Corporate Software Inc.

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Corporate Software Inc.

275 Dan Road
Canton, Massachusetts 02021
U.S.A.
(617) 821-4500
Fax: (617) 821-5688

Public Company
Incorporated: 1983
Employees: 1,000
Sales: $301 million
Stock Exchanges: NASDAQ
SICs: 5045 Computers and Computer Peripheral Equipment & Software; 7379 Computer Related Services, Nec

Corporate Software Inc., a public company that planned to go private in 1994, is a leading provider of software and other related computer services to large corporations in the United States and Europe. Corporate Software distributes more than 20,000 products for IBM-compatible or Macintosh PCs and also offers a wide selection of support services, including training, implementation, and integration of programs.

Morton Rosenthal started Corporate Software in November 1983 with Christopher D. Robert, a sales manager from Data General Corp., and Donald Boudreau, an executive at Child World Inc. Robert became company president, Boudreau treasurer, and Rosenthal chairperson and CEO.

Upon graduating from college Rosenthal had started his own business selling photographs of rock stars for record albums. He eventually sold the business, earned an MBA, and worked for software companies before starting Corporate Software. According to Business Week magazine, Corporate Software’s growth is as much due to Rosenthal’s “ebullient showman” personality as his business talents.

Rosenthal was 34 years old when he invested $30,000 of his own money and $450,000 from private investors in his belief that big companies would pay more for software if they received extra service in return. Within four years, Corporate Software’s revenues soared to almost $60 million with profits of $1.86 million. The company had a better rate of growth than many of the software developers whose wares it was distributing.

When the three men started the business, they bundled software and services together. Companies that spent $3,000 a quarter could call a hotline staffed by 25 troubleshooters. Larger buyers received a monthly newsletter on disk providing overviews of new technology and products, tips, and advice on system management problems. The biggest spenders, $60,000 or more, received in-house seminars as well as customized newsletters on disk that contained information about the products they used most. Other value-added services included monthly purchase activity reports, quarterly newsletters, biannual guide lists and reviews, and trial copies of new software. Corporate Software’s clients were spending about five percent more than they would pay discounters for software programs, but with the increasingly complex world of computers, large companies regarded the service was worth the extra money.

Corporate Software’s business expanded so quickly that it outgrew office space only four months after it had moved in. During its second year of business, the company grossed more than $24 million and had a growth rate of more than 20 percent a month, according to company officials.

When it began, Corporate Software was one of only a few resellers that sold directly to end users. According to Robert, most distributors were reluctant to sell to end users because that might alienate their primary outlets, such as large retail chains and other dealers. However, because these retailers depended on only a handful of bestselling software packages and did not research other packages, they did not meet the needs of the corporate buyer. According to PC Week, Corporate Software might more accurately be called a “specialized corporate reseller” than a distributor.

From the start, Corporate Software did business only with volume buyers, mostly Fortune 1,000 companies; it did not service individuals or small businesses and did not stock game, home education, or small business software. Its customers were businesses with full-time data processing departments, a mainframe, and a relatively large number of personal computers. Its services were tailored specifically to the needs of large corporations.

Corporate Software sold only IBM-compatible software in its first year, emphasizing products that were not necessarily bestsellers but that met a specific business need. Before listing any software in Corporate Software’s catalog, product managers evaluated it and presented it to a three-person review board. Approved products were then assigned to a product category, and product managers were expected to stay current on new software in their categories. By the second year, the company also began selling expansion cards and modems and was considering carrying minicomputer and mainframe products.

According to an interview with Rosenthal in 1985, about 75 percent of the staff spent at least half of their time talking to customers. Its services included presale consulting, demonstration floppy disks, evaluation copies, and technical support. It also supplied users with a monthly newsletter and a semiannual software guide. Company president Christopher Robert described Corporate Software’s combination of services as rare, even though each of the services itself was not unusual. At that time, Corporate Software stocked about 350 software products.

In 1987, Corporate Software went public with financial support of $916,000 from Hambro International Venture Fund and $466,000 from General Electric Venture Capital Corp. Corporate Software raised $9 million on an offering of one million shares. Company insiders retained 48 percent control of Corporate Software, and Rosenthal’s initial investment was now worth $4 million. The company’s sales had grown from $1.7 million in 1984 to $14.7 million in 1985 and to more than $32 million in 1986. It had 11 sales offices and 160 employees.

In 1989, Corporate Software expanded its staff from 308 employees to 425 employees. Most of the increase was in sales personnel as the company opened new offices and foreign subsidiaries. It had 20 domestic sites by the end of the year, and, at that time, Robert resigned as Corporate Software president to become president and CEO of Epoch Systems Inc., a manufacturer of optical-disk file servers. Rosenthal became company president in addition to his other functions as CEO and chairperson. In 1990, European sales grew by 73 percent, providing 37 percent of the company’s total revenues; North American sales grew 33 percent in 1990.

As computer systems became more complex, service was becoming even more vital. However, support lines were labor intensive and labor expensive. Corporate Software also established a network lab—an expensive operation—to duplicate clients’ configurations and figure out how LAN-smart an application would be.

By 1991, product support specialists were responding to more than 170,000 calls annually. Corporate Software was serving about 42 percent of the Fortune 1,000 in the United States and more than half of the Financial Times 100 in England. Its largest suppliers were software companies Microsoft and Lotus, both of which had brought out many new products within the previous two years.

In 1991, Corporate Software altered its support policies in response to changes within many corporations it served or had targeted. Traditionally, the company combined software and support services and charged five to ten percent more than its competition, targeting information center managers who both purchased equipment and software and provided support for their companies. With many companies dividing purchasing and support services internally, Corporate Software also separated those functions. To attract new clients, Corporate Software began selling software only to high-volume, price-conscious clients, and support services were priced separately. The company also started offering support service to business users rather than only to support staff at client companies as the companies introduced complex new software systems.

For its first service provided on an extra-cost basis Corporate Software teamed up with Microsoft to help large companies switch to Microsoft’s new Windows software. Windows allowed PC users to control their machines by using a mouse and pointing at an icon or menu, similar to the Macintosh computer. Microsoft’s Windows products accounted for 25 percent of sales for Corporate Software in 1991 while two years earlier it had posted almost no revenue from Windows.

The fee-based program was based on a pilot program Corporate Software had conducted, which followed the problems that fourteen specified companies encountered as they moved into the new Windows graphical user interface. To ease conversion phase pressures felt by corporate computer support departments, to which the PC users usually turned with problems, program users could call Corporate Software directly with their Windows questions.

Corporate Software also added telemarketing to its sales strategy for reaching mid-sized companies in 1992. Salespeople still called on large corporate clients, however, and their staff included 35 salespeople in North America and 30 in offices in England, France, Germany, and their newest office in Belgium. Corporate Software became one of the largest software resellers in Europe with market shares of between seven and 16 percent in those countries in which it operated. The company’s share of the domestic corporate market was estimated at ten to 15 percent.

In 1992, company vice-president Stephen D. R. Moore became president while Rosenthal continued as chairperson and CEO. Co-founder and chief operating officer Donald Boudreau retired. That year, Corporate Software also announced it would compete more aggressively for business by setting up customized, cost-plus price lists so that a high-volume product would have a lower mark-up than items that sold only occasionally. The company also set up a bid desk to handle large, price-sensitive orders.

Corporate Software was facing stiff competition from many types of vendors including other value-added resellers, mail order firms, computer superstores, hardware manufacturers, and software manufacturers themselves. Corporate Software, however, continued to stress its support and systems integration services.

Corporate Software was looking at a healthy sales revenue and profit in the first part of the decade because of the increased power and versatility of new hardware, resulting in the development of more powerful software, such as upgraded versions of Microsoft Windows, Excel, and Lotus 123. Corporations, however, were facing an increasingly confusing PC-environment. While computers had become inexpensive, facilitating decisions regarding which hardware to purchase, software choices, unless carefully made, could lead to incompatibility within the company. Corporations found themselves in need of professional advice in order to monitor costs and to ensure compatibility and return on investment.

With frequent product upgrades and the introduction of portable computers, corporate licensing issues during this time became more problematic. Traditionally, software companies issued one license for each computer and user, a policy that became increasingly difficult to apply or enforce because of the networking and portability of PCs. Corporations became concerned about the potential for licensing violations. Although software developers responded with many options for licensing, this made the issue even more complex, and businesses were hungry for assistance from resellers and systems integrators. In response to the difficulties of dealing with licensing agreements and upgrades, Corporate Software added asset management to its inventory of products and services. With this value-added service, Corporate Software said it would handle license negotiations, track software usage, conduct audits for licensing compliance, and duplicate disks and documentation for site license compliance.

In the early 1990s, many new software distributors were competing with Corporate Software. Discounters were also adding more services, making competition even more intense. Even though increased competition was slowing Corporate Software’s growth, which had been so phenomenal during its early years, the company was nevertheless regarded as well positioned to help businesses through the PC software maze.