This summer has seen the PC software industry go from glut, glut, glut, to gobble, gobble, gobble. The software shake-out has given way to a near-frenzy of mergers and acquisitions, as struggling companies decide that entering a new chapter in life with a partner is better than entering Chapter 11 alone.
Lotus has gobbled Software Arts (of VisiCalc fame); Software Publishing has acquired Harvard Software (the project-management software company); Thoughtware has absorbed Lightyear (the decision-support software company I once raved about); and Ashton-Tate has mated with Multimate (of word-processing fame). These are just a few of the more prominent software marriages (or shotgun weddings).
I'm afraid all this activity is going to turn out to be one of those good news/bad news stories for PC users. The good news is that the software industry is finally beginning to settle down; the bad news is that the days of dramatically declining software prices probably are over.
Look at the situation logically. The pace of PC sales has slowed drastically. Software sales no longer rise along with PC sales. With the possible exceptions of Lotus, Ashton-Tate and Microsoft, most software companies have been slashing prices furiously in reckless bids to gain shelf space, attention and market share in what has been a claustrophobically crowded field.
In the process, profit margins have been suffered horribly. And nobody likes slaving 12-hour days and fighting fiercely for sales when all they've got to show for it is a few cents on the dollar. Indeed, a lot of companies shut down or merged precisely because they were profitless.
So what are we going to see? I predict a shift in emphasis from sales to profits. Software companies want to make money. They've discovered that (unless you're a Lotus) you can't do it just on volume; you must broaden your product line and keep margins as stiff as an upper lip.
All those mergers and acquisitions obviously are intended to broaden the corporate product lines. The other question is, how do you maintain the margins?
Well, bankruptcies and mergers have pared down the number of companies. Fewer companies mean less competition, and less competition means less reason to cut prices.
The retailers like that, too, because they make more money selling a $450 software package than a $199 one. Admittedly, they make more money selling 10 cheap packages than two expensive ones but, then, most retailers aren't selling 10 of anything without reducing margins to the bone.
Sales volume aside, software makers and retailers recognize that there has been a dramatic shift in who buys the products. Individual buyers have yielded to corporate buyers. Companies buying in quantity are taking the place of the guy who wanders into the store on word-of-mouth recommendation.
Companies also are interested in buying systems solutions -- i.e., a package that blends PC, peripherals and software.
This has raised a number of marketing and sales challenges for retailers and software makers (site licensing, piracy, multiuser systems, etc.) when they deal with the corporate data-processing department that wants, say, 200 copies of a program.
Now, corporations aren't going to have much difficulty getting volume discounts. Software companies and retailers love large accounts. But what of the "ordinary" PC user? I think the answer is, "Tough floppies."
Where does this leave ordinary folks?
I think it leaves them stuck. In fact, I'm willing to bet that when people realize prices are now going to crawl down instead of fall down, there is going to be a wave of software piracy and disc swapping that will dwarf all previous such waves.
People carp and whine about the high price of software, but I don't see computer store owners settling for making less than $100 profit per software sale. Their costs for support are simply too high, and they want big margins.
And if you think software companies are going to settle for a $100 margin per disc after costs for something that sells only 25,000 copies over its product lifetime, well, you have no future in venture capital.
The point: The software industry's madness is coming to an end, and consumers are going to pay for it. Let's hope that the survivors invest some of their new-found profits in such things as decent program updates, low-cost templates, informative newsletters and customer service with a smile. But don't hold your breath.