We expect to compete as a thriving company in the computer applications software industry. Applications software are computer programs designed to accomplish user tasks, such as word processing, graphic design, desktop publishing, inventory control, and more. The software industry consists of three general market segments: application solutions, application tools, and systems software. The software market has long been one of the computer industry's fastest growing segments. Revenues for the worldwide software market reached $122 billion in 1997, up about 15% from 1996 according to estimates by IDC. Revenues continued to show robust growth in 1998. IDC projects that revenues will grow at a compound annual rate of approximately 12% for the next several years, surpassing $220 billion by 2002.
Applications software includes programs that perform specific industry or business functions. The worldwide market for applications software increased to $56 billion in 1997, a 17% rise over 1996, and is expected to grow 15% annually through 2001, to approximately $98 billion.
Application tools include data access and retrieval, data management, data manipulation, and program design and development software. The worldwide application tool software market grew 13% in 1997, to $31 billion. It should continue to increase 12% to 13% annually, approaching $50 billion by 2002.
System-level software comprises operating systems, operating systems enhancements, and data center management. The worldwide market for system-level software increased 13% in 1997, to $35.1 billion. This figure should exceed $53 billion by 2001, based on an 11% compound annual growth rate (CAGR).
Applications software can be either developed by outside vendors and sold in packaged form, or custom-made by users themselves. Many computer users don't have the time or desire to write their own computer programs or to hire a software developer; they can choose from thousands of quality packaged programs ready for use with little or no modification. The proliferation of computers has increased the number of people who use computers relative to those who can program them, increasing the packaged software's importance. Custom software is tailored to the needs of a specific individual or organization.
4.1 A Brief Look at the Internet
In just five years, the Internet has undergone a major metamorphosis. From an obscure network used by a limited number of academics and researchers, the Internet has been transformed into a global Web of more than 100 million interconnected computers encompassing users from all walks of life. Described below are the various segments of the Internet:
Hardware: networking equipment. This sector provides the primary infrastructure on which the Internet is built. Two prominent types of network equipment are routers and remote access concentrators. Cisco Systems Inc. with sales of approximately $9.9 billion and a market share of 67%, dominated the routers market in 1998. Ascend Communications, Inc. (1998 sales of $1.48 billion) and Cisco share leadership of the remote access concentrator market, with shares of approximately 28% and 27%, respectively.
Software. Two of the main types of Internet software are browsers and security programs. Microsoft Corporation and Netscape Communications Corporation dominate the key software component of the World Wide Web. The security segments are needed to ensure the safety of networks and transactions. Security Dynamics Technology Inc. (1998 sales of $41 million) has taken the lead in providing authentication and encryption products.
Services. Internet service providers (ISPs) offer a way for people to enter the Internet. According to IDC, America Online has approximately 43% share of the total subscribers in the ISP segment, followed by Microsoft's MSN, and AT&T's WorldNet.
Destinations. Destinations are websites that people can go to for information, entertainment, or commerce.
4.2 Brief Look at the Computer Industry
In the first six months of 1997, a total of 37 million personal computers (PC) were shipped worldwide. That figure rose to 40 million during the same time period in 1998 and, according to IDC, this figure is expected to rise by 16% in 1999. PC growth in 1997 and 1998 was boosted by the introduction of the sub-$1,000 PC. This price point is due in large part to the sharp drop in prices of the major components that go into the PC. Another way PC makers have addressed lower price points is through cost-reduction efforts made possible by new manufacturing and distribution strategies. Two important initiatives are underway:
Build to order (BTO). Under BTO, PC's are assembled by the manufacturer.
Channel assembly. Under channel assembly, distributors or resellers build and configure the machines.
In both cases, the building or configuring occurs when an order is received. By using these methods, indirect PC vendors hope to keep inventories lower and, through the cost savings achieved, offer more competitive prices to customers. Compaq, Dell, IBM, and Hewlett Packard dominate the computer industry.
4.3 Market Segmentation
A review of all of our markets is given below:
Small businesses. According to trends, the Internet will no longer be just a marketing vehicle; it will become the backbone of a company's business infrastructure. Companies use the Internet to set up home pages that describe their products and lines of business. This gives them an excellent medium to raise their profile, advertise products, and recruit employees.
Individuals. As of year-end 1998, almost 100 million users accessed the Internet regularly, up from 69 million at the end of 1997, according to IDC. A key factor in the recent growth of the Internet is the popularity of the sub-$1,000 PC. Computers sold at or below $1,000 have appealed to first-time PC users and lower-income families. In the United States, less than one-third of the population is connected, leaving plenty of room for growth. When consumers are asked why they purchased a PC, the most common answer is to connect to the Internet. Individual investors have been attracted in growing numbers to the ease and convenience provided by online investing websites such as E*Trade and eSchwab.
Corporations. Half of the total number of large U.S. and European organizations have developed corporate Intranets, which use the infrastructure and standards of the Internet for internal company networks that link employees. Corporations have discovered that the technologies employed by the Internet, particularly the infrastructure and standards of the World Wide Web, are an inexpensive and powerful alternative to other forms of internal corporate communication.
Telecommuters. Telecommuting seems to be on a steady growth curve, with approximately 11 million telecommuters in the U.S. today, according to the latest survey from FIND/SVP, a research and consulting firm. Telecommuting will continue to grow because there are frequent references to productivity gains in the range of 15-25% for telecommuters.
Customer Buying Criteria Customers are expected to use our services based on traditional factors:
Price. Pricing is one of our competitive advantages. We offer prices that are lower than those of any of our competitors.
Service. Customers not only expect the best service but value for money, which is what we give them in our product.
4.4 The Y2K Issue
One of the more pressing issues facing the computer industry is the Year 2000 problem, also referred to as "Y2K" and "the millennium bug." Unless addressed properly, this problem will cause many computers worldwide to stop functioning properly. Y2K arises from the fact that until the mid-1980s or so, programmers used two-digit numbers to represent years. For example, "97" was used to represent the year 1997. While this design saved computer storage space, which was expensive and in limited supply, it also produced the situation in which all dates input in these computers refer to the twentieth century. The Gartner Group, a Connecticut-based information technology (IT) consulting firm, estimates the worldwide repair bills in the $300 billion - $600 billion range, but this includes only the cost of fixing programs written in Cobol. Software Productivity Research, a Massachusetts based software-consulting firm, has made a broader estimate that includes repairs, damages, and litigation. This group estimates that the total cost from 1994 to 2005 will top $3.6 trillion.
Our products will not be affected by the Y2K problem.
4.5 Service Business Analysis
Competition There is one major company with whom we will be competing and that is HotOffice Technology. Its product, HotOffice, is a low-end business planner that focuses on the basic business structure. Other companies compete in the industry, but they only specialize on one of the many features we offer.
HotOffice Technology HotOffice Technologies, Inc. is a Web-based Intranet Service provider for small business, especially those with collaboration needs, multiple offices, mobile workers, telecommuters, and virtual offices. HotOffice offers small businesses an affordable, secure Intranet solution at a fraction of the cost of purchasing and maintaining a traditional Intranet or Extranet. This subscription service provides a large, powerful suite of collaboration and communication tools in one simple, easy-to-use interface accessible anytime, anywhere. From any PC with Internet access, HotOffice provides instant connection via the Web to email, calendar, documents, bulletin boards, online conference rooms, business centers, and more.
Strengths Large penetration to the main channels. At the time of this writing, they have the first entry to market. We plan on taking a significant part of that market share within a few months by providing additional features that will be more attractive for users.
Low-end products. Their products are only aimed at business users. We offer a product for personal users as well, and our product with its advanced features will surpass that of HotOffice.
No programming facilities. Their products have no capabilities for programming.
These companies form a large group of firms that offer one form of the many applications that we offer. They either specialize in selling hard drive space or email functions.
Barriers to Entry Web Applications will benefit from several significant barriers to entry which include:
Development Team. We have a development team that is up to date with the latest industry applications. With this team, we feel confident that we will be a dominant player in the industry and continue to produce and enhance our product with time.
Diversification. Anyone coming into the market will find it difficult to duplicate what we have because of our diversification. We offer a product with multi-dimensional applications.
Market penetration. Once we are in the market and established, it will be difficult for someone to break into a market where someone is already operating successfully.