Lotus Case Study

Executive Summary & Problems

In The Beginning

Lotus Development Corporation was created by Mitch Kapor, a software designer whose initial goal was to develop a sophisticated spreadsheet program. The company was founded in 1982 and its headquarters based in Cambridge, Massachusetts.

In 1983 Lotus created the first killer application, 1-2-3 DOS for the IBM PC, catapulting them into the largest software company in the world. Lotus was noted as being one of the finest franchises in their business sector.

The Rise and Fall

Up to 1983 Lotus operated in a largely college industry were only a handful of companies created killer apps such as WordPerfect.

Between 1983-1986, Lotus had created Symphony and Jazz which were the first fully integrated application programs to combine word-processing, spreadsheets, graphics, and database management. However, the market responded negatively to the introduction of these products.

During 1986, Imitation by Borland and the limited success of Symphony and Jazz prompted newly elected president Jim Manzi to approach product development in at a new angle. Jim Manzi began an acquisition program that would give Lotus, products in every applications category, ultimately resulting in Notes.

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Competition Heats Up

Competition in the industry was intense during 1990. Borland and Microsoft had both emerged as large competitors of Lotus. Each had develop duplicate versions of LotusÐŽ¦s 1-2-3- program. The popularity of Microsoft surprised the industry when the company introduced a bundled ÐŽ§suiteЎЁ that included its spreadsheets, word processors, graphics package, and database manager. There strategic approach to software development and marketing led to a growing market share for the company.

Initially Lotus did not write a version of 1-2-3 for Windows because they did not want to help Microsoft build their contribution margin and attain market acceptance. However, over time Lotus could not ignore the growing success of Microsoft so they eventually rushed a flawed a version of 1-2-3 for Windows to market in 1991. The release of the product caused Lotus great embarrassment, because they reacted to the situation instead pf being proactive in the beginning they made a decision and introduced a product that was not ready for market.

Lost Opportunity

In 1990 Lotus made an attempt to gain a significant share of the network application industry by initiating merger negotiations with Novell. The merger of the two companies would have created the largest computer software company in the world. The combined sales for Lotus and Novell in 1989 were $978 million, compared with MicrosoftÐŽ¦s $804 million during the same year.

Novell would benefit from the merger by having access to LotusÐŽ¦s suite of desktop products and would increase their influence to shape networking environments Lotus would have benefited from NovellÐŽ¦s expertise in NOSs and its dominant position in the $2.6 billion market.

However, both companies could not discard their corporate egoÐŽ¦s and politics in order to allow the merger to proceed. The deal was eventually abandoned due to an inability to compromising about a decision regarding the board.

Different Direction

After the dissolve of the negations and a fall in the companies shares Manzi reverted back to LotusÐŽ¦s original network applications development plan instead of seeking new partners.

Recruited a new management team and the company introduced a new strategy called ÐŽ§Working TogetherЎЁ, which signified a commitment to integrating PC applications and to writing versions for every major GUI and operating system. Lotus created a new version of 1-2-3 for Windows and tested and released it to favorable reviews.

By 1992 the development group also standardized products that were also centrally coordinated and the products were bundled in to a ÐŽ§SmartSuiteЎЁ and priced to compete against MicrosoftÐŽ¦s ÐŽ§OfficeЎЁ suite of products.

Due to intense competition LotusÐŽ¦s share of PC applications had slipped from 50% in 1986 to about 15% in 1990. But the success of 1-2-3 for Windows helped recovered the firms share to 25%.

By 1993, Lotus held 22% and Microsoft 38% of unit sales. Both companies offered full lines of products, with Lotus concentrated more on spreadsheets due to the sales growth of that product. WordPerfect was 17% of the market and specialized in word processors. Borland International was 12% of the market and sold spreadsheets and database managers.

Lotus word processor and graphics, packages were the highest rated in their category but at the same time held low shares in their respective market. The companyÐŽ¦s version of 1-2-3 for DOS accounted for 35% of its revenue. Other version of 1-2-3 accounted for 15% of its revenue. By 1994, LotusÐŽ¦s stock prices had more than quadrupled from $18.75 to an all-time high of $86.50.

Notes

The Notes application was a highly acclaimed software program used to manage computer network. Notes allowed users to simultaneously revise documents while it automatically tracked the changes to maintain security. The product had become increasingly popular among sales force management because it allowed remotely located sales people to exchange customer information.

Many companies did not initially take advantage of the opportunities of Notes. Consumers complained that not enough notes applications had come to market. So the success of Notes would depend on LotusÐŽ¦s ability to build an installed base before competitors offered new lines and products to customers. Over half of Lotus development budget in 1993 was allocated to projects related to ÐŽ§Notes.ЎЁ Since the introduction of Notes Lotus often closed a sale by offering customized Notes applications for users. The practice of offering customized Notes eventually provide to be very expensive.

The company estimated that Lotus would have to spend between $50 - $100 million per year to achieve the success of the product. So Lotus was coming to an end the team staring with upper management working down to lower level employees would need to make a decision to take a strategic approach on saving