Seattle Times Business Reporter
Flat, faceless maps convey little about the world's people, so to humanize its new computerized atlas, Microsoft bought photos and film footage capturing scenes of everyday life in 31 countries.
From American rock to Brazilian jazz, music captivates people of all ages, so to enliven its CD-ROM titles the company hired four full-time ethnomusicologists, specialists in both music and cultural anthropology.
Enemy robots and 3-D cartoon characters transport game players into fantasy worlds, so Microsoft spent $130 million buying the company that created the realistic dinosaurs in "Jurassic Park."
The leaders of Microsoft's consumer division, the company's fastest-growing division, are moving into the home computer software market with a precision and purpose that fascinates onlookers and frightens competitors.
The move is not new; it started about two years ago. But like a shoot-em-up computer game that escalates with every level of competition, this mission is picking up speed and aiming at more and more targets.
The market is hot, attracting lots of new players, but it's also risky. Small companies, especially, have struggled. Locally, Medio Multimedia, started by a former Microsoftie, folded this year after failing to find enough customers for CD-ROM titles such as one on the John F. Kennedy assassination.
Microsoft itself has had some poor sellers, such as the home-management program "Bob," which uses cartoon characters to help its users navigate around the program. Still, huge corporations such as Microsoft can afford to experiment.
The eventual reward is expected to be worth the risk.
Companies such as Disney and Viacom also are trying to tap into a business that offers huge potential for high-volume sales, if not a high profit margin. With an estimated 23 million computers in U.S. homes alone, software makers everywhere are looking to capitalize on PC fever.
For this holiday shopping season, Microsoft released nearly 20 new products for home computer users, all selling in the $30 to $60 range.
By next July, the Microsoft Home brand will have 65 or 70 products, up from 45 this past July and five or six three years ago. This fall's lineup takes the company deeper into the children's market and goes after hard-core "gamers" for the first time.
Programs range from "Encarta World Atlas," an atlas with sound, pictures and video, to "3-D Movie-Maker," a program that lets kids create animated movies, to "Fury3," a game with three-dimensional graphics that lets the pilot spin and roll in ways no game pilot has spun before.
To accomplish all of this, the company added more than 200 people to its consumer division this year, bringing the staff to about 900. Microsoft hired an animator away from Disney, an editor from Sunset magazine, a film producer who once worked at Columbia Pictures and marketers who once pushed detergent for Procter & Gamble and running shoes for Nike.
About two months ago, the whole division moved from Microsoft's 25-building spread in Redmond to a five-building satellite campus about two miles away. The new spot will not only accommodate the consumer division's growth - 300 more will be hired in the next year and a half - but comes with a multimillion-dollar digital sound studio, a 17-person cartography lab and a "kids' classroom" where children come in and test software while dining on Happy Meals and animal crackers.
"We want to grow at the pace of the market and beyond," said Patty Stonesifer, the 39-year-old marketer who took over consumer products two years ago - a period now considered the turning point for the division because that's when hiring and production began taking off.
Growing faster than the market itself would be quite an accomplishment, given that the $2 billion consumer software market is expected to grow by about 20 percent this year.
But that's exactly what Microsoft must do. For despite its deep pockets, its size and its near-monopoly in the computer operating-system market, Microsoft is still just one in a pack of players in the home software market. No one company holds more than a 10 percent market share.
Microsoft's own data from July (the most recent available, though new products may have changed the figures) show the company holding 4 percent of the game market, 5 percent of the personal-finance market and 7 percent of the education market.
The home software market has so many players that these figures aren't as dismal as they seem. One industry research firm, PC Data in Reston, Va., shows the market leader for all CD-ROM titles (programs on compact disks) to be California-based Broderbund Software, with a 10 percent market share. But the folks at Microsoft, who place second with 7.78 percent, give the impression they won't be satisfied until they can replicate in every area the success of "Encarta," the multimedia encyclopedia that holds 30 percent of the market for reference software.
Broderbund, which made the hit game "Myst" and the "Carmen Sandiego" children's series, hasn't gone head-to-head on a product with Microsoft yet but knows that time is near, spokesman Eric Winkler said.
"It's sort of like driving a speed boat and looking in your rear-view mirror and seeing an oil tanker," Winkler said.
Oil tankers do move slowly, but they can destroy anyone who doesn't speed up or get out of the way.
Scott McAdams, a stock analyst with Ragen MacKenzie in Seattle, estimates that Microsoft's consumer software sales will grow from $594 million last fiscal year (ended June 30) to $733 million this year and $911 million in the 1997 fiscal year. That's still only about one-tenth of the corporation's combined sales (about $6 billion this year), but it's a growth rate of 23 percent a year.
Three years ago, Microsoft had only a handful of programs geared primarily to home computer users, led by the popular game "Flight Simulator" and a couple of programs for desktop publishing. In the next year, it made a natural evolution into reference with "Encarta," then branched out into other areas, but with small steps.
Two years ago, with Stonesifer's arrival, the company broke its consumer business into five segments and decided to push hard into all of them: information/reference, productivity (mainly desktop publishing), kids, games and even hardware such as joysticks and mouse devices.
Games make up half the home software market. Hard-core gamers typically buy 10 or 15 games a year, at $40 or $50 each. Casual gamers spend less but are the fastest-growing group of software customers.
Microsoft is taking several paths to reach these and other home customers:
-- Finding partners. Scholastic, which created the "Magic School Bus" television series on PBS, has licensed its content to Microsoft. Music Pen, a New York company, actually developed the third in Microsoft's school-bus series, the recently released "Magic School Bus Explores the Ocean."
-- Starting new ventures. The company put up $30 million to form a software subsidiary of Steven Spielberg's DreamWorks studio. The new DreamWorks Interactive, based in Los Angeles with a liaison at Microsoft, hopes to release three titles for next year's Christmas season.
-- Buying technology or information. The "Jurassic Park" dinosaur company, Montreal-based Soft Image, is now a division of Microsoft. For the "Encarta World Atlas," released last month, Microsoft got family photos and video clips by buying them from Material World, an outside company that actually paid the photographers. Microsoft employs five people who do nothing but license music clips such as those used in the new "Music Central," a compilation of recordings similar to the "Cinemania" movie title.
-- Exploring online links. People who buy "Encarta 96," "Cinemania 96" or "Music Central" will be able to download monthly updates from the Internet - free for the first year but probably for a fee after that. A new title called "CarSource" is being offered only online, as a feature of The Microsoft Network online service. The company thought the car-buying guide would be of value to people for such a short time - while they're researching and shopping for a car - that few would buy a $40 CD-ROM.
-- Finding new ways to market to mom, dad and the kids. Deals with bookstores and retailers brought Microsoft to the Barnes & Noble and Wal-Mart crowds. New deals with software stores gave Microsoft highly visible kiosk-style displays in prime locations. Advice from those Procter & Gamble and Nike types convinced the techies to give their programs understandable names - hence "Encarta World Atlas" rather than "Visual FoxPro," a database aimed at techie types.
-- Hiring "magnet" people - employees who are known in their field and will draw other talented people to work for them. This is important, executives say, in areas such as film editing, where Microsoft has had no reputation as an employer.
"I never anticipated my career path ending up at Microsoft," said Brian Pertl, an ethnomusicologist who was lured away from the University of Washington two years ago. "It would have been the last place I thought I'd come. They were supposed to be doing spreadsheets."
Mary Frances Feider, a free-lance Hollywood film producer who once worked at Columbia Pictures and at the Los Angeles multimedia company 7th Level, didn't even know enough about Microsoft to assume it wasn't her kind of place. She heard the company was into multimedia, took a job there a year ago and - until recently - had no idea they ever made spreadsheets.
Aside from bringing the outside into Microsoft, the company has had to learn new businesses from the inside.
Stonesifer, who came to Microsoft in 1988 and rose through the ranks of its book-publishing and customer-support staffs, has led a nonstop market-research effort since taking over the consumer business.
A big thrust of that research, Stonesifer said, has been "psychographics." Instead of looking at how people used their computers at work and trying to extend that into the home, the researchers visited people's homes to see what they did there. Period. Then they set out to find ways the computer could fit into that. Art projects. Cooking. Balancing checkbooks. Looking things up in encyclopedias. Playing games. Making music.
"It all starts from that question, what is the role of a computer in a person's personal life," said Ruthann Lorentzen, director of consumer marketing directly under Stonesifer.
Desk reference and small-business newsletters were natural extensions of the computer-as-a-work-tool, she said. Special-interest titles such as Microsoft's "Wine Guide" and a Julia Child cooking guide are riskier.
"The question is how much of the market to this date is avid enough that they'll use it," Lorentzen said.
Microsoft - in fact, most of the software industry - is still trying to figure that out.
Software is no longer only the domain of computer hobbyists who loved fixing technical glitches or paying $60 for a cool new game. As computers make their way into more and more homes, they are being used by people who couldn't care less about the whiz-bang technology behind the screen. They simply want the thing to work. And they measure the value of a cooking program, children's story or music software against a $20 cookbook, $8 Dr. Seuss tale or $15 compact disc.
One indication of how tricky it's been for the software industry to adjust to this way of thinking came last month, when Microsoft lowered prices on all its consumer software. Most programs were cut by about $10.
The move prompted other companies to cut prices as well. But at the same time, it caused some observers to question whether Microsoft would retreat from the home market and stick to the operating systems, spreadsheets, word processors and programmers' code that made it a $6 billion company.
Maybe that was wishful thinking. Chairman Bill Gates scoffed at the notion. Microsoft is spending $50 million alone on updates of "Encarta," Gates said.
The price cuts, he said, simply reflect Microsoft's longstanding focus on high volume vs. high price. After all, this is the company whose computer operating system is used by 100 million people.
"We like to find the price," Gates said, "at which you can capture a huge market."
Who's ahead? The market for home computer software has so many players, it's hard to rank the leaders. These companies, taken from a list of the nation's top 30 CD-ROM publishers, led the pack for the first half of this year. No one company dominates, and the ranking fluctuates month to month when new titles hit the market.
1. Broderbund Software ("Myst," "Carmen Sandiego"), Novato, Calif., 10.03 percent.
2. Microsoft ("Encarta," "Flight Simulator"), Redmond, 7.78 percent.
3. LucasArts Entertainment ("Star Wars" and "Indiana Jones" games, "Rebel Assault"), San Raphael, Calif., 4.73 percent.
4. Intuit ("Quicken," "TurboTax"), Menlo Park, Calif., 3.97 percent.
5. Electronic Arts ("PGA TOUR Golf," "John Madden Football"), San Mateo, Calif., 3.78 percent.
6. Sierra On-Line ("King's Quest," "Phantasmagoria"), Bellevue, 3.56 percent.
18. Disney ("The Lion King"), Burbank, Calif., 1.55 percent.
Source: PC Data
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