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Indeed, when Microsoft (1982 sales: $34 million), the Bellevue, Wash., company that developed the operating system used on the IBM personal computer, wanted someone to run its marketing program, it looked to the cosmetics industry. Last month Microsoft hired Rowland Hanson, vice president of Neutrogena, a maker of skin-care products, as head of marketing and public relations. Admits Hanson: "When I came here I didn't even know how to turn a computer on." But he does know how to sell packaged goods. Says company President Bill Gates, who founded Microsoft at age 18 and is one of the industry's veterans at 27: "We're past the point where technology is all important. It's the marketing, the reputations that are important now."
The demand for that type of skill has made the growing industry even more attractive to giant corporations, since they already have valuable experience in those fields. CBS, Walt Disney Productions, 20th Century-Fox Film Corp. and Dow Jones & Co. have all entered the software business within the past year. CBS and 20th Century-Fox are producing software for games, while Walt Disney makes educational programs. Dow Jones is turning out packages for stock-market analysis.
The presence of big companies raises the level of competition and also makes life tougher on smaller firms. The single brilliant programmer working on his home machine who packages his product in a Baggie may not survive any more. Says Daniel Fylstra, chairman of Visi-Corp. (1982 sales: more than $35 million), which markets VisiCalc, a financial forecasting program for businesses that is the most popular ever written: "Before, anyone with a reasonable product could make a go of it. Now you're seeing larger and larger sums directed toward marketing. Brand names are becoming more and more important."
In addition to its rapid growth, the personal-computer software industry lures both big and small companies because of its huge profit margins. Programs that cost only $5 or $10 to make can sell at retail for up to $700 or more. The most expensive is believed to be Micro-scan II, a stock-analysis program that costs $6,250 for a year's subscription, which includes periodic market updating.
The hefty returns software firms can make, however, invite price-cutting. Last week Commodore said it would introduce a less-than-$100 edition of Multiplan, a financial modeling program that sells in other versions for as much as $275. That could set off a price war as competitors try to match Commodore. Increasingly, software companies are discovering the advantages of bigness. In June 1981, Atlanta-based Peachtree Software sold out to Management Science America, a company that had previously concentrated on programs for mainframe computers, for $5.5 million. The new owners invested in television advertising, which was practically unheard of in the industry, and heavily promoted the Peachtree logo. Says John Imlay, 46, chairman of MSA: "The key thing is that we poured a great deal of money into brand recognition." Peachtree's sales took off, in part, because the software can run on the popular IBM personal computer. Revenues reached $9.4 million in 1982 and are expected to double this year.