Software industry comes into its own
New Orleans — It's mainly a matter of simple arithmetic: For every microcomputer sold, three to five software packages are also purchased. This means that spectacular growth in computer sales implies explosive growth in software. And it goes a long way toward explaining why the software industry has recently stolen the limelight from computermakers as the glamour growth industry.
The fact that the software industry has taken on a life and power of its own is illustrated by Softcon, the first major trade show designed specifically for software publishers.
Some 14,600 attendees and 600 exhibitors converged on the Louisiana Superbowl Tuesday to examine the latest programs, make deals, enjoy the fancy restaurants for which New Orleans is famous, and try to guide the course of their chaotic, supercharged industry.
Five years ago, the software business was still a small cottage industry. Today, there are more than 3,000 companies turning out software. This year sales are expected to be about $3.5 billion, significantly more than the record industry. And sales are growing at 40 to 50 percent per year.
This has opened tremendous opportunities. A number of software houses started on a shoestring and now have millions of dollars in annual sales. An example is Ashton-Tate, the Culver City, Calif., company that markets the best-selling dBase II filing program. The business was started with $7,500.
However, there have been risks as well. Robert Glidden of Perfect Software Company looked over the proceedings of a computer conference seven years ago.
''Of the software companies there, only one is still active. Then, as now, there was a strong desire to believe those who are already in are safe,'' he says.
Another indication of the volatility of this emerging industry is the fact that no publisher has yet managed to come up with two ''hit'' programs.
However, Lotus Development Corporation, which had last year's smash program, hopes to change that this year with a new product previewed at Softcon. Their original product, 1-2-3, combines an electronic spreadsheet, graphing, and limited word processing. The new product, Symphony, adds fuller-featured word processing, filing capabilities, and communications capabilities. Based on these demonstrations it appears that they have a good chance.
In fact, the Lotus booth and that of Apple computer, displaying software for its new Macintosh computer, were the center of activity on the conference floor.
But the industry is changing rapidly. As computers have become more powerful, the software to run them has become more complex. Computer users have also grown more demanding, requiring greater sophistication. And as more and more people have bought computers, marketing has become more important and more expensive. As a result, it now takes several million dollars to initiate a new software product.
An example is the Lotus introduction of 1-2-3. The company spent more than $1 million in three months just on marketing the program. People in the industry say it now takes from $3 million to $8 million to develop and introduce a new software package.
Mark Ursino of Microsoft, one of the largest software houses, sees both serious challenges and opportunities in the time ahead.
''While the number of computers being installed over the next few years will grow astronomically, the average cost of the systems will also be coming down dramatically. Because software must be priced accordingly, this means that software prices must also come down. And this means shrinking margins,'' he says.
Furthermore, the skyrocketing number of software packages - about 12,000 were on display at Softcon - has sparked fierce competition for retail space. That is one reason for Softcon, to display products for retailers.
A number of exhibitors have been disappointed with the turnout at the show, however. There have been fewer dealers attending than they had hoped.
''Oh, well,'' sighs Michael Mango, marketing director for AMI, a company that sells computer systems to accountants. ''Even if they are disappointing, you still have to show up. Otherwise, people begin to wonder if you're in trouble.''
Much of the action appears to come from computer manufacturers, trying to line up the most popular programs for their latest machines. This is a reflection of a fundamental change in the industry. From an afterthought, software has become the key to success or failure of new computers.
In the early days, when the market was mainly hobbyist, users were content to write their own software. Commercial software companies were at the mercy of the hardware developers. Technical performance was the criterion of success of new computers. As a result, programmers had to rewrite large amounts of their program for each machine. With the IBM Personal Computer, however, this changed. The market had broadened to include users who weren't willing to purchase computers without plenty of commercial software. Thus, the IBM computer rapidly became the industry standard. And most new computers are being designed to run software written for the IBM PC with little if any modification.
As a result, ''There is a love-hate relationship between the software and the hardware side of the industry,'' says Fred Gibbons, president of Software Publishing.