Will Era End if IBM Takes Over at Lotus? : News analysis: Many express concern that move will transform the nature of the software industry.
As IBM Corp. on Tuesday launched its $3.3-billion tender offer for Lotus Development Corp., some in the industry were waxing nostalgic about the early days of the industry, when all a would-be software mogul needed was a program and a dream.
For if IBM’s brash takeover move is successful--and all indications Tuesday were that it will be--it will clearly mark the mainstream PC software industry’s transformation from a hobbyists heaven to a more traditional business that mostly serves large corporate customers.
Lotus shares edged up 37.5 cents to $61.81 on Nasdaq as investors looked for a rival bidder--considered unlikely by most analysts--or for IBM to sweeten its $60-per-share offer in order to convert the hostile offer into a friendly merger. IBM added 12.5 cents to close at $91.375 on the New York Stock Exchange.
Though few could have predicted an eventual hostile takeover, IBM and Lotus have been closely intertwined since 1983, when Lotus launched its 1-2-3 spreadsheet program.
The program went on to become one the most important software products in computer history and did much to spur the development of the entire PC industry. However, at the time, two years after the launch of the IBM PC, there were few computer stores and none that carried software exclusively.
Lotus founder Mitch Kapor, a college dropout and one-time Transcendental Meditation instructor, loaded packages of 1-2-3 into the trunk of his car and knocked on the doors of computer retailers.
When he discovered they were slow to pay their bills, he began calling directly on large companies.
“It was like going into the wilderness to carve out a place to live,” Kapor said.
“That was before the software companies started to fight against each other after all the low-hanging fruit got picked. This was before the battle to be king of the hill.”
That subsequent battle has swallowed up nearly all the companies that had invented software for the first IBM PC. Some, such as Ashton-Tate and Word Perfect, have been acquired.
Others, such as Borland International and Software Publishing, are struggling along as they wait to be rescued. Many others, such as Wordstar, have all but vanished.
Only Microsoft Corp., with its dominance in the operating system software that controls basic PC functions, continues to thrive. “I think it was inevitable,” Kapor said.
“If you have control of the operating system that gives you amazing leverage and Microsoft has been nothing short of brilliant in its ruthlessness.”
But there are many reasons other than Microsoft that the PC software industry has evolved in the way that it has. In the early days, the PC was viewed by corporate computer managers as an barely tolerable anomaly, an interesting toy for the technically inclined but certainly not a machine that could be trusted with something important, such as running the payroll system or managing inventory.
Those tasks were left to big machines from big companies, especially IBM.
However, as the PC grew more and more powerful, it became clear that it could do a lot of things better than a big machine, and more cheaply too. It became a serious business machine. It began to change the way companies organized their work, giving individual managers power that was once the province of the computer department and creating demand for new kinds of software that could manage the interactions among hundreds or thousands of linked PCs.
But with this change, the task of the software supplier changed too. It was no longer adequate to simply deliver a word-processing package--it now had to work with the spreadsheet and the database. Corporate customers needed the vendor to show them how workers could share information across large networks.
Notes, the Lotus software that IBM covets, needs lots of customization and support. IBM, with its vast resources and experience in serving large corporations, has the opportunity to make Notes a broad success, something that Lotus, with its roots in the garage, was unable to do.
Are the days when long-haired programmers clad in short-pants and loud Hawaiian shirts roamed the Earth over? No, but they’re working on different kinds of software.
And, in reality, companies such as Lotus have become over time more conservative.
Kapor, now 44, departed in 1986 and left the company in the hands of Jim Manzi, a former McKinsey & Co. consultant that Kapor had brought into the company a couple of years earlier.
“Lotus is really risk averse,” said Jeffrey Tarter, editor of Softletter, an industry newsletter. “They over-research things to death and they over-engineer things.” Suits, not shorts, are more commonly seen around Lotus.
Today’s hot programmers are working out of Victorians in San Francisco’s Multimedia Gulch on games and education CD-ROMs or on software for the Internet. “There are some uncanny similarities between these CD-ROM and Internet companies and the early PC software guys,” Tarter said. “There’s the same high level of passion, but in a lot of cases not the high level of craftsmanship to go along with it.
“We’re going to see a Renaissance of small companies below $100 million,” said Philippe Kahn, the French-born mathematician who stepped down as chief executive of Borland earlier this year. “There’s going to be the big guys and small guys and it’s going to be very hard to be in-between that.”
Dan Bricklin, who was the co-inventor of the first popular spreadsheet Visicalc, the predecessor to Lotus 1-2-3, sees the evolution as being a healthy one. “There are many more software companies around today than there were when I started Software Arts in the late seventies,” Bricklin said. “We’re finding new millionaires in software every day.”
Bricklin, like Kahn, continues to tinker away. “Product is my thing,” he said. “I like to develop new metaphors and new ways of using computers. If there’s are new metaphor to be found, I won’t find all of them, but I’ll find some of them.”
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