Lotus Development Corporation

FOUNDED: 1982

Contact Information:

HEADQUARTERS: 55 Cambridge Pky.
Cambridge, MA 02142
PHONE: (617)577-8500
FAX: (617)693-1909
TOLL FREE: (800)205-9933
URL: http://www.lotus.com

OVERVIEW

Lotus Development Corporation is a pioneer spreadsheet developer and the world's number six software vendor. The core product line of Lotus Development Corporation is its spreadsheet program, known as Lotus 1-2-3. Spreadsheets assist in analyzing financial data by performing difficult calculations instantly, such as those involving interest rates. This detailed information is presented in a format easy to understand. The company also makes a graphics program, Freelance, as well as e-mail and word processing software, with several products available. In 1995, the most recent year for available independent financial data, Lotus's total revenue was __BODY__.15 billion worldwide.

The company was founded in 1982 when Mitchell D. Kapor, a software programmer, won $500,000 dollars in royalties for a software program that combined charts, statistics, and other challenging calculations. Kapor founded Lotus Development with these royalties. The company's ground-breaking Lotus 1-2-3 spreadsheet program took the still young personal computer market by storm. He quickly earned back the initial investment in its development and promotion. Lotus controlled nearly 18 percent of the business software market four years after it began.

COMPANY FINANCES

As a subsidiary of IBM, Lotus Development does not report independently on its financial operations. In 1995 the company posted total revenue of __BODY__.15 billion, compared with revenue in 1994 of $971 million. Lotus reported 1993 revenue of $981 million, compared with 1992, which was $900 million.

ANALYSTS' OPINIONS

The 1995 merger with IBM generated many views throughout the business world, from negative to positive. A June 3, 1996 article in PC Week said that the impact of the merger was still being scrutinized nine months later; but, for the time being, it appeared to be a success. A January 22, 1996 article in Industry Week, however, called IBM's decision to merge one of the most "Gutsy Decisions of 1995." Some called it a happy marriage; others, a marriage of convenience. A June 19, 1995 article in Newsweek referred to it as a hostile takeover. PC World questioned whether Lotus users would feel that they were being "IBMed to death." A July 10, 1995 article in Fortune said the move proved IBM could be taken seriously again. PC Week, however, on June 19, 1995, asked whether two companies with records of failure could make a successful merger.

HISTORY

Lotus Development Corporation was founded in 1982 by computer programmer Mitchell D. Kapor. As a psychology graduate student in 1978, Kapor had gained experience in the new field of software programming. Kapor designed a program he called Tiny Troll, that combined charts, statistics, and other difficult calculations in a single software package. This creation earned him $500,000 in royalties. It was with this seed capital that Kapor set up Lotus Development.

Kapor launched the Lotus 1-2-3 spreadsheet software in January 1983 with the help of additional investors and a __BODY__-million advertising campaign. The response to the ad campaign was overwhelming. Within a few days Kapor and his investors had made back their money. Eighteen months after its founding, Lotus Development went public. The investors increased their commitment from $5 to $100 million.

By 1986 Lotus held 17.6 percent of the business software market. In July of that same year Kapor left the company, and Jim Manzi took the helm. It was during this time period that a series of failures and unsuccessful product introductions began. The company began to diversify in reaction to industry concerns that Lotus was focusing on a single product, the highly successful 1-2-3. However, Symphony, a database management software program unveiled in 1984, did not sell well. The same was true of Jazz, a database program for Macintosh computers. Competitor Microsoft began to develop a number of innovative competing products, including Excel spreadsheets.

Lotus experienced a return to better times during the latter part of the 1980s and the early 1990s. First came the adaptation of its spreadsheets and other programs for Windows. Then, in 1990, Lotus introduced AmiPro word-processing software. In 1992, responding to a growing consumer trend, the company introduced its own "office suite," a bundled program of various applications, including spreadsheets and word processing. Also in 1992, it launched Lotus Notes, its e-mail program. IBM chose to use this in its own office plan.

Lotus enjoyed a good relationship with this computer industry giant for several years. Then, in what was widely considered a "hostile takeover," IBM purchased Lotus for $3.3 billion in July of 1995. By February 1997, IBM and Lotus together led the worldwide e-mail market.

Lotus continued as a major competitor on the group-ware scene. By the spring of 1998 it boasted more than 22 million users worldwide for its Lotus Notes client software. Notes integrates messaging, calendaring, Web access, and personal task management functions into a single-user interface.

Lotus announced in late spring of 1998 that it had signed definitive purchase agreements with DataBeam Corp. of Kentucky, and Israel's Ubique Ltd., both privately owned companies specializing in real-time communications software. These companies will be acquired by IBM, Lotus's parent, under this agreement. They will become part of the Lotus Communications Products Division. Lotus plans to bring a real-time dimension to e-mail, and collaborations in business of all sizes by way of the Internet, as well as the company's individual intranets. Lotus will base this work on its Notes and Domino software, in addition to the gain made from technologies and expertise of DataBeam and Ubique.

STRATEGY

Lotus had a tendency to succeed or fail based on the adaptability of its programs to consumers' needs. This included its compatibility with other software programs, especially operating systems. Lotus started out as an IBM-compatible program. This was a wise move since the 1982 introduction of Lotus followed the 1981 unveiling of the IBM personal computer (PC). The PC became to computers what the Model T had been to automobiles.

Eventually, however, Lotus had to adapt to the Macintosh market as well. This was due to the fact that most software used on IBM machines cannot be accessed on an Apple, or vice-versa. Lotus also had to come to terms with industry giant Microsoft, a major competitor. Microsoft's Windows program was selling at a rate of 1 million copies a year by 1991. Lotus was forced to adapt to this market also—to stay competitive the company developed a program for Windows that same year.

Lotus hoped that with its acquisition of DataBeam Corp. and Ubique Ltd. in the spring of 1998, the company would achieve its goal of bringing a real-time dimension to its messaging and groupware programs. Both companies, which were privately held, were leaders in the field of real-time communications into the late 1990s.

INFLUENCES

The three biggest milestones in Lotus's development were its initial splashy entrance into the marketplace; its subsequent troubles in the mid-1980s; and its acquisition by IBM. Mitchell Kapor followed two crucial paths with his new company in 1982. First, he tied its product to another successful one, the IBM PC. Then, he launched it with what was considered at the time an almost excessive advertising budget for computer software. The campaign included full-page newspaper and magazine ads, and cost __BODY__ million. However, in only nine months, Lotus sold 110,000 copies of its software at $495 a piece, for a total sales figure of close to $55 million.

Still, in the mid-1980s, as Wall Street observers started to note that 60 percent of the company's profits came from a single product, Lotus was in danger of being viewed as a "one-product company." The decision to diversify followed quickly. First came Symphony, introduced with a large ad campaign at the 1984 Los Angeles Olympics. The program combined word processing with data management and networking. Users found it cumbersome to use. In addition to this complication, the idea of combining software packages that would not take hold until the 1990s, was ahead of its time. Similar problems followed with Jazz for Macintosh. In 1986, however, Lotus began a comeback with a new version of 1-2-3, and a massive expansion into the Japanese market.

IBM's purchase of Lotus in July 1995 signaled a new era for the company. Industry observers in PC Week suggested that IBM intended to maintain a hands-off approach, and let Lotus, along with its highly popular Notes program, influence the mother company, rather than the other way around. Business Week also held that the success of the merger would be tied closely to the success of Lotus Notes in coming years, and Black Enterprise called the merger a sign that IBM was gearing up to enter a "groupware war" with office-suite competitor Microsoft. On the heels of the merger, long-time Lotus chief Jim Manzi stepped down. According to PC Week, it appeared that IBM and Lotus's existing managers could not see eye-to-eye. Some "house-cleaning" was necessary.

The growing consumer clamor for real-time communications was the key factor behind the 1998 acquisition of the two companies holding considerable expertise in the field. IBM acquired DataBeam and Ubique Ltd. for integration into Lotus' Communications Products Divsion.

CURRENT TRENDS

Two of the biggest trends in Lotus' business during the late 1990s were "office suites" and "the net"—both the Internet and the intranet. Suites are packages that combine several programs into one bundle. This makes it possible, for instance, for a user to import an object from a graphics program to a slide show; or, to include spreadsheet data alongside word processing. Lotus entered the office suite market with SmartSuite in 1991. The next year, it entered into an agreement with Digital Equipment, to include a copy of SmartSuite for Windows with every computer the company sold.

During this same time period, Lotus established a significant presence in the e-mail and Internet markets with its products Lotus Notes and cc:Mail. A review of computer trade and financial industry publications' articles about Lotus in 1996 and 1997 indicated that many industry analysts believed that Lotus Notes represented the future of the company. The program assists businesses in making the most of the "intranet," the internal network of each business.

Lotus' eSuite was yet another product developed to appeal to businesses increasingly involved in networking. The product represents a new line of business productivity software and technologies designed exclusively for the network computing environment. There are two eSuite product lines: eSuite Workplace and eSuite DevPack.

PRODUCTS

Lotus' product line includes desktop application products, such as SmartSuite; and an integrated applications suite that combines word processing, spreadsheets, and other types of programs. Another key focus for Lotus is communications, with Lotus Notes for workgroup computing, which gave it a foothold in the expanding "intranet" market; cc:Mail, an e-mail program; and, Soft*Switch electronic mail switching. Its most renowned product is its spreadsheet program, 1-2-3, which has versions for DOS, Windows, and Macintosh. In addition, Lotus has the word processing program, AmiPro, and the presentation graphics program, Free-lance Graphics.

In late 1996 Lotus announced the introduction of Domino, an Internet (in contrast to intranet) version of Notes. An aggressive marketing campaign followed the announcement. Earlier in 1996, it unveiled ACT! for Notes, which the company developed in cooperation with Symantec Corporation. The product created user access to Notes databases, and send e-mail. A product designed to appeal to the networking environment is Lotus's eSuite. Two versions are marketed: eSuite Workplace and eSuite DevPack.

In May of 1998, Lotus unveiled plans to offer client-and-server-based products that deliver the advantages of network-based, real-time communication and collaboration to businesses worldwide. This allows the company to utilize the document-based awareness, instant messaging, and real-time conferencing capabilities of Israel-based Ubique Ltd., and Kentucky-based DataBeam Corp., in order to expand the benefits of groupware into a comprehensive Sametime collaboration platform, all in conjunction with its own leading-edge collaboration of Notes and Domino.

CORPORATE CITIZENSHIP

Lotus has placed a high value on its relationships with the worldwide communities where it operates. The company has taken the lead in corporate citizenship through its strong, stated commitment to "socially responsible business practices, including efforts to enhance the quality of life, and level of opportunity afforded individuals within our communities throughout the world."

The company's community-minded initiatives find a focus in the Lotus Philanthropy Program. The program is based on the conviction that its employees should play a key role in identifying and implementing those initiatives. Many Lotus employees are active on policy and grant-making committees, offer technical assistance to nonprofit organizations, and participate in volunteer efforts in the United States and abroad.

GLOBAL PRESENCE

Prior to the merger with IBM, Lotus marketed its products in more than 80 countries worldwide, principally in North America, Europe, and the Pacific Rim. When Lotus became a part of the IBM team, its potential to become a more significant global player was increased. Slightly more than 25 percent of its total revenue is derived from sales outside the United States.

SOURCES OF INFORMATION

Bibliography

Cooper, Charles. "Mega-Deal Is Considered a Short-Term Success." PC Week, 3 June 1996.

Cortese, Amy. "Can IBM Keep Lotus Blooming?" Business Week, 30 October 1995.

Dellecave, Tom, Jr. "Lotus Makes Play For SPA." Sales & Marketing Management, March 1996.

Farber, Dan. "How Will IBM Handle Lotus Marriage?" PC Week, 16 October 1995.

Gibson, Stan. "After a Season of Gloom, Can Lotus Blossom Again?" PC Week, 1 May 1995.

"IBM: Lotus Development Corp. to Bring Real-time Dimension to Messaging and Groupware." PressWire, 20 May 1998.

"Lotus Development Corporation." Hoover's Online, 16 August 1998. Available at http://www.hoovers.com.

Lotus Development Corporation Home Page, 2 June 1998. Available at http://www.lotus.com/.

Lundquist, Eric. "IBM Takes Notes Message to Heart." PC Week, 15 January 1996.

Sloan, Allan. "Fear of the Future." Newsweek, 19 June 1995.

Verespej, Michael A. "Gutsy Decisions of 1995: IBM Goes Shopping." Industry Week, 22 January 1996.

Zuckerman, Lawrence. "Lotus Gears Up to Get a Slice of Internet Pie." The New York Times, 16 September 1996.

For additional industry research:

Investigate companies by their Standard Industrial Classification Codes, also known as SICs. Lotus' primary SICs are:

4822 Telegraph & Other Communications

7372 Prepackaged Software

7373 Computer Integrated Systems Design