DEC STILL YEARNS TO BE A SOFTWARE KING
Two years ago, watching its hardware profits sag, Digital Equipment Corp. decided to push hard into the software business. Like IBM, Digital Equipment craved the fat margins available from software products. While hardware was fast becoming a commodity-like product, the opportunities for creating distinctive software--and charging premium prices for it--seemed almost limitless. And DEC's long experience in networking software gave it a set of programs that could have industrywide appeal--if they could be adapted to work on different machines and marketed successfully.
But so far, DEC's software push hasn't paid off. Undermined by slow development and shaky alliances, the software business has produced none of the gains in revenues and profits that DEC anticipated. In the fiscal year ending June 27, software sales will barely rise above last year's $750 million, far short of the $1 billion goal DEC set for itself.
`TECH-ECTOMY.' With its internal efforts stalled, the $14 billion Maynard (Mass.) minicomputer company is counting on a new strategy to kick-start software sales: a risky union with Microsoft Corp. Software industry executives warn that Microsoft, the dominant force in personal-computer software, would get much more out of the liaison than DEC would. DEC, chides Lotus Development Chief Executive Jim P. Manzi, will suffer a "tech-ectomy"--a one-way transfer of its software technology to Microsoft.
A combination of bad luck and tactical errors has kept DEC's original software plan from jelling. A consortium with other hardware makers that would have seeded the market with machines capable of running DEC's software has splintered. At the same time, DEC has been late in bringing key programs to market. Worse, in an industry where politics mean as much as good technology, the company's left hand doesn't seem to know what its right is doing. While one DEC group has been trying to persuade makers of PC programs to license some basic DEC technology, another has been marketing applications programs that compete with those same companies' products. And in March, DEC risked the wrath of PC software resellers by bidding for 800-Software Inc., a $77 million distributor of PC packages. Now, David L. Stone, vice-president for software business, has been assigned to rationalize DEC's scattered software efforts.
The strategy wasn't always such a muddle. At first, DEC planned to steer clear of applications programs--banking packages, for instance--so it wouldn't alienate other applications developers, whose programs DEC still needs for its machines. Instead, DEC planned to concentrate on systems software--the programs in the bowels of computers and networks that perform technical functions such as sending electronic mail or searching data bases.
DEC hoped it could take some of the systems software that made its own computers work so well in networks and sell it to other computer and software makers. The goal, says Stone, was to adapt DEC software to other brands of computers and collect royalties.
Yet today, DEC can count only a handful of such translations. Microsoft has adopted DEC's design for joining text, graphics, and images into a single, "compound" document, but only as an option in one of its programs. One of DEC's best shots at creating standards would have been within the Open Software Foundation (OSF), an industry group DEC helped found. DEC got the OSF to promote its way of identifying computers on a network but failed to create products that met its own standard. "We screwed up because we didn't get the technology to market first," says Stone. DEC had switched its attention from workstations to PCs, he says.
SHAKY GROUP. Part of its thrust in PCs was through an industry consortium that intended to set a new computer standard. In 1991, DEC led a group of some 20 computer makers to form the Advanced Computing Environment (ACE) initiative. DEC helped draw up precise plans for a machine that ACE members could produce in a variety of models that would all run the same software. The idea was to foster a huge market of ACE clones that would supplant the IBM PC as the industry's standard computer. A year later, though, ACE seems shaky: MIPS Computer Systems Inc., whose chip design is a key part of the standard, is being acquired by workstation maker Silicon Graphics Inc. Without a "neutral" chip design, ACE may not hold.
Meanwhile, DEC's loosely structured management led to a flip-flop on its no-applications policy. Its maverick PC group, under Vice-President John T. Rose, began producing word-processing and other programs that compete with packages from Lotus Development, Microsoft, and Symantec. He also initiated the acquisition of 800-Software, which is responsible for a large portion of their sales to corporations and the government. Now, responsibility for the PC operation is getting reassigned as part of DEC's on-going re-organization. Rose left DEC abruptly in March to start his own computer company.
`NATURAL SYNERGY.' All of which brings DEC to Microsoft's door. Cliff Conneighton, vice-president for office information systems at consultants Gartner Group Inc., praises the pair's "natural synergy": One is strong in desktop software, the other in networking and systems management. "I expect to see the companies selling each others' software and doing a technology exchange," Conneighton says. DEC already has decided to adapt Microsoft's Windows NT operating system, which is now being created for IBM-compatible PCs, to run on DEC Alpha computers, due out next year. That would let Alpha customers run many of the programs that PC software writers are working on for NT. In addition, Microsoft is expected to incorporate some of DEC's networking technology in NT, which is due out late this year.
But the Microsoft linkup gives reason for pause. The software giant had nasty public splits with IBM and Hewlett-Packard Co. Both companies tapped Microsoft to develop software components but found Microsoft competing head-on with them. Despite DEC's using NT, it's not yet clear whether Microsoft will adapt its NT applications programs to run on Alpha machines.
Microsoft Executive Vice-President Mike Maples dismisses such talk, noting that Microsoft is hammering out a "sweeping" set of agreements with DEC. One promising area for collaboration: "groupware" programs that help workers cooperate across networks. DEC already sells a groupware package called TeamLinks, which competes with Lotus' Notes package. "DEC has quite a bit there, and so do we," says Maples. If they can put it together, DEC may finally realize some of its software ambitions.A HARD DRIVE
In an attempt to become a big player in the packaged-software business, DEC in
recent months has made a wide range of software deals
MICROSOFT An alliance with the PC software giant may let DEC's forthcoming
Alpha computers run popular Windows programs written for PCs
PHILIPS With the acquisition of the Dutch giant's computer business last year,
DEC obtained several PC packages and 400 software engineers
EA SYSTEMS DEC bought 80% of this maker of manufacturing software in 1991
800-SOFTWARE The acquisition of this $77 million PC-software distributor gives
DEC a way to sell microcomputer software in great volume
Gary McWilliams in Boston