Software Plays Hardball

Just as competitive as personal-computer makers are the feisty independent companies that write the software for the machines. The programming firms, only frail upstarts not long ago, now constitute a $3.3 billion U.S. industry whose creative output is the lifeblood of the computer business. Last week two major hardware manufacturers, IBM and Apple, announced major moves that could have an impact on the balance of competitive power in the bruising software business. Apple said it will create a new programming company, to be financed with some of the manufacturer's $700 million cash hoard, while IBM announced a ten-year alliance with Lotus Development, the No. 2 software producer.

The IBM deal will help Lotus (1986 sales: $282.8 million) strike back at its nemesis, Microsoft, which has zoomed past Lotus to become the industry's No. 1 company. Microsoft's rise was due in large part to an agreement with IBM to develop software for the manufacturer's personal-computer line. But now Lotus is getting an even more challenging IBM assignment: to adapt the top- selling Lotus 1-2-3 business-ledger software and other programs to much larger computers. Lotus would thus become the first company among its peers to graduate from personal computers to huge mainframes. The deal is just as promising for IBM, which will now have the two top software makers under its wing.

That could be disturbing for Apple, which needs a steady flow of fresh software for products like the Macintosh. So last week Apple announced plans to set up a well-financed, independent software company that could eventually rank among the industry's top five producers. The new concern will initially develop software only for Apple machines under an unspecified non-Apple name. The company will aim in part to seek out hot new ideas from small-time independent programmers who lack the resources to market their products. So, just like Apple's first computer, the next software breakthrough may be discovered in somebody's garage.