Borland International, Inc. History

Address:

1800 Green Hills Road
P.O. Box 66001
Scotts Valley, California 95067-0001
U.S.A.

Telephone: (408) 439-4736
Fax: (408) 439-9273

Public Company
Incorporated: 1983
Employees: 986
Sales: $482.5 million
Stock Exchanges: New York
SICs: 7372 Prepackaged Software

Company History:

Borland International, Inc., is the world's third-largest personal computer software company. Founded by a French math teacher who emigrated to America, Borland initially made its mark as a retailer of inexpensive tools for computer programmers, then moved into the market for corporate software. Through its streamlined and unorthodox management style, as well as two major acquisitions, the company grew to rival the largest firms in its field.

Borland was founded in 1983 by Philippe Kahn, who taught mathematics at the University of Nice and Grenoble. Kahn left France for the United States in 1982 with $2,000 in savings and settled in Silicon Valley in California. Unable to get a job because he was an illegal alien, Kahn decided to start his own company to market a software program he had developed. He named the company after seeing a television advertisement starring Frank Borman, the chairman of Eastern Airlines. Kahn thought "Borman" sounded authentically American, so he adopted it for his company, changing the name slightly to avoid confusion or legal difficulties.

Borland's early prospects looked questionable. Among the company's first employees were a former Japanese restaurant manager, a cocktail waitress, and a salesman who had last peddled Campbell Soups in Mexico. Borland employees later described their early business practices as "barely on the right side of the law" in a Wall Street Journal interview. Kahn preferred to think of them as ingenious. Short of money for office equipment, for instance, the company printed up impressive letterhead stationary and sent letters to manufacturers asking to evaluate their products for possible distribution. Dozens of pieces of computer equipment and supplies came flooding in, which Borland used as unofficial loans until the company was better funded.

Unable to attract investment from venture capitalists, Kahn contributed the remnants of his own savings to the new enterprise and rounded up $18,000 from other sources. The company rented a two-room office over a Jaguar garage for $600 a month. In these cramped quarters, Kahn and his employees refined the design for Turbo Pascal, a computer program that made programming in Pascal, a complicated computer language, easier and faster. Turbo Pascal was intended for sale to computer programmers, primarily students in classes from high school through graduate school. After six months, the product was ready to be sold.

Kahn and other Borland employees began to market Turbo Pascal during the day, taking orders, and then filled those orders at night. They priced Turbo Pascal at $49.95, making the cost low enough that the program would be attractive to a wide spectrum of buyers. Soon, Borland found that its product was being purchased by programmers who worked in corporations, as well as students and computer enthusiasts.

Borland's second product was developed in-house as a tool for company employees to simplify their work. Programmers and salespeople found it cumbersome to switch completely out of one computer program and into another when they wished to perform some simple task, such as jotting down an idea or looking up an address. To make this unnecessary, the company designed a desktop organizer, which contained a calculator, a notepad, a perpetual calendar, and a phone directory. This software was loaded into a computer's memory and then could be called up at any time while another program was in use. In June 1984 Borland named this device "Sidekick," and began to sell it to computer users outside the company. As with Turbo Pascal, the company kept the price of the product low to appeal to a wide variety of customers, charging just $49.95 for the package. Sidekick won immediate acceptance, surprising its makers with its popularity. By the end of 1984, the desktop organizer had become one of the three best-selling pieces of software on the market. With this boost, Borland's sales for 1984 reached $10 million, and profits were $1.7 million.

With this success came rapid expansion. The company added new employees and changed offices twice to accommodate its growth. By early 1985, Borland had 100 workers and a 30,000-square-foot headquarters office. By June 1985 company sales were running at $2 million a month, and Kahn had acquired a reputation as the court jester of Silicon Valley for his lavish parties, garish clothing, and impromptu saxophone solos.

In the following year, Borland solidified its reputation as one of the fastest-growing companies in the computer software field. In March 1986 the company introduced Turbo Prolog, a program that used artificial intelligence to allow the creation of expert systems on IBM PCs. At the end of that month, Borland also introduced a modified version of its Sidekick program for the Apple Macintosh computer. After announcing profits of $8 million for the fiscal year ending in April 1986, Borland purchased Singular Software, the maker of a software line for the Macintosh, in July. Four months later, the company made another acquisition when it bought the Click On Worksheet spreadsheet program from T/Maker. At that time, Borland also announced plans to start a new division dedicated to scientific and engineering software.

In June 1986 Borland announced that it would offer shares to the public on the London Unlisted Securities Market, avoiding the high fees associated with selling stock in the United States. By September the company had raised $25 million to fuel further expansion. By March 1987 Borland's sales had reached $29.2 million, and its pre-tax profits were $4.7 million.

Four months later, Borland made its biggest acquisition to date when it agreed to purchase privately held Ansa Software in a stock swap worth $29 million. On the surface, Borland and Ansa were very different companies. Ansa's main product was a high-priced database management program called Paradox, which retailed for $725 and had yet to make its developer profitable. Borland hoped that the merger of the two companies would help to upgrade its own operations in areas where they were weak. Rather than continue to rely on its telemarketing-based operations for sales to individuals, for instance, Borland hoped to make use of Ansa's more sophisticated sales force to peddle both companies' products to large corporations.

Just one month later, Borland unveiled its Quattro spread-sheet program, which was designed to compete with the Lotus Development Corporation's best-selling 1-2-3 spreadsheet. Despite the fact that Lotus had a virtual lock on this enormous market, Borland asserted that Quattro was faster than its competitor's offering and would also carry a lower price. This product was the first of several planned introductions in the field of business applications programs, moving Borland away from its smaller core of original customers, most of whom were programmers, and toward companies. Attracting companies as customers meant Borland would be competing with the large market leaders in the software industry. Kahn hoped to enlarge his company by following "the Honda way." For him, this meant a business strategy of getting into a market with low-priced goods and then expanding market share with more sophisticated and expensive products, in the same way that the Japanese car maker had acted.

To support this move, Borland introduced its first advertising campaign. In addition, the company moved to reorganize its corporate structure on a more formal and professional level, adding several key posts, including a chief financial officer. These efforts came as Borland's initial torrid corporate growth had started to slow. The company earned only $1.8 million in profits for the fiscal year ending in March 1988, leaving it far behind the industry leaders it aspired to join.

Borland's move into the corporate software market continued in June 1988, when the company introduced Sprint, a word-processing program for use on IBM and IBM-compatible computers. At that time, Borland also purchased the programs of Surpass Software Systems, Inc., allowing it to incorporate technology from its rivals' products into its own Quattro spreadsheet program. By August 1988 Borland's efforts in the corporate software market had started to show some results. Quattro had sold more than 125,000 copies in the nine months since it had been introduced, helped by a Borland promotion that offered the product to previous customers at just $79. Monthly sales of Paradox had doubled and had reached 3 to 4 percent of the data-base market since Borland had purchased its maker. Sprint, Borland's word-processing program, had become a best-seller in France, with more than 25,000 copies sold.

Despite these gains, at the end of August 1988, Borland announced that it would lay off 13 percent of its workforce in an effort to bring costs in line with its earnings. At this time, the company also underwent further restructuring, moving its marketing and sales departments away from sales of its programs through catalogues and direct mail to dealer sales.

In the following year, one of Borland's competitors turned the tables on the company. In July 1989, Microsoft announced that it would market a low-cost challenger to Turbo Pascal, Borland's first product.

Two months later, Borland intensified its head-to-head competition with another big software seller when it released Quattro-Pro, a spreadsheet program that was designed to mimic and supplant Lotus 1-2-3 to an even larger extent than earlier versions. Borland's product was more powerful than 1-2-3 and could also be run on older computers with smaller memories. The company hoped to convince corporate customers to buy Quattro-Pro rather than a Lotus upgrade. To persuade them further, Borland introduced an extremely aggressive pricing strategy, as it had earlier done with its Paradox program. Just as Borland had offered Paradox to its competitor Ashton-Tate's dBase customers for $150, rather than its usual price of $725, the company offered Quattro-Pro to former Lotus buyers for just $99, hundreds of dollars less than rivals' prices. In addition, Borland introduced a novel marketing concept, selling its mainstream business products through direct mail campaigns, which kept the costs attributed to dealers or other middlemen low or nonexistent. Following these moves, late in 1989, Borland sold stock to investors in the United States for the first time.

By June 1990 Borland had sold more than 200,000 copies of its Quattro-Pro spreadsheet program, and the company had started to make real progress in eroding the market share of giant Lotus, some of whose programs were plagued by bugs and glitches. One study reported that sales of Quattro-Pro were matching those of one Lotus version, as Borland won converts in small- and medium-sized companies.

In July 1990 the success of Borland's introduction of Quattro-Pro prompted a law suit from its intended target, Lotus. Charging that Borland had infringed its copyright on its software, Lotus sought to make the company alter its product, which accounted for 15 percent of company revenues. As a countermove, Borland sued Lotus in California, hoping to get a favorable judgment. The possibility that Borland would lose this suit cast a shadow over the company's future as the case wended its way laboriously through the courts.

By the end of 1990, Borland's Quattro-Pro shipments had reached 50,000 a month, and the company attained a market share of about 20 percent. In addition, sales of the company's Paradox database program had also improved, doubling to about 20 percent of the market. By March 1991 Borland had seen its revenues double and its earnings rise to $11.8 million over the last twelve months.

On the basis of this growth, in July 1991, Borland took a further step toward becoming a major player in the software market when it agreed to purchase one of its biggest competitors, the Ashton-Tate Corporation, for $439 million. Ashton-Tate's primary product was dBase, a database program that had once dominated the market but had started to lose ground after the company introduced a version of the program riddled with flaws. With the purchase of Ashton-Tate, Borland became the industry leader in database software and one of the top five personal computer software firms overall.

To make its acquisition profitable, Borland moved quickly to bring its own stream-lined management style to the less efficient Ashton-Tate, cutting costs by cutting employees. These measures proved expensive, and Borland was forced to take a charge against its earnings to counteract them. The company ended the year with a loss of $110.4 million. In addition, Borland's purchase of Ashton-Tate brought the company face to face with the integration of two incompatible software programs, because the two companies' offerings could not interact. Despite these obstacles, however, Borland's two database programs retained control of 50 percent of the market, worth $300 million in sales, through the spring of 1992.

Having bought its way into the big-time with its purchases of the makers of Paradox and dBase, Borland saw programs for use with the Windows operating system as the next big opportunity in the software field. Using a new software development tool called C++, which used object-oriented programming to break tasks down into smaller, more manageable parts, Borland sought to bring Paradox for Windows and Quattro-Pro for Windows to market before its competitors got too far ahead.

In July of 1992, Borland suffered a legal setback when a Massachusetts judge ruled in its long-standing copyright infringement dispute with Lotus that it had illegally copied part of the larger company's program. Anxious to take the case to an appeals court, where it believed it would receive a more sympathetic hearing, Borland announced in August that it had removed the feature in question from its Quattro-Pro product.

In September 1992 Borland began offering Quattro-Pro software adapted for Windows at a reduced rate with its older spreadsheet program, as the company attempted to address customer concerns about the economics of switching between programs. In its database business, Borland's share of the market, which had grown to 65 percent, began to be eroded by the company's postponement of its introduction of Windows versions of Paradox and dBase and by low-priced products introduced by such competitors as Microsoft.

Further bad news came at the end of 1992, when Borland announced that it would lay off 350 employees and take a $35 million charge against its earnings. The company planned to consolidate research and development activities in order to control costs. Three months later, Borland finished out its fiscal year with a loss of $49.2 million on sales of $464 million. In an effort to return to profitability in 1993, Borland introduced a new version of its dBase product, which nevertheless was not adapted for use with Windows. With a decade of striking growth behind it, Borland faced a broad array of new challenges as it peered into the future of the software industry.

Principal Subsidiaries: Borland/Analytica, Inc.; Borland California, Inc.; Borland International Ltd. (UK); Borland International S.A.R.L. (France); Borland GMBH (Germany); Borland International Software, Inc., (Canada).

Borland International, Inc. History

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