Analysis: Lotus poised to become marketing machine

Lotus opened the European leg of its Lotusphere conference this week with enough flashing lights, MTV-style music videos and moving stage sets to put a Michael Jackson show to shame. Does this signal a new look for Lotus, a company recognised for its heavyweight groupware developments rather than its slick marketing?

Maybe, but only because IBM wants to see fast returns from the firm, which it purchased for $3.5 billion two years ago. Today Lotus contributes $12 billion of revenues to IBM, but this needs to be more. IBM has increased the marketing dollars it ploughs into Lotus by 40 per cent, to ensure it does not lose its top position in the groupware league, which is being eyed by Microsoft and less effectively, by Novell. In the Emea region alone its marketing budget now stands at $60 million, a third of which will be spent on advertising.

The investment ought to be money well spent. Over the past 18 months, Lotus has lost vital market perception to Microsoft and to some extent, Netscape, particularly because it was conspicuous by its absence from the early industry furore surrounding Intranets. Netscape and Microsoft were quick enough to take advantage of the Internet to offer flexible and low cost groupware using commonly available components, a move that made Lotus seem like a proprietary monolith. Analysts attribute Lotus? lack of focus to the temporary departure of the company?s prime visionary, Mike Zisman.

At last IBM helped Lotus take action. Backing from IBM meant Lotus could make dramatic price cuts and invest in new developments, many of which were previewed at Lotusphere.

Jeff Popows, president of Lotus, recounted the company?s dark days in his opening address. He said: ?The period between the second quarter of 1995 and the first quarter of 1996 was tough for us. People were saying Notes is dead, long live the Internet.?

Even when it did launch Domino, its Internet-supported Notes server, last summer, the move went relatively unnoticed compared to Netscape?s Internet client and server splash last October.

Domino did little to help customer understanding of the company. Domino was the codename of Lotus? Notes-on-Internet project, which it kept referring to in public. But since the server and client business was separated after the launch of Notes 4.5 last July, Lotus adopted the codename for future versions of the Notes server only. Notes clients will now keep their original name.

?They?ve really confused the market,? said Clive Longbottom, analyst at the Meta Group. ?I still get calls from customers asking whether I should buy Notes or Domino.?

Nevertheless, Papows is bullish about Lotus? future, which now revolves around the Internet and Java. So convinced are Lotus and IBM that this is the route to take, that they now have 1,000 engineers across 18 laboratories developing in Java. Papows said that makes Lotus/IBM the largest Java-based independent software vendor in the industry.

?In 1997 we?ve got some well focused plans. We aim to extend our lead in groupware and messaging while reducing the cost of ownership. The killer applications of the Internet will be messaging and groupware. This is Lotus? market - we created it. We are fully prepared to make whatever investment is necessary to maintain our lead,? continued Papows.

Lotus? plans for 1997 focus on client and server-based groupware on the Internet. Currently Domino can support third party clients but the clients can only support Lotus servers. This will change.

The company was most vocal about its client strategy, the jewel in the crown being its Kona project, which is designed to snatch a significant chunk of the office applications market from Microsoft, just as Microsoft is pushing into Lotus? messaging territory with Exchange.

Although it has Smartsuite, Lotus is still third in the office area behind Microsoft and Corel. The Kona project consists of a range of Java business applets and end user productivity tools that will run on NCs, PCs, and Apple Macs. Kona will provide users with lightweight Smartsuite-like applications such as spreadsheets and word processors. They are built as Java Beans components, so they can run in Microsoft ActiveX containers and on any Java Virtual Machines.

The applets will be generally available in the summer, months after Corel?s expected launch of its Java office applets in March. Longbottom believes this will enable Lotus to learn from Corel and it could do well because of its massive installed base - there are around 18 million Lotus clients in use today. However, users will soon demand better Java applet storage and the market will shift to focus on repositories from database vendors, he added.

Messaging will continue to be Lotus? bread and butter and it plans to add a range of new applications to Domino. These include Domino.Action, to help developers build applications around corporate information. This will be available as part of Notes 4.5. Also planned is Domino.Merchant to add sales and payment functions to sites created by Domino.Action; and Domino.Broadcast, which supports Pointcast?s I-Server for disseminating content over the Net to users of Pointcast?s Smart Screen.

Papows was scornful of Microsoft?s Exchange messaging strategy. ?They?re right about messaging,? he told journalists and analysts at Lotusphere. ?It?s just they?re too late. We are both powerful engineering organisations but clearly Lotus has not been the tour de force that Microsoft has been. But after we gained a sense of ourselves post the IBM acquisition, we understood we could make larger investments. Getting the economic weight of IBM will change the ground rules. We will spend whatever it takes to keep the lead in our market.?

Does this point the way to a possible acquisition of technology or a company by Lotus? Papows said he did not feel constrained by lack of technology so much as lack of marketing. This is where the investment will be made.

That is the right priority, analysts believe. Longbottom claims Lotus is now ?redefining groupweb,? but Microsoft is six months ahead of Lotus in mindshare. ?Netscape is six to 12 months behind Lotus in technology while Microsoft is 12 to 18 months behind,? he said. Gaining mindshare has to be Lotus? number one priority.

?Having IBM as a parent is a great help - now they get to talk to IT managers instead of Lan managers,? said Longbottom. ?And the best thing is that it is still Lotus people selling rather than IBM salespeople who may not understand the technology.?

Lotus is to make a big marketing push in Europe over the next few months. If this fails to make any significant difference to its market identity, it may need more than annual glitzy shows to remind us of its technical capabilities.