Corel Corporation

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Corel Corporation

1600 Carling Avenue
Ottawa, Ontario K1Z 8R7
Canada
(613) 728-8200
Fax: (613) 761-9350

Public Company
Incorporated: 1985
Employees: 390
Sales: US$196 million (1995)
Stock Exchanges: NASDAQ Toronto
SICs: 7372 Prepackaged Software

Corel Corporation is a leading global developer of graphics software and small computer system interface (SCSI) software, and a top seller of word processing software. The company’s signature product is CorelDRAW, a graphics software package with more than a million users. In 1995, after ten years in business, Corel was selling its products through a network of 160 distributors in 60 countries worldwide and in 15 different languages. With the purchase of Novell Inc.’s WordPerfect division in early 1996, Corel instantly became a world leader in word processing software, as well.

Corel is the offspring of Michael Cowpland, a high-energy entrepreneur 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 bachelor of engineering degree from Imperial College in London. In 1964 he emigrated to Canada. There, he earned a master’s degree and finally a Ph.D. at Carleton University while working as a research and development engineer at the respected Bell-Northern Research Ltd.

Cowpland worked at Bell-Northern with Terry Matthews, a friend who had also emigrated from the United Kingdom. In 1973 the pair left Bell to form a new venture dubbed Mitel (an abbreviation for Mike and Terry Electronics). They launched the tiny company with the hope of creating 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 switching equipment every year for ten straight years. The darlings of the 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 touch when most of those projects took off.

All seemed to be going well until the mid-1980s. Mitel posted revenues of C$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 began to look like a miscalculation. Importantly, Cowpland and Matthews 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 delay and shopped elsewhere for the technology, Mitel was faced with plant overcapacity, cost overruns, and a C$50 million research-and-development tab. Mitel began losing money, and Cowpland and Matthews were compelled to sell the enterprise to British Telecom. Still, both founders walked away with millions in cash.

Undeterred, Cowpland viewed the sale of Mitel as an opportunity to pursue the development of technology that was of greater interest to him at the time and to escape a job that had become an administrative burden. In 1985 he dumped C$7 million of his own money into a new venture that he named Corel. His initial goal was to develop a better laser printer that could be used with personal computers. He found that it was too difficult to compete in that market with low-cost Asian manufacturers, however, and quickly shifted his strategy. Corel soon became a value-added reseller of computers, selling complete systems geared for desktop publishing tasks.

Cowpland scrambled during his first few years to find a role for Corel in the marketplace. He eventually added optical disk-drives to his desktop publishing system lineup and then started marketing local area networks. Considering the hefty start-up investment, sales grew tepidly—to about C$6.6 million during 1988—and for a few years, Cowpland seemed the consummate fallen star. “The first couple of years were the most challenging as we were trying to find the right niche, but I think that is typical of any new company,” Cowpland recalled in the June 1992 Profit. “It’s almost impossible to come up with the ideal concept right out of the starting gate.”

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

CorelDRAW was an instant success, which was surprising given the fact that Corel had never mass-marketed anything, much less a software application. However, Cowpland’s savvy marketing strategy eventually earned him almost as much respect in the software community as did CorelDRAW. Cowpland plowed millions of dollars into an aggressive sales campaign. Specifically, he bucked the industry norm by marketing CorelDRAW heavily in Europe and Japan. Most software companies at the time started out focusing almost solely on English-speaking consumers. Furthermore, as CorelDRAW became more popular, Cowpland refused to adhere to the convention of selling different versions of the program one-after-the-other. Instead, Corel developed and simultaneously sold multiple versions of CorelDRAW, each of which was tailored for a select market niche.

Corel’s rapid-fire product development and marketing effort quickly boosted its bottom line. Indeed, sales (roughly 80 percent of which were attributable to CorelDRAW) rose to C$36 million in 1990 and then to C$52 million in 1991, while net income increased to a solid C$7 million. Going into 1992, Corel was employing about 250 workers and had shipped nearly 300,000 of its CorelDRAW packages to more than 40 countries. CorelDRAW was becoming increasingly popular with such customer groups as children, artists, architects, and business owners, among others. In short, CorelDRAW allowed users to create anything from T-shirt designs to corporate logos and technical drawings. Using a computerized pencil, or drawing from 12,000 programmed images, they could create an endless array of color illustrations, designs, and drawings.

As Mitel had, Corel reflected the insatiable drive of its founder. Cowpland had established his name in the Canadian business scene with Mitel, but his remarkable success with Corel revived his fame in his home 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 that included a ten-car underground garage and two squash courts and was designed to mimic the look of Corel’s gold-colored headquarters.

Cowpland’s no-holds-barred, unemotional business style was mirrored more clearly on the tennis court, where he was known as an aggressive contender driven to win at any cost. Evidencing that drive was Cowpland’s relationship with long-time tennis partner Ed Hladkowicz, the tennis pro at a club that Cowpland bought during his Mitel days. Cowpland hired Hladkowicz to work for Corel, and Hladkowicz became a manager in the company’s systems division. Meanwhile, the two friends continued what became a 20-year run of regular tennis matches. Then, one day in 1992, Cowpland coldly and abruptly eliminated the systems division and sent Hladkowicz packing. A week later he phoned the stunned Hladkowicz to arrange a time to play tennis (the two eventually did resume their association).

Although Cowpland was criticized for his callous treatment of employees, few could dispute the success of his philosophy in the business arena. Cowpland prided himself on making quick decisions and moving briskly to capitalize on new opportunities. During the early 1990s Corel introduced a string of CorelDRAW programs geared for entry-level users, intermediates, and advanced buyers. Those introductions helped Corel to capture a hefty 55 percent share of the global market for drawing and illustration software products. The resulting revenues rose to C$90 million in 1992, C$140 million in 1993, and then to C$226 million in 1994, while net income increased to nearly C$45 million.

Corel’s success in 1993 and 1994 blasted critics, who claimed that Cowpland’s downfall was imminent. Based on what they believed was a saturated market as well as Cowpland’s history at Mitel, a number of investors began shortselling (betting against) Corel stock in 1992 in anticipation of an earnings slide. Instead, the company’s earnings climbed rapidly in the wake of new product introductions and an improved balance sheet. Impressively, Cowpland had managed to grow Corel without taking on any debt. By 1994, in fact, Corel had virtually no long-term debt. Furthermore, Cowpland still owned an equity stake in the company 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 heavily on a single product line geared for a market niche that was becoming saturated. So, after shipping nearly one million CorelDRAW programs in 15 different languages, Cowpland began looking for a new avenue to growth. In 1994 the company launched an ambitious initiative to branch into four new markets: consumer CD-ROMs, office suites (or “bundles” of productivity software), video-conferencing, and computer-aided design (CAD). Production of CD-ROM games and educational products was a top priority—Corel planned to launch 30 titles in 1995 and an additional 50 each following year. Corel planned to tap its established network of distributors in 60 countries to vie with venerable Microsoft in the $1-billion CD-ROM consumer market.

Creating its CD-ROM products in cooperation with Artech Digital Entertainments, Inc., Corel launched several CD-ROM products in 1995, including an electronic coloring book called “Blue Tortoise,” a Marilyn Monroe photo compilation, a movie database, and collections of card and board games. At the same time, it continued to enhance its CorelDRAW line and to chase the other market categories it had targeted in 1994. 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 generate sales of $50 million annually by 1998. Likewise, Corel introduced a video-conferencing system early in 1996 called Corel Video that was designed to operate efficiently on local area network systems.

Critics wondered why Cowpland would take on so much risk by simultaneously jumping into industries in which he had little or no prior experience. Their concern was no doubt heightened early in 1996, when Corel stunned the software community by agreeing to purchase Novell Inc.’s vaunted WordPerfect division in a transaction valued at $124 million. WordPerfect word processing software was a leader in the massive word processing market. The deal also included Quattro Pro, a leading 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-system powerhouse MicroSoft: “Corel Feels Bold with WordPerfect Deal; CEO Has Glass House, but He Throws the First Stone at Microsoft,” read the headline in the February 11, 1996, Wall Street Journal. With sales expected to rise to more than US$500 million in 1996, Corel (given its 52-year-old chief executive’s competitive nature) appeared to have the potential to exert significant influence in the global software and multimedia industry.