A couple of years from now, few are likely to remember when Microsoft's dominance was shaken in the desktop office software arena. Fewer still will remember the vendor behind the ambitious attempt to take Microsoft's crown because it may have vanished from the market it once hoped to rule.
Canadian-based Corel bought the WordPerfect Office suite from networking specialist Novell in 1996. The company pumped a great deal of money into research, development and marketing, as it tried to challenge the supremacy of Microsoft's Office suite.
The David and Goliath battle raged on, and at times it looked like Corel's WordPerfect slingshot would seriously wound the giant. But the fairytale ending to the story does not transfer to the cut-throat world of the IT industry, and instead it is Corel that is now in danger of losing the battle.
Corel has suffered heavy losses since it bought WordPerfect. The vendor briefly stopped the rot in 1999, when it released new versions of WordPerfect and its graphics package, CorelDraw, which pushed third-quarter turnover to a record $71.3m (£46.5m). However, since then, Corel's sales figures have plummeted by 38 per cent. The firm's position has not been helped by the fact that its chief executive, Michael Cowpland, is facing accusations of insider trading by the Ontario Securities Commission.
In the software company's last financial results, it reported a loss of $12.4m from sales of $44.1m during the first quarter ended 31 March. At the same time, it admitted it expects similar losses to occur in every quarter of 2000.
The vendor also revealed that continued losses have dramatically depleted its cash reserves, meaning that it could simply run out of cash before the autumn.
Perfect pitch? Not quite...
Martin Brampton, chief analyst at Bloor Research, believes that Corel is in real danger of leaving the software market altogether. He said its troubles began when it tried to pitch WordPerfect head to head with Office and found it could not compete with the Microsoft marketing machine.
"WordPerfect simply ran out of steam. Corel relied heavily on offering it cheaply to a price-sensitive market, but from a revenue point of view, that strategy wasn't going to be a winner," Brampton said.
Carey Gray, research analyst at Butler Group, said: "Microsoft owned most of the market Corel traditionally tried to play in. WordPerfect could not compete, and it's hard to see where they are going to get the cash they need."
Inprise/Borland deal on 'shaky' ground
In an attempt to find fresh revenue streams, Corel has looked to the emerging Linux market. During the past few months it has released Linux-based versions of its products and launched its own version of the Linux operating system. The company also signed an all-stock merger agreement with another Linux-friendly vendor, tools specialist Inprise/Borland. The deal would give Corel access to $200m.
However, due to Corel's financial problems, the deal with Inprise/Borland now looks shaky. The deal's value has plunged, along with Corel's share price, from an estimated $2.4bn in February to $374m last week. Inprise/Borland has called in its financial advisors to reassess the value of the deal for its shareholders.
A Corel representative admitted that rumblings around the deal had thrown it into confusion. She said: "The ball is firmly in the court of Inprise/Borland and its shareholders. The only hurdle left is gaining shareholder approval."
Clive Longbottom, analyst at Strategy Partners, said Corel needs Inprise/Borland more than Inprise/Borland needs Corel. He said the deal probably rested on "a flip of the coin" by Inprise/Borland's shareholders.
Robert Royce, sales director at Corel VAR Sanderson Management Software, believed the deal will benefit the market. He predicted Corel would survive due to its channel and a loyal customer base. He said: "Microsoft may want to sweep the board but clients always appreciate competition. WordPerfect has a band of devout followers. It would be a pity if Corel was forced to leave the market, because customers like to have a choice."
Playing a losing game
But Corel's future does not look bright, according to Longbottom. He said: "In the past few months Corel has been all over the place. It wants to play in too many markets and doesn't have deep enough pockets to sustain it all. Corel's business model is hard to define. Today they want to do one thing, but tomorrow it'll be something different."
Brampton also thinks that Corel has suffered due to an unclear product message. "Corel still plays in the graphics market, and it has also been looking at the Linux desktop market. But a lot of its plans for Linux just look opportunistic, and they are struggling to come up with any viable offerings," he said.
Brampton added: "The way forward for Corel is a massive restructure. The way out of its current financial trouble will probably lead to them having to sell off the only viable products they own."
Longbottom said that although he thought it was unlikely that Corel would be bought, Linux specialists such as Red Hat and Caldera may be interested.
"Corel will be on the rack for some time. It's in a hell of a mess. The only thing it can do is make massive changes in the messages it gives out to the industry and clients," he said.
Corel is making changes to its cost structure and hopes to gain additional funding in case the Inprise/Borland deal falls through. But if the erosion of its traditional markets continues, and Linux does not make it a profit soon, it may not survive to fight another battle against the old enemy, Microsoft.
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