Seeing an underserved market for software and services, the software company is moving in, but Microsoft may follow.
After a 20-year career at high-tech behemoth IBM, Dave Dobson was named CEO of Corel in June 2005. What led Dobson to sign on with a company that only two years ago was about to be bumped off of Nasdaq?
"I joined Corel based on its amazing turnaround. In two years it has gone from a highly unfocused software company to a heavily focused software and services company. It's a great time to join this company and grow it in the future," Dobson said.
Dobson said one reason he is excited about Corel Corp.'s future is Corel's strategy of focusing on small-business customers. "We looked at the marketplace and saw that increasingly, small businesses—those with fewer than 50 employees—and consumers are buying second and third PCs, which promise to generate new business. This is a market we believe has been neglected," he said.
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Jupiter Research senior analyst Joe Wilcox said he agrees that Corel's strategy is a good one.
"Too many vendors treat small businesses the same as medium-sized businesses, [but] according to U.S. Census figures, 70 percent of the business market consists of non-payroll employees; in other words, sole proprietorships. And of the remaining businesses that have payrolls, the majority have fewer than five employees. It's a huge market," Wilcox said.
Wilcox added that one reason the small business market is neglected is because of what he called "one, one, one, one," sales.
"In the aggregate it's a big market, but it's a tough market to sell to," Wilcox said.
According to Wilcox, Corel's multichannel approach toward the small-business market is the right one, because, he said, the first place small business owners go when they shop for software is their local office-supply stores. In addition, Corel reaches this same audience directly from its Web site and from online resellers.
Corel's licensing agreements with OEMs like Dell Inc. are important, but Corel must also place its products elsewhere, because most people generally hold onto their PCs for three-to-four years on average.
Moreover, Corel's execution of its software offerings is excellent, Wilcox said. "Many small businesses or sole proprietorships don't have an IT person and need easy-to-use software with robust capabilities. These are two areas where Corel has done well. Look at WordPerfect Suite for Small Businesses. It is task-oriented. [Corel's] approach is that you want to do something, like a newsletter or a payroll, versus having a blank palette," he said.
In addition, many small businesses do not have any real e-mail client, and Microsoft Corp.'s Outlook, as an example, is designed to work in an Exchange environment.
"It was smart [for Corel] to bring out its WordPerfect Mail program. It's lean and has all the right functionality, but it doesn't have the plumbing on the back end the way Outlook does, which is better for those who don't have the technical skills," Wilcox said.
Although Corel CEO Dobson said that Microsoft Office has 97 percent of the office productivity market, Wilcox asserted that Microsoft has nowhere near that percentage in the small-business market. In addition, some small businesses have absolutely no productivity suite, which means Corel is potentially taking away new customers.
At the same time, a dark cloud does hang over this strategy: Microsoft Office Small Business Edition. Not surprisingly, Microsoft wants to move into the same market Corel is in, Wilcox said.
For his part, Chris Swenson, director of software industry analysis for The NPD Group Inc., said that although the small business segment offers opportunity for growth, he questions the notion that it is currently being underserved, or that companies targeting that segment have somehow stopped innovating.
"It's a very competitive segment, one that industry heavyweights are betting on for their future growth. Microsoft has been focusing on the small-business market for some time now [and has] had a Small Business [Edition] of Office [and] of Windows, a desktop-publishing tool targeting small businesses with Publisher, online services for small business with bCentral, and so forth," Swenson said.
And while Corel has forged a great distribution arrangement with Dell, a key player in the industry, this arrangement with Dell isn't by any means exclusive, Swenson pointed out.
"I believe Microsoft has an arrangement with Dell to sell four different SKUs of Office in a similar fashion. Further, Microsoft prices those SKUs at a significant discount from the full retail price. For example, I believe they sell Small Business edition for $249 preinstalled, and that's $200 off the retail price of Small Business Edition," Swenson said.
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