Tembling hardware prices over the last 18 months have turned the UK Personal Computer market into a world resembling Alice’s Wonderland. One minute everything seems ordered, the next it is turned upside down; as the Dodo almost said of the Caucus Race: everybody can win, so everybody must have prizes – at least some of the time. This view, that the last can be first, and its corollary that the first can be last, was vividly illustrated by two developments on Monday last week. First Computer, which not so long ago was vying with Computerland, Granada and the now deceased Entr UK and AT Computerworld operations for the position of computer chain with the largest number of UK outlets, closed down with the loss of 60 jobs after the management, and the company’s owner Gerald Ronson’s Heron International, decided that the concern had no prospect of being profitable in the near future (CI No 597). Meanwhile, Newcastle-based software house Sagesoft Plc, with barely profitable sales of UKP(00,000 in 1985, revealed that it had made UKP600,000 pre-tax on a turnover of UKP2.2m in the 12 months to September 30 1986 and had budgeted for a further 50% increase in profits and revenue in fiscal 1987. The closure of First Computer comes just five months after the micro dealer was completely reorganised. In August (CI No 493), the company closed its 11 stores and consolidated its business at its headquarters in Slough and an office in Central London. However, the restructuring did little to stop First’s losses and, as a result, the management has given up on its unequal struggle to raise funds for a buyout from Heron. By contrast, Sagesoft’s management is working on a strategy to help maintain their charge’s dramatic growth. Managing director David Goldman says that there are three key elements to the plan; increasing brand awareness, with a UKP500,000 marketing campaign; licensing and badging new products for the volume micro market; and diversification into related activities such as computer-based training. Sagesoft has already spent a six figure sum on specially written software for a five-user UKP49-a-day training centre in Newcastle and is hoping to recoup the investment through computer-training franchises if the Newcastle centre is a success. So far, Goldman has had 500 enquiries from potential franchisees and an overwhelming reception from prospective pupils.
Change in product mix
The change in Sagesoft’s product mix has been as dramatic as the last 12 months’ growth. The company’s great leap forward came when it was one of the first into the market with low-cost accounting software for the Amstrad PCW8256 word processor. Although PCW sales have held up far better than expected after the launch of the Amstrad PC1512 in September 1986, they now represent only 30% of the total unit sales of 3,000 per month – a ten fold increase on 1985 – while accounting products have dropped to less than 50% of turnover as licensed or bought-in packages such as the Chit-Chat communications program, Retrieve database, PC Write word processor and integrated DeskSet have taken off. Goldman promises three new products for Which Computer? in February: an enhanced version of Chit-Chat that includes emulations of DEC, IBM and ICL terminals; 101 Macros, a package that provides graphics, note pad, calculator, double spacing, and forms macros for Lotus 1-2-3 compatible spreadsheets; and something in the desk-top publishing volume market. The other major change has been the sales outlets. In 1985, 90% of units went through dealers whereas now the figure is less than 25%. The actual volumes through dealers has barely changed despite what Goldman admits has been the mutilation of their margins following Sagesoft’s price cuts on its MS-DOS products last summer. Sagesoft’s performance over the last 18 months has left it with no shortage of ready cash, so, despite being registered as a Plc, the company has no plans to float its equity on the stock market, and as long as its profits are leaping ahead Grosvenor Venture Capital is unlikely to want to
realise its 25% stake. If Grosvenor does decide to sell, David Goldman and the rest of the Sagesoft management will be at the front of the queue for the shares.