Corel Corporation Business Information, Profile, and History

Company Perspectives:

All over the world, the Corel name stands as the leading branded alte rnative in the software market. Available in 17 languages, our softwa re is known to be full-featured, easy to use, and affordable.

History of Corel Corporation

Corel Corporation offers personal productivity software used by milli ons of customers in 75 countries across the globe. As one of the top ten packaged software brands in the world, Corel provides software in four major market segments including PC graphics, office-productivit y, digital image editing, and natural-media painting and illustration . Its products include WordPerfect Office Suite, CorelDRAW Graphics S uite, Corel Painter, Paint Shop Family, and Corel DESIGNER Technical Suite. Vector Capital Corp. acquired Corel in 2003.

Origins

Corel is the offspring of Michael Cowpland, a high-energy entrepreneu r and Ottawa celebrity who is credited with founding two of Canada's most successful high-technology ventures: Corel and the earlier Mitel . Cowpland was born in Sussex, England, in 1943 and received his bach elor of engineering degree from Imperial College in London. In 1964 h e emigrated to Canada. There, he earned a master's degree and a Ph.D. at Carleton University while working as a research and development e ngineer at the respected Bell-Northern Research Ltd.

Cowpland worked at Bell-Northern with Terry Matthews, a friend who al so had emigrated from the United Kingdom. In 1973 the pair left Bell to form a new venture dubbed Mitel (an abbreviation for Mike and Terr y Electronics). They launched the tiny company with the hope of creat ing a device that could translate the pulses generated by rotary dial telephones into the tones created by touch-tone phones. Laboring in Cowpland's garage in Ottawa, the pair achieved their goal and went on to build one of Canada's most successful private telecommunications products companies.

Cowpland and Matthews realized stunning success with Mitel during the 1970s and early 1980s, doubling sales of its advanced telephone swit ching equipment every year for ten straight years. The darlings of th e Canadian investment community, Cowpland and Matthews grew rich. In the early 1980s they began to chase new markets by diversifying into various digital technologies, and the pair seemed to have the Midas t ouch when most of those projects took off.

All seemed to be going well until the mid-1980s. Mitel posted revenue s of CAD 343 million in 1984, in fact, by which time the company was employing more than 5,000 workers in ten plants around the world. It was in 1984, though, that Mitel's diversification effort suddenly beg an to look like a miscalculation. Significantly, Cowpland and Matthew s fell behind schedule on the development of a state-of-the-art phone switch called the SX-2000. When computer giant IBM tired of the dela y and shopped elsewhere for the technology, Mitel was faced with plan t overcapacity, cost overruns, and a CAD 50 million research-and-deve lopment tab. Mitel began losing money, and Cowpland and Matthews were compelled to sell the enterprise to British Telecom. Still, both fou nders walked away with millions in cash.

Undeterred, Cowpland viewed the sale of Mitel as an opportunity to pu rsue the development of technology that was of greater interest to hi m at the time and to escape a job that had become an administrative b urden. In 1985 he dumped CAD 7 million of his own money into a new ve nture, which he named Corel. His initial goal was to develop a better laser printer that could be used with personal computers. He found t hat it was too difficult to compete in that market with low-cost Asia n manufacturers, however, and quickly shifted his strategy. Corel soo n became a value-added reseller of computers, selling complete system s geared for desktop publishing tasks.

Cowpland scrambled during his first few years to find a role for Core l in the marketplace. He eventually added optical disk-drives to his desktop publishing system lineup and then started marketing local are a networks. Considering the hefty start-up investment, sales grew tep idly--to about CAD 6.6 million during 1988--and for a few years, Cowp land seemed the consummate fallen star. "The first couple of years we re the most challenging as we were trying to find the right niche, bu t I think that is typical of any new company," Cowpland recalled in t he June 1992 Profit. "It's almost impossible to come up with t he ideal concept right out of the starting gate," he added.

Debut of Corel's Graphic Software in 1989

While he pushed his value-added hardware, Cowpland labored behind the scenes on what became a pet project: the creation of software that o ffered better design and layout capabilities than were offered by lea ding applications of the time. To that end, he hired a crack software development team that he allowed to work relatively autonomously. Be fore the end of the decade, the team had developed a graphic arts sof tware package that would become the standard for the PC-based desktop publishing industry. In 1989 Corel unveiled its cutting-edge CorelDR AW software program. CorelDRAW, significantly, was the first graphics application to incorporate into one package all of the major graphic s functions: illustration, charting, editing, painting, and presentat ion.

CorelDRAW was an instant success, which was surprising given the fact that Corel had never mass-marketed anything, much less a software ap plication. Cowpland's savvy marketing strategy, however, eventually e arned him almost as much respect in the software community as did Cor elDRAW. Cowpland plowed millions of dollars into an aggressive sales campaign. Specifically, he bucked the industry norm by marketing Core lDRAW heavily in Europe and Japan. Most software companies at the tim e started out focusing almost solely on English-speaking consumers. F urthermore, as CorelDRAW became more popular, Cowpland refused to adh ere to the convention of selling different versions of the program on e after the other. Instead, Corel developed and simultaneously sold m ultiple versions of CorelDRAW, each of which was tailored for a selec t market niche.

Corel's rapid-fire product development and marketing effort quickly b oosted its bottom line. Indeed, sales (roughly 80 percent of which we re attributable to CorelDRAW) rose to CAD 36 million in 1990 and then to CAD 52 million in 1991, while net income increased to a solid CAD 7 million. Going into 1992, Corel was employing about 250 workers an d had shipped nearly 300,000 of its CorelDRAW packages to more than 4 0 countries. CorelDRAW was becoming increasingly popular with custome r groups such as children, artists, architects, and business owners, among others. In short, CorelDRAW allowed users to create anything fr om T-shirt designs to corporate logos and technical drawings. Using a computerized pencil, or drawing from 12,000 programmed images, users could create an endless array of color illustrations, designs, and d rawings.

As Mitel had, Corel reflected the insatiable drive of its founder. Co wpland had established his name in the Canadian business scene with M itel, but his remarkable success with Corel revived his fame in his h ome town, where he "replaced Pierre Trudeau as Ottawa's most-watched celebrity," according to Canadian Business Magazine. In Ottawa , Cowpland was known as much for his persona as his business success. He raced around the city in flashy sports cars and generally made no apologies for his wealth. He and his wife built a massive new home t hat included a ten-car underground garage and two squash courts and w as designed to mimic the look of Corel's gold-colored headquarters.

Cowpland's no-holds-barred, unemotional business style was mirrored m ore clearly on the tennis court, where he was known as an aggressive contender driven to win at any cost. Evidencing that drive was Cowpla nd's relationship with longtime tennis partner Ed Hladkowicz, the ten nis pro at a club that Cowpland bought during his Mitel days. Cowplan d hired Hladkowicz to work for Corel, and Hladkowicz became a manager in the company's systems division. Meanwhile, the two friends contin ued what became a 20-year run of regular tennis matches. Then, one da y in 1992, Cowpland coldly and abruptly eliminated the systems divisi on and sent Hladkowicz packing. A week later he phoned the stunned Hl adkowicz to arrange a time to play tennis (the two eventually did res ume their association).

Although Cowpland was criticized for his callous treatment of employe es, few could dispute the success of his philosophy in the business a rena. Cowpland prided himself on making quick decisions and moving br iskly to capitalize on new opportunities. During the early 1990s Core l introduced a string of CorelDRAW programs geared for entry-level us ers, intermediates, and advanced buyers. Those introductions helped C orel to capture a hefty 55 percent share of the global market for dra wing and illustration software products. The resulting revenues rose to CAD 90 million in 1992, CAD 140 million in 1993, and then to CAD 2 26 million in 1994, while net income increased to nearly CAD 45 milli on.

Corel's success in 1993 and 1994 blasted critics, who claimed that Co wpland's downfall was imminent. Based on what they believed was a sat urated market as well as Cowpland's history at Mitel, a number of inv estors began shortselling (betting against) Corel stock in 1992 in an ticipation of an earnings slide. Instead, the company's earnings clim bed rapidly in the wake of new product introductions and an improved balance sheet. Impressively, Cowpland had managed to grow Corel witho ut taking on any debt. By 1994, in fact, Corel had virtually no long- term debt. Furthermore, Cowpland still owned an equity stake in the c ompany of about 20 percent by 1995, giving him an estimated net worth of $200 million.

By 1994, though, it could be argued that Corel was relying too heavil y on a single product line geared for a market niche that was becomin g saturated. So, after shipping nearly one million CorelDRAW programs in 15 different languages, Cowpland began looking for a new avenue t o growth. In 1994 the company launched an ambitious initiative to bra nch into four new markets: consumer CD-ROMs, office suites (or "bundl es" of productivity software), video-conferencing, and computer-aided design (CAD). Production of CD-ROM games and educational products wa s a top priority; Corel planned to launch 30 titles in 1995 and an ad ditional 50 each following year. Corel planned to tap its established network of distributors in 60 countries to vie with venerable Micros oft in the $1 billion CD-ROM consumer market.

Creating its CD-ROM products in cooperation with Artech Digital Enter tainments, Inc., Corel launched several CD-ROM products in 1995, incl uding an electronic coloring book called "Blue Tortoise," a Marilyn M onroe photo compilation, a movie database, and collections of card an d board games. At the same time, it continued to enhance its CorelDRA W line and to chase the other market categories it had targeted in 19 94. For example, it announced plans to begin shipping a CAD software application called CorelCAD, which was designed to help homebuilders and people doing home renovations. Cowpland expected that effort to g enerate sales of $50 million annually by 1998. Likewise, Corel in troduced a video-conferencing system early in 1996 called CorelVideo that was designed to operate efficiently on local area network system s.

Acquisition of WordPerfect in 1996

Critics wondered why Cowpland would take on so much risk by simultane ously jumping into industries in which he had little or no prior expe rience. Their concern was no doubt heightened early in 1996, when Cor el stunned the software community by agreeing to purchase Novell Inc. 's vaunted WordPerfect division in a transaction valued at $124 m illion. WordPerfect word processing software was a leader in the mass ive word processing market. The deal also included Quattro Pro, a lea ding spreadsheet software, and the PerfectOffice application suite of productivity software. The surprising purchase was expected to more than triple Corel's annual revenue base.

The WordPerfect purchase vaulted Corel from a major niche player to a software industry contender in a business dominated by operating sys tem powerhouse Microsoft: "Corel Feels Bold with WordPerfect Deal; CE O Has Glass House, But He Throws the First Stone at Microsoft," read the headline in the February 11, 1996 Wall Street Journal. By purchasing WordPerfect, Cowpland threw down the proverbial gauntlet, positioning his company to go toe-to-toe with Bill Gates's behemoth M icrosoft. The acquisition marked the beginning of a new era for Corel . From 1996 onward, Cowpland's success with Corel would be measured b y his ability to beat Bill Gates at his own game.

In the wake of the signal WordPerfect acquisition, Corel braced itsel f for the intense media scrutiny fueled by Cowpland's bid to break Mi crosoft's hegemony. The company continued its practice of relaunching CorelDRAW approximately every 13 months, recording consistent market success with its tried and true graphics product. In 1999, when Core lDRAW 9 was released, sales of Corel's mainstay product line reached ten million copies, a milestone achieved during the tenth anniversary of the product's release that testified to the one enduring strength supporting Corel. The company's success in posing as a legitimate th reat to Microsoft's formidable position in business productivity soft ware, however, was considerably less certain.

Corel's Java-compatible version of WordPerfect was tailored for compa tibility with a variety of platforms, including Windows 95 and 98, Wi ndows NT, Windows 3.1x, Macintosh, Unix, and Linux. In 1998 the compa ny released WordPerfect Suite 8 with Dragon NaturallySpeaking, giving users speech-enabled word processing. A year later, Corel released W ordPerfect Office 2000, but neither version catapulted the company to the rarefied heights for which it clamored. Corel lost $30 milli on in 1998 on $246 million in revenues and posted a $16 milli on profit on declining revenues of $243 million in 1999. To be fa ir, the company was pursuing an ambitious goal, one that could not be realistically achieved by the decade's end.

Changes in the New Millennium

The true measure of Cowpland's success remained to be determined in t he inaugural decade of the 21st century. Corel made a positive start to its determinative decade by announcing an important merger. In Feb ruary 2000, the company made public that it had signed a definitive m erger agreement with Inprise/Borland Corporation, a transaction value d at $2.44 billion. The union of Inprise/Borland, a leading provi der of Internet access infrastructure and application development too ls and services, and Corel represented a pivotal step toward reaching Cowpland's goal. In a February 7, 2000 Corel press release, Cowpland stressed the importance of the merger's effect on Corel's advances w ith the Linux operating system, which was capable of running on a wid e range of hardware. "With Inprise/Borland's leadership in the softwa re development community and Corel's Linux desktop operating system a nd productivity applications," Cowpland said, "we have an extraordina ry opportunity to reach all facets of the exploding Linux market."

If the merger reached fruition, Inprise/Borland was to be organized a s a wholly owned subsidiary of Corel. Based on 1999 figures, the two companies would generate more than $400 million in revenues. Alth ough the company's graphics and business productivity software was de veloped for a variety of platforms, much of its future success--parti cularly its success in wresting market share from Microsoft--hinged o n the popularity of the Linux operating system. Toward this end, Cowp land's hopes were buoyed by the announcement that the Linux operating environment was expected to grow at a compound annual rate of more t han 25 percent through 2003, according to International Data Corporat ion, an industry research organization. Whether or not such growth co uld inject Corel with muscle it needed to combat Microsoft remained t o be determined in the years ahead.

Cowpland's grand plan failed to come together when the merger deal wi th Inprise/Borland was called off in 2000 as Corel's profits and shar e price continued to fall. In June, the company was forced to elimina te 350 jobs as part of a $40 million cost-cutting effort. Two mon ths later, Cowpland resigned amid an ongoing insider trading investig ation led by the Ontario Securities Commission. The charges were even tually settled in 2003. Cowpland was forced to pay fines and was barr ed from serving as a director of a public company for two years. Chie f technology officer Derek J. Burney was tapped to take over as Corel 's new president and CEO. Under his leadership, the company realigned its business structure into three major products groups: Creative Pr oducts; Business Applications; and Linux products.

Corel received a much-needed cash infusion in October 2000, when Micr osoft agreed to invest $135 million in Corel. During the next two years, Corel attempted to regain its financial footing. In 2001, the company sold its Linux desktop operating system business in order to strengthen its focus on its WordPerfect and CorelDRAW products. In 2 002, Corel tried to gain a foothold in the XML software market when i t acquired SoftQuad Software in a $16.6 million deal. Despite its efforts to enter new markets, Corel was unable to shore up profits a nd found itself in a precarious financial position.

During 2003, California-based Vector Capital Corp. acquired Microsoft 's interest in Corel for $12.9 million (Microsoft had lost more t han $100 million on its Corel investment). Later that year, the p rivate equity firm made a play for Corel, offering $1.05 per shar e, or approximately $97.6 million, for the company. The deal was approved by shareholders in August of that year.

Under new ownership, the company streamlined its product offerings an d focused on its three major products: CorelDRAW, WordPerfect, and Co rel Painter. In 2004, the company purchased Jasc Software to bolster its graphics software line, which included CorelDRAW and Corel Painte r. By honing in on the home and small office consumer segment, Corel hoped to bolster sales.

Corel celebrated its 20th anniversary in 2005. Although the changes C orel had faced in the early years of the new millennium were swift an d dramatic, it appeared as though the company was on the right track for the first time in years. Both revenue and profits had started to climb slowly, indicating Corel's strategy was paying off.

Principal Competitors: Microsoft Corporation; Adobe Systems In c.; Quark, Inc.

Chronology

• Key Dates:
• 1985: Dr. Michael Cowpland founds Corel as a systems integrati on company.
• 1989: CorelDraw is launched after two years of code developmen t.
• 1991: CorelSCSI is launched.
• 1992: CorelDraw 3 debuts, representing the beginning of the mo dern full-featured graphics suite.
• 1995: CorelDraw 6 is launched simultaneously with Windows 95, becoming the first major 32-bit application available for the new ope rating system.
• 1996: Novell Inc.'s WordPerfect division is acquired.
• 1999: WordPerfect Office 2000 is released; sales of CorelDraw reach ten million copies.
• 2000: Merger plans with Inprise/Borland Corporation are scrapp ed; Cowpland resigns; Microsoft buys a 20 percent stake in the compan y.
• 2001: Corel sells its Linux business.
• 2003: Vector Capital Corp. acquires Corel.
• 2004: The company purchases Jasc Software to bolster its graph ics software line.
• 2005: Corel celebrates its 20th anniversary.