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`THIS HAS TO BE BORLAND'S WORST NIGHTMARE'
The "barbarian" of the personal-computer software biz. That's how Borland International Inc. sees itself--tough, lean, aggressive, anything but conventional. Now, we'll see how barbaric Borland can be.
On Mar. 24, Microsoft Corp. threw a flaming spear at the heart of Borland's business. Microsoft said it will acquire Fox Software Inc. for about $173 million in Microsoft stock. A $45 million company, Fox is by no means elephantine, but it is the No. 2 supplier of PC data-base software behind Borland (chart). The deal, Microsoft's largest to date, would create a formidable challenge by combining Microsoft's deep pockets and market power with Fox's much-praised programs. Says analyst Bruce M. Lupatkin of Hambrecht & Quist Inc.: "This is a direct threat to the Borland dominance." The day the news broke, Borland's stock sank 10%, to 63.
GOBBLING AWAY. So, Borland will have to fight to keep its crown. Today, Borland controls about 50% of the $600 million PC data-base market--in large part through an acquisition of its own. Last year, it snapped up Ashton-Tate Co., the maker of the industry-leading dBASE, in a $439 million stock swap. That, along with Borland's own successful Paradox software, made it the undisputed king of PC programs used to keep tabs on everything from personnel files to inventory records.
Borland Chairman Philippe Kahn has never faced such a foe in his core business. "Of course I'm worried. How can you not be about anything the richest guy in America wants to do?" Kahn says, referring to Microsoft's billionaire Chairman William H. Gates. But Kahn already knew that his Redmond (Wash.) rival had designs on data bases. By late 1992, Microsoft plans to make its own grand entrance with a homegrown package, code-named Cirrus, 2 1/2 years in the making.
With Fox in hand, Microsoft can begin gobbling up market share even sooner. Within a year or so, analysts say, Microsoft could garner as much as 25%. And Gates seems to be counting on it. "I'd be very disappointed if we were anywhere close to only 10%" of the data-base market, he says. "Very, very disappointed."
And Gates hates to be let down. Fox hopes to keep Gates happy by introducing in July new versions of its FoxPro package, including one for Microsoft's hot-selling Windows graphics programs for computers running its MS-DOS software. The tandem of Cirrus and FoxPro, he's betting, will appeal to two different sets of customers. Cirrus, which relies on graphic symbols for ease of use, should lure first-time data-base users. FoxPro is for those wedded to dBASE technology. It's no coincidence that Borland courts the same two groups of software buyers. "This has to be Borland's worst nightmare," says analyst Betty Lyter of Montgomery Securities.
If so, it may be Microsoft's dream. FoxPro, a dBASE clone, zips through data faster than its progenitor, some reviewers say. As such, it could appeal to the 3 million dBASE users. Swaying them over to FoxPro so far has not been easy. Says Fox President David L. Fulton: "We just haven't had the resources."
EXODUS. Now, Fulton's squadron is part of the world's biggest software outfit. Microsoft promises a broad marketing and distribution effort. It's unclear how many of Fox's 250 people will move to the Seattle area, but its 21 software developers are already packing. Ditto for Fulton, 47, a former computer science professor who co-founded Fox in 1983 in his Perrysburg (Ohio) living room with Richard G. LaValley, an attorney who put up half the initial $100,000 seed money. The two stand to reap $85 million each in Microsoft stock. And Fulton can't wait to get started as Microsoft's so-called data-base architect. "This is like giving a kid the biggest electric train he could get," he says.
The deal is not a total surprise. For three years, there have been courtships between the two companies. But this past October, talks grew serious after one obstacle was lifted--namely, a threatening lawsuit against Fox. The suit, which was filed in 1988 by Ashton-Tate, claimed Fox illegally copied dBASE features. The irony: After Borland acquired Ashton-Tate, it dropped the suit under pressure from the Justice Dept. And it promised not to file a similar one for 10 years.
Without that legal sword, Borland will have to rely on aggressive development, marketing, and pricing. But Kahn has been through skirmishes with Microsoft before and says he is prepared for the upcoming biggie. "We don't intend to give up anything," he declares. "Our company will tighten its belt and make sure we're leaner and meaner." Who would expect anything less from a true barbarian?Kathy Rebello in San Francisco