Under new ownership, software vendor downsizes, zeroes in on small businesses and consumers, and embraces digital photography boom.
Only three years ago, Canadian-based software company Corel Corp. looked to be circling down the drain. Despite such software offerings as the venerable WordPerfect and CorelDRAW, Corel's stock was hovering at about 70 cents per share. The company had already gone through at least seven rounds of layoffs and was losing millions of dollars annually.
In August 2003, Vector Capital, a San Francisco-based software investment firm with $500 million in equity capital at its disposal, bought the struggling Corel for about $125 million. After Vector Capital took Corel private that October, Amish Mehta, a Vector Capital partner, took over as interim CEO.
Over the next 20 months, Mehta, who is now chairman of Corel, led Corel to what appears to be a stunning turnaround for the formerly moribund company. While private companies are not required to make their sales figures available to the public, the strategies Corel has implemented during this short time would seem to support Mehta's assertion that Corel had, within six months of going private, one of the top five profitability rates in the software industry.
According to Mehta, Corel's new strategy was to refocus on its core products, most notably WordPerfect and CorelDRAW, and pay attention once again to neglected customers of these applications. To start, the company quickly divested itself of a whole bunch of businesses that were acquired willy-nilly over the several years before the takeover and to scale back misguided initiatives siphoning money away from its core software business.
In addition, Mehta said that Corel cut its expense structure in half. According to Mehta, the company went from about 1,000 employees to 420 and that as CEO, he renegotiated everything down to the company's phone service.
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Next, Mehta decided that Corel's previous strategy of chasing after business in the enterprise sector was quixotic, given that Microsoft already had a virtual monopoly in that space. Instead, he decided to focus on small businesses and consumers, leveraging its 75-country distribution channel to do so.
"I believe we're one of the most channel-friendly software companies in the industry," Mehta said, noting that many of the 75,000-to-100,000 new customers Corel says it has gained per month come from partnership with companies like Dell, Amazon.com and Best Buy.
For his part, recently hired Corel CEO Dave Dobson pointed out that small businesses—those with between one and 50 employees—and consumers are value-conscious and sensitive to price.
"It's different from five years ago when people spent $2,000 on a PC. Now they can spend $500 for one, and they don't want to spend another $300 to $500 on Microsoft Office and Symantec when they can get WordPerfect Office, [which comes with] Symantec Internet security and anti-spam capabilities, for $179. We are providing Microsoft Office compatibility and functionality for 25 to 60 percent less," Dobson said.
Perhaps the biggest strategy coup was Corel's purchase of Jasc Software in October 2004. Jasc, makers of PaintShop, PaintShop Pro and PaintShop Photo album.
"There are hundreds of millions of digital cameras now around the world storing and retrieving [digital images]," Dobson noted, adding that buying Jasc made sense because Corel fell behind companies like Adobe in the years before Vector Capital's takeover, and Jasc already had a strong revenue base in that space.
For his part, Chris Swenson, director of software industry analysis for NPD Group, said
He is particularly bullish about Corel's Paint Shop Pro product line. "I believe that Blaine Mathieu, the new general manager of the Digital Imaging business, has an excellent strategy in place to grow that business going forward," he said.
According to Mehta, Corel will continue to acquire other companies that are relevant to its small business and consumer game plan. Most recently, Vector Capital acquired well-known zip-format file utility WinZip, which Mehta said that from a Corel standpoint, is an example of the company's organic growth.
"We will continue to acquire packaged software companies and leverage our brand name and global distribution channels," Mehta said.
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