The Glitch at Wordperfect

Information Processing

The Glitch at Wordperfect

It's changing its nice-guy strategy to fight back against Microsoft

Kathy Rebello in Orem, Utah
Business Week

May 17, 1993

In November, 1991, top management realized things weren't so perfect at WordPerfect. The No.1 maker of word processing software was under attack from a surging Microsoft Corp. Chairman Bruce W. Bastian began to wonder if WordPerfect Corp.'s management team, famous for its Mr. Nice Guy approach, had what it took to fend off the king of the hill. Via an electronic-mail message, Bastian put it to President Alan C. Ashton and Vice-President Pete Peterson: "Are we the right people to be directing this company?" Peterson, who had been running operations for 12 years, was blunt: "I know I am. But I don't know about you."

Thus began the upheaval that's still transforming WordPerfect. Since its founding in 1979, the company has been a collegial, if insular, place. In Orem, Utah, far from Silicon Valley, WordPerfect has operated like one giant extended family. Its primary objectives, according to its mission statement: "To conduct business fairly, honestly, profitably, and courteously, while avoiding debt and extravagance." An admirable approach, but a bit timid for a half-billion-dollar company that, just as it's laying plans to go public, finds its lead threatened by mighty Microsoft. "We need to be No.1," says Ashton. "We need to be aggressive."

HOT FLIGHT

The electronic spat between Peterson and Bastian, who also happen to be brothers-in-law, has set off an avalanche of change. Within four months, Peterson was out and replaced by a seven-member executive committee, including co-founders Bastian and Ashton and five top managers. The company hired its first chief financial officer. WordPerfect is coming out of its shell, forming partnerships, making acquisitions, and trying to expand beyond word processing, which accounts for 80% of revenues.

These moves didn't come soon enough to head off problems in 1992. Preliminary figures from market researcher Dataquest Inc. show that last year, Microsoft took over the No.1 slot in the $ 1.7 billion word processing market, with 46% compared with WordPerfect's 32% (chart). WordPerfect disputes those numbers but acknowledges its share slipped because it was slow to respond in May, 1990, when Microsoft unveiled the Windows 3.0 "environment." Microsoft had a 3.0 version of Word for Windows that July, and it now has 53% of the Windows market. WordPerfect for Windows arrived 16 months later to so-so reviews. An improved version followed a year later, but the damage was done: Its share is just 31%, Dataquest says. "WordPerfect missed the party," crows Pete Higgins, Microsoft's senior vice-president for desktop applications.

The lost ground shows up in the company's bottom line. While WordPerfect does not disclose its results, insiders say revenue dropped by more than 5%, to about $ 550 million, in 1992. Worse, the cost of about 1,000 new workers helped compress operating profits by 50%, say insiders. At about $ 130,000 in sales per employee, WordPerfect is now the most inefficient of the top PC software makers, says Soft Letter, a newsletter.

That's especially awkward when the company is contemplating an initial public offering. Investment bankers who have seen the books confirm the anemic 1992 but remain eager to take the company public -- perhaps as early as this summer -- because they feel the turnaround is under way and could accelerate when key new products arrive later this year. In the first quarter, insiders say, revenues jumped more than 20% because of the improved WordPerfect for Windows. Bastian says that an IPO is likely but won't discuss the timing. He and Ashton each own 50% of the company and are expected to sell a 20% stake to the public for $ 200 million to $ 300 million.

The signs of an impending IPO are everywhere. The company is seeking its first outside directors, and CFO Dan Campbell has changed accounting from a cash basis to the more customary accrual approach. He also says Morgan Stanley & Co. has been retained as "financial advisers." It's one of several firms vying for the WordPerfect underwriting. Last November, when company executives flew to New York to meet with underwriters, they found themselves surrounded by investment bankers from Morgan Stanley, Goldman Sachs, and Merrill Lynch who had obtained the flight number. The flight became a cross-country lobbying session. Says one of the bankers: "This is expected to be one of the largest technology offerings ever." Microsoft's 1986 IPO raised just $ 61 million.

PROUD PAPAS

Living up to Wall Street's expectations could mean some more growing up for WordPerfect's management. Neither Ashton, 51, nor Bastian, 45, had much management experience before teaming up in 1977. Ashton was a computer-science teacher at Brigham Young University, and Bastian was his graduate student. Their collaboration led to the WordPerfect package that by the mid-1980s was the top seller. "We don't claim to be innovative businessmen or innovative money managers," says Bastian. "We see ourselves as innovators in software development."

The problem lately has been getting products finished. Like other software makers, WordPerfect has found the shift to Windows tricky. An electronic-mail program, key to the diversification effort, was due early this year and is now slated for summer. A presentations package due in November has slipped until summer. Ditto for an update of WordPerfect for MS-DOS. "We can't seem to get a product out the door," frets one salesman. "The problem is that Alan and Bruce are nice guys and they can never say: 'Get it done or else.'"

To be sure, Ashton and Bastian are not whip-crackers. Despite its size, the company has operated like a giant mom-and-pop shop. Everything was paid for in cash. All products were homegrown in the red-brick buildings owned by WordPerfect. Most of the 5,600 employees are of Utah stock or hired out of Brigham Young. That has meant a company dominated by the Mormon emphasis on hard work and large families. Like proud papas, Bastian and Ashton bestowed company cars and generous salaries. When sales reached $ 100 million in 1987, employees and spouses were whisked to Hawaii. Yet in the market, the company eschewed flashy ads, acquisitions, and alliances. And never was there a disparaging word said about a rival.

Rather than chuck the nice stuff, Bastian and Ashton are adding new tricks. They're speeding up programming and are spending gobs of money on marketing, including the company's first national TV ads. In its new print ads, the company is biting back at Microsoft. "In the past, our major goal in life was to be nice guys," says John C. Lewis, a senior vice-president. "But last year we had a business catharsis and asked ourselves: Does that also mean we have to be quiet? We have to appear weak?"

SLOW MOVES

Another change: WordPerfect has started to reach out to other companies. It has spent some $ 20 million acquiring three small software makers. Last month, it teamed up with Borland International Inc. to offer customers a deep discount on a so-called "suite" of Windows packages, including WordPerfect and Borland's spreadsheet and data-base software. It's an important defensive move since 40% of Microsoft Word sales are in such bundles. On May 4, Microsoft upped the ante with a new suite including a data-base program.

While WordPerfect now may be making the right moves, skeptics still worry that a seven-man executive committee could prove cumbersome. The deal with Borland, which took a year to negotiate, could have been done in a few months, critics say. Similarly, a former executive complains that a licensing and maintenance program for big corporate buyers took seven months. Ashton counters that the record will prove that the committee, not a single executive, is the best way to run WordPerfect.

Peterson remains one of the chief skeptics. He sold his 1% stake back to the founders last year and now observes the company from his home, directly across from WordPerfect's campus. "The problem is pretty simple," says Peterson, who is launching a new software startup and writing a book about WordPerfect. "You have a company founded by developers. At some point in time, it doesn't work. You have to get those products out the door. Maybe they need a kick in the seat of the pants." By now, though, WordPerfect has had several.

GRAPHIC: Photograph, BASTIAN AND ASHTON SEE THEMSELVES AS SOFTWARE DEVELOPERS RATHER THAN BUSINESSMEN PHOTOGRAPH BY PATRICK KROHN; Chart, WORDPERFECT'S MARKET SHARE IS SLIPPING... ...AND IT TRAILS COMPETITORS IN PRODUCTIVITY CHART BY ERIC HOFFMANN/BW