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Marketing Computers
March, 1997
SECTION: No. 3, Vol. 17; Pg. 38; ISSN: 0895-5697
IAC-ACC-NO: 19176840
LENGTH: 2302 words
HEADLINE: Humbled by hubris, Quarterdeck gets back to basics; includes related
articles on company personnel and advertising; Company Business and Marketing
BYLINE: Fattah, Hassan
BODY:
Humbled by hubris, Quarterdeck gets back to basics.
ABSTRACT
After strategic blunders and major losses brought it to its knees in 1996,
Quarterdeck Corp. hopes that revamped marketing will restore its role as a
utilities maker. But can the company, declared DOA several times, be revived for
good?
It wasn't long ago that Marina del Rey, Calif.-based Quarterdeck Corp. was
hailed as one of the hottest high-tech stocks in town.
In an amazing comeback from a $ 5.4 million loss in 1994, Quarterdeck's
earnings climbed to $ 11.5 million at the close of fiscal year 1995, as its
sales rose almost 40 percent to $ 117 million. Then-ceo Gaston Bastiaens proudly
credited the company's transformation into an Internet software maker for the
gains,' and predicted continued growth as he navigated Quarterdeck's growth from
a single-product software maker into a diversified software company focused on
the net. By 1999, he predicted, the Internet would account for two-thirds of
Quarterdeck's sales. That was music to Wall Streets ears. Quarterdeck's trail of
good news drove its shares up 800 percent, from $ 3.13 to $ 28, in one year.
But as quickly as Quarterdeck's fortunes rose in 1995, they plummeted back
to earth in 1996. Bastiaens, empowered by his mandate to transform the company,
went on an acquisition binge that diluted share prices, ate away at the
company's cash reserves, and piled on new products faster than they could be
absorbed. The company's income took a beating as sales of its cashcow memory
management software, Quarterdeck Expanded Memory Manager (QEMM) crumbled.
From its heady highs in 1995, Quarterdeck came crashing down as a torrent of
bad news added up to a $ 75 million loss in fiscal 1996. In August, Bastiaens
resigned from the company, leaving Quarterdeck looking like a rudderless ship
with a broken mast Its plummeting stock was back to $ 4 by the end of the year.
And to make matters worse, a group of disgruntled shareholders filed a class
action suit against the company, alleging that Quarterdeck fraudulently
inflated its earnings to boost its share price. 'They took a major league bet
and lost,' says Hambrecht and Quist analyst Chris Galvin. 'It will be a tough
road ahead for them'
Tough, but not impossible---at least, not if Quarterdeck's reorganization
and redefined strategy pull the company out of its foxhole. Don't give up on
Quarterdeck just yet, insists Alexander Eckleberry, vp of worldwide marketing.
'I feel better now about our future and strategy than I ever have before,'
Eckleberry declares.
As Quarterdeck picks up the pieces of a flawed strategy, it is coming back
full circle to where it was in 1994. This time, though, it's returning to its
roots in utilities software and is armed with a considerably more diversified
product lineup. The company's businesses have been pared into two
units--utilities and communications, and Internet solutions. In each of the
units, it has discarded marginal products and is building its market leaders.
And a proliferation of SKUs and redundant operations that arrived on the heels
of the acquisition binge are being reorganized as the company finds hidden
synergies within them. Quarterdeck's entire mission has even changed.
'Our mission is to develop smart tools that are intended to enhance
computing on the desktop, Internet and intranet,' says Eckleberry. The company's
new products, Eckleberry says, will rely largely on intelligent agents,
component development, and Active X and Java ennoblement. And the Internet? 'The
Internet will be an enabling tool, a backbone' says Eckleberry. Quarterdeck's
new products will use the Internet to download upgrades, access help libraries,
and operate computers remotely.
Ultimately, Quarterdeck is an example of how seeming to do everything right
can go so wrong in the changing software business. Whereas the company used to
take its time developing new products in the past. it quickly found out that a
year is like a century when it comes to developing applications for the
Internet. And as Big Brother Microsoft continues to devour market share from
other software makers, timing, marketing and the right method of distribution
have become even more critical.
The Biggest Blunder When Quarterdeck founder and then ceo Therese Myers sent
several key development people to the National Center for Supercomputing
Applications to meet a young programmer called Marc Andreesen, she had a gut
feeling that Andreesen's Mosaic software was going to drive the next paradigm
shift in computing. It was the fall of 1993, and Quarterdeck, believing itself
too highly leveraged on QEMM, was scrambling to expand into new markets as
Microsoft began to incorporate many of the company's tools into Windows. Myers,
now ceo of multimedia firm Bouquet. saw Mosaic as the key to the company's
future. 'I thought Mosaic was the most brilliant thing I had ever seen' says
Myers. She pushed hard to get hold of Mosaic's technology quickly; knowing that
Quarterdeck needed to get a product to market well before Microsoft arrived; by
the end of 1993 Quarterdeck secured the first license for Mosaic. What she
didn't count on, however, was the resistance she got from her own staff. 'Our
programmers didn't like Mosaic, and they simply did not believe in the
Internet.' she says, 'They really suffered from the 'not invented here'
syndrome.'
Quarterdeck's development team was so much against adopting Mosaic, in fact,
that by June of 1994, its programmers were rewriting the software from
scratch, Myers says. (Quarterdeck had long prided itself on developing products
like QEMM in-house.) When Quarterdeck finally introduced its version of Mosaic
and an Internet Suite in 1995, it had already been surpassed by upstart Netscape
and later Microsoft, who together made all other products practically irrelevant
In the end, Myers says, Quarterdeck forgot what had made it successful; she left
the company by August 1994, thoroughly frustrated.
Despite Myers' departure, Quarterdeck management charged ahead with the
Internet strategy. That September the company reorganized into three strategic
business units-- Internet products, memory management and remote computing. And
in February, coo King Lee recruited Gaston Bastiaens, who had headed the
development of Apple's Newton and Phillips' Interactive division, to guide the
company into the new frontier.
From the beginning, the Belgian-born Bastiaens realized that the Internet
was a whole new ball game for Quarterdeck. He knew that the company needed to
become more marketdriven, and that speed would be of the essence. While some
suggested he get rid of the memory management business altogether, he made the
business the cornerstone of his strategy, relying on cash from that division to
feed the Internet division's growth. Perhaps even more significant was
Bastiaen's decision not to go into head-to-head competition with Netscape and
Mosaic. Instead, he positioned the company as a value-added software.
At face value, the strategy made sense. The company would build a product
line in a burgeoning and lucrative marketplace, as a cashcow business paid the
bills. The primary means to grow, Bastiaens declared, would be acquisitions that
fit the corporate strategy and could contribute to earnings from day one. New
businesses had to be able to bring out new product within six months, while
business managers had to capture at least 51 percent of their individual
markets.
In practice, the strategy was a mess. In less than 20 months, Quarterdeck
made 11 acqui- sitions worth almost $ 130 million in stock; in one day in April
1996, it shelled out $ 75 million in stock to buy Datastorm Technologies, maker
of ProComm communications software, and Future Labs, a collaboration products
maker. The company began to roll out a stream of products that turned its three
business units into a mishmash of products ranging from Web servers and two-way
WebTalk, to a multimedia CD-ROM of Larry Magid's Essential Internet. At one
point, Quarterdeck even tried to become an Internet service provider in Europe.
The result was not mismanagement, some analysts say, but little management at
all. The company became bloated with employees and overhead, while technology
was being forgotten or hidden in the wrong place.
The Fall The first signs of Quarterdeck's fall came in early 1996, when the
company's share price slumped along with other tech stocks, the beginning of a
long and painful slide of Quarterdeck's stock. While Quarterdeck continued its
buying spree, prices for memory began to slide, hurting QEMM sales considerably.
Quarterdeck had already been joked by the introduction of Windows 95, which
incorporated much of the memory management technology in QEMM. In June,
Quarterdeck announced that earnings would be considerably lower than expected,
and in August it announced the resignation of Bastiaens. Finally, in November,
it posted a $ 75 million loss for the year, as well as a major restructuring
that included a layoff of almost 40 percent of its staff, and the issue of $ 20
million in series B preferred stock and warrants to an overseas institutional
investor. By the time Bastiaens had cleared his desk, the company was back to
where it had started in 1994.
The new Quarterdeck But just as a forest fire can leave behind more fertile
soil, Quarterdeck's disastrous Internet strategy left behind a more diversified
business with a host of new technology. Now, it is returning to the business
that it knows best---utilities--albeit with an Internet twist. 'A lot of the
things we were betting on before became part of the operating system,' says
Quarterdeck vp and cfo Frank Greico. 'Now, we're focusing on poking holes in the
OS, stepping out and adding to it'
Quarterdeck is now built largely on seven key products (out of a total of
16) with leading market positions. The company's highest selling product,
ProComm Plus integrated communications software, was released in September for
Windows 95. According to some projections, ProComm should have $ 30 million to $
40 million in sales during 1996. QEMM memory manager and MagnaRam memory
optimizer, together, are next in line. The latest version of the flagship
software, QEMM 8, came out in November 1995, and is nearing the end of its
lifecycle;a new version is expected within several months. MagnaRam 97, released
last September, is a 32bit program that combines data compression technology
with other performance boosting technologies. CleanSweep, Quarterdecks file
removal software, is the company's third largest seller; version 3.0, the first
Internet-enabled 32-bit application removal and system clean-up utility,
appeared last October. WebCompass 2.0, a considerably improved version of the
meta-search program, was released in December 1996.
Once the dust settles, some analysts predict, Quarterdeck should be in
reasonable shape to stand on its two feet. The company now projects sales of up
to $ 100 million in 1997, but at considerably lower cost. Whereas Quarterdeck's
break-even point was $ 35 million in revenues a year ago, the consolidation has
brought that down to $ 24 million, Greico says. Meanwhile, a revamped
development process has sliced development cycles in half or more. Eckleberry
says the new process, begun by Bastiaens but only now showing fruit, has brought
the marketing and development teams closer together to encourage a more
market-driven focus; typical cycles will now range between three to six months
for internet products, and one year or less for desktop utilities, Eckleberry
says. Quarterdeck has also begun to use alliances and product licensing more
actively to speed new products to market. Eckleberry points to Quarterdeck's
SpeedyROM CD ROM accelerator, which was brought to market a month after the
company licensed the technology.
Quarterdeck is not the only company to have been burned by the rush to the
Internet. But unlike the other players, it had many disadvantages. It was too
small to survive a cash hemorrhage just in the hope of carving a profitable
niche. And unlike the new startups, it is a public company with an established
track record whose investors buy based on that track record. Together those
factors add a new dimension to doing business in a market in which few have had
any profits to speak of. Within a year, Quarterdeck may be back on the high
ground. If the company has truly learned from its mistakes, the new business has
a promising future. But the company will continue to find itself in closer
competition with the boys from Redmond, as they struggle to build the thin OS.
CHRONOLOGY
1993
December
Quarterdeck signs the first license for NCSA's Mosaic, paving the way to its
entry into the Internet markets.
1994
August
Quarterdeck founder and ceo Therese Myers resigns; King Lee takes over daily
operations of the company.
1995
January
Gaston Bastiaens boards as ceo of Quarterdeck; sets a new internet strategy
built on acquisitions.
June
Quarterdeck releases Quarterdeck Mosaic.
October
Quarterdeck moves headquarters from Santa Monica, Calif. to ritzier digs in
Marina del Rey, Calif.
1996
March
Quarterdeck acquires Datastorm Technologies, maker of ProComm Plus, and buys
Future Labs, producer of collaborative computing software.
June
Quarterdeck acquires Limbex Technology, developer of WebCompass search
technology.
August
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