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Lotus Development's `1-2-3' software proves hard act to follow

By Barbara BradleyStaff writer of The Christian Science Monitor / October 22, 1985

Cambridge, Mass.

The problem with success is that everyone starts asking, ``What will you do for an encore?'' And if you don't have an answer, things can get very hot very fast. That's what has happened to Lotus Development Corporation, known as the IBM of software because its key product, the accounting spreadsheet ``1-2-3,'' dominates the industry. After revenues tripled in 1984 to $157 million from $53 million the year before, and earnings more than doubled, Lotus's breathless pace screeched to a halt. Last week it announced that profits last quarter were 30 percent below the same quarter last year.

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Lotus's problems come back to the old encore question. ``They're working hard to find new ways to grow, and have had some disappointments,'' says William Zachmann, vice-president of research at International Data Corporation. ``They don't have a really killer second product.''

After 1-2-3 topped the best-seller charts 21/2 years ago, (a position it still holds), everyone began asking what Lotus would come up with next. It soon introduced Symphony, a variation on the 1-2-3 theme with word processing and communications thrown in. That met with fair success, but investors and customers were looking for something radically different, something revolutionary.

So it released Jazz last spring, the equivalent of Symphony, to run on Apple's Macintosh personal computer. When the Mac didn't ``boogie,'' neither did Jazz. The discontent from Wall Street grew louder.

Lotus's newest offering, first shipped earlier this month, is something different. ``Signal'' allows a personal computer user to get stock market information via FM radio signals. But some analysts are concerned that Signal is aimed at too narrow a market (mainly small brokerage firms and financial advisers). It certainly does not have the breadth of a 1-2-3.

On top of these rather tepidly received products, Lotus stumbled into a glitch for the first time. The company, known for its care in getting out ``bugs'' in programs before releasing them, had to recall its new version of Symphony last month because it wipes out data. Lotus was counting on the sales of Symphony 1.1 to prop up earnings. The only other major offering this year is a new version of 1-2-3.

By now, stockholders and Wall Street have grown impatient. Lotus's stock has plunged to $17, down from $30 in July. Many stockbrokers caution against investing in the company, and even the company's top brass, including chairman Mitchell Kapor, has sold stock. (This has gotten Mr. Kapor into some hot water. On Oct. 2, a suit was filed against several top executives in behalf of all people who bought stock between July 29 and Sept. 16. The suit charges that Lotus issued exaggerated statements about the c ompany's finances and financial future. The company says the stock sale was not based on insider information; rather, that the executives' personal wealth was tied up in Lotus stock, and they have been advised to diversify.)

Competitors are asking aloud whether the company is just too big to be supported by essentially one product (1-2-3) which is already old by software standards, and whether it can react quickly to the fast-changing market.

And when one sees all the employees hurrying around the new, nine-story building overlooking the Charles River, one does wonder how Lotus's limited array of offerings can keep all these people busy.

Not all of Lotus's problems are its own fault. Wall Street has come to expect Lotus to have steady, stellar performance. After all, this is the company that went in 31/2 years from from eight people with $1 million in venture capital to nearly 1,000 people with an expected $220 million in sales. It's unrealistic to expect that kind of growth to continue in such a volatile industry, but Wall Street does anyway, says Mr. Zachmann at IDC. ``The investment community is like a novice sailor with his hand

on the tiller,'' he says. ``It's naive, it zigzags, and right now it's overreacting on the downside.''