Packaging and promotion mean big profits in programs
The software industry, the essential but sometimes overlooked child of the personal-computer revolution, is growing up fast. Sales are increasing at a rate of 50% a year. New companies are springing up almost every week. Big corporations are beginning to move into the market. New programs are being launched with heavy promotion and large advertising budgets. Software-only specialty stores are multiplying. In short, a business explosion is occurring.
Last week Commodore International Ltd. announced that it was introducing about 70 new software titles this summer, more than its total catalogue just four years ago. Schuchardt Software Systems, which makes office automation programs for the IBM personal computer and others, saw its first public stock offering of $1.6 million sell out at $5,000 per share only a month ago. Last week the price skyrocketed to $8,000 per share.
From a starting point of virtually zero in 1976, sales of software for personal computers have been on a vector that seems to be pointed straight up. Revenues reached $600 million in 1981, $1 billion last year, and are expected to hit $1.5 billion in 1983, according to SRI International, a West Coast research firm. Prospects of dizzying profits have lured at least 230 companies into the business of creating software. Venture capitalists with bulging bank accounts are showered with proposals from novice entrepreneurs looking for start-up financing. By 1990, industry revenues could reach $12 billion. That will make software almost equal in size to today's household-appliance industry.
Software is to computers what gasoline is to automobiles or records are to stereo sets. Without software, a computer is only an inarticulate mass of electronic parts. Says David Sturtevant of the Association of Data Processing Service Organizations: "The computer alone is as dumb as a stump. It won't even keep beer cold." Software, the programs that come in cartridges or on floppy vinyl discs, instructs the machine to carry out the commands given to it. Customers are willing to spend heavily to get the right software. Industry experts estimate that for every $1,000 consumers invest in computer hardware, they pay out another $300 on software during the first year after they buy a machine.
In the late '70s, when the personal-computer industry was just getting started, a host of small software companies grew up. Many firms were started by one or two people with one computer, a good idea and some knowledge of computer programming. But as the market has expanded beyond the electronics hobbyist to the businessman, homeowner and student, software companies have discovered that they cannot survive on technology alone. They must develop skills in marketing, distribution and advertising. Says Edward Currie, president of Lifeboat Associates, a leading software publisher: "The software industry is turning into a cosmetics industry. In cosmetics, you worry about the box first, then the bottle inside it and, finally, the contents of the bottle. The same thing is happening in software."