder, Chairman and Chief Executive Officer Doug Carlston, an attorney who launched the company with his two brothers 13 years ago. The initial focus was computer games, and Carlston proved himself to be one of those rare individuals who simply has a gut feel for what kind of software people will like.
It was Carmen Sandiego that separated Broderbund from the pack of small entertainment and educational software firms in the mid-1980s.
A geography game in which the player solves a series of clues to track down Carmen--an elusive international criminal--the program has become a phenomenon, generating not only a series of spin-off software products but also a TV series and a merchandising business. Carmen ranks with Mickey Mouse among the characters children recognize most readily.
If it had only developed Carmen, Broderbund would have been just another one-product software company. But the company also stumbled upon another blockbuster: Print Shop, a program for creating invitations, greeting cards and signs. Like Carmen, Print Shop has given birth to a range of upgrades and add-on products, such as “clip art” packages that expand the library of pictures that can be used with the program.
Then, just when executives were getting worried about over-dependence on the two products, Broderbund in 1991 launched Kid Pix, a drawing program that it originally found on a computer bulletin board. Auer sees Kid Pix and other new products for young children as the “third leg of the stool.”
Denise Caruso, editor of the newsletter Digital Media, says one of Broderbund’s great strengths is that “they understand the limits of the technology--they don’t ask it do things it can’t do.”
Among the plethora of new multimedia software products that use the high-capacity storage devices known as CD-ROM, Caruso says, Broderbund’s Living Books series is one of the few that don’t go overboard with fancy video and the like--and thus don’t suffer the slow speed and poor technical performance of other multimedia programs.
Similarly, Broderbund is in no hurry to jump into many of the much-hyped but untested new markets that are springing up around it. The company is not developing any software for the new 3DO multimedia player, for example, and has not yet staked out its turf in interactive television.
“We have lots of meetings,” says Harry Wilker, Broderbund’s vice president for publishing, in reference to the frenzy of alliances now forming around interactive television. “But we’re fanatics about quality and appropriateness. We want to do things that have lasting value.”
Broderbund’s success thus far has given it the luxury of taking a cautious approach. Clearly, though, competition only will get more brutal in the future. Microsoft is pushing hard in the entertainment and education area--especially with CD-ROM multimedia products--and also is going after Print Shop and other Broderbund products with a low-end desktop publishing package called Publisher.
Wilker acknowledges, moreover, that Broderbund eventually will face competition from giant entertainment and media conglomerates such as Time Warner and the Walt Disney Co.
The company still has some basic strategic issues to resolve, as well, if it’s to meet those challenges. Having two very different product areas--productivity packages such as Print Shop on the one hand and entertainment and education programs on the other--can be an advantage, but it also can stretch the resources of what is still a relatively small company.
While Auer says Kid Pix and Living Books will form a third leg of the Broderbund stool, the company still is not really organized for it. The Living Books line is part of the education and entertainment group, but Kid Pix resides incongruously in the productivity division.
Yet Broderbund knows a lot of things that the pretenders to its market don’t. It knows the consumer distribution channel, it understands how to make money on inexpensive products and its intuition is strong.
“They seem to have a flair for it,” says Richard Shaffer, principal of Technologic Partners in New York. “It’s like Fred Silverman (the 1970s TV programming whiz) understanding what America wants to watch. You don’t know where it comes from, but it’s there.”
Broderbund At-A-Glance
Chairman and CEO: Doug Carlston
Headquarters: Novato, Ca.
Employees: 350
Source: Company reports
