CRN Interview: Corel CEO Amish Mehta

On the heels of WordPerfect Office 12, a major upgrade to Corel's office productivity suite, Mehta shared his thoughts on how the Ottawa-based software vendor aims to work with VARs to capture share among small and midsize businesses and other "value-conscious" customers in an interview with Editor In Chief Michael Vizard and Editor Heather Clancy.

CRN: What's Corel's market strategy, and where is the company at in those plans right now?

MEHTA: I led the acquisition of Corel by Vector Capital [a San Francisco-based private equity firm]. We saw Corel--or I should say, I saw Corel--as a public company that had lost its way and, in my mind, had started to do too much. And in trying to do too much, it had lost sight of its core products, which are WordPerfect and the graphics applications, particularly CorelDraw. So sitting on the outside looking in, our perspective was that acquiring Corel, refocusing the company on its core products, and then divesting, shutting down or reducing the focus on its other product lines would really help the company be successful again. At the heart of Corel, behind WordPerfect and CorelDraw, was a fantastic global brand with millions of customers--18 million in the case of WordPerfect, and probably 3 million to 4 million in the case of CorelDraw--and a global sales and marketing network that was still intact. And those assets of brand, customers and global distribution are so valuable in any business. It made a very compelling story.

Our focus since the acquisition last August has been quite simple: Focus aggressively on WordPerfect, CorelDraw and the graphics applications, and scale back everything else. For the first three or four months, [we focused on] the latter. And, yes, we had restructuring and cutbacks in force, but more importantly, we really increased the investment in our core products and the resources and dollars spent behind WordPerfect and graphics [applications]. As part of that process, we spun out a division called iGrafx. It's still part of the Corel family, but it's run as its own company. We sold a division, the XMetal product line, to Blast Radius. We shut down a couple of smaller divisions internally and, as I said, refocused the company on Draw and WordPerfect.

Once that transition was complete, all hands were focused on the launches in 2004: CorelDraw Graphics 12 in February and WordPerfect Office 12 in April. And [we are] very much looking to revitalize the company and the product line with those big launches. We needed the launches to be big steps up, not just incremental product launches, which a lot of software companies have tended to fall back on. So the CorelDraw launch in February was incredibly successful, and the WordPerfect launch seems to have the start of being as successful--if not more successful--than the CorelDraw launch.

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Behind all of that is our focus on our core customers and segments. We're not trying to be all things to all people. We are aggressively focused on providing software that delivers very high value, a very high set of features and very high compatibility with other products out there and on becoming the value-conscious customer's and the SMB customer's software provider of choice. Some of the other companies, such as Microsoft and Adobe, have done a good job of cornering the enterprise market, but the products and price points that they offer don't always make a lot of sense for SMBs and value-conscious customers. And even the government and legal segments, which tend to follow in the mold of value-conscious customers, have been areas that we're very much focused on.

So in a nutshell, that's where we are. Just to give you some other metrics, when the company went private, we were about $120 million in revenue. Selling the small products obviously divested some of that. But the core business has started to grow again in the last three to six months, and the company is profitable at the same levels that you would find for other software companies our size. So the turnaround, if you will, of Corel is certainly complete from a financial perspective. Now we're trying to win the battle in the marketplace from a sales and marketing perspective.

CRN: As part of that battle, where does the channel fit in?

MEHTA: The channel is a critical part. I would say approximately 70 percent to 80 percent of our revenue--maybe even 90 percent, in some geographies--goes through the channel. And we are aggressively looking to build out our VAR network. We just hired one more person for the VAR team, and we have other open positions.

CRN: So does that mean Corel aims to add more distribution partners? How many partners are you looking for, and how much funding is going into channel programs?

MEHTA: From a dollar perspective, I'd say that over 50 percent to 75 percent of our marketing dollars are focused on marketing to the channel. From a head-count perspective, well over 50 percent to 60 percent of the company's sales head count is focused on the channel, and it's the area of fastest growth in our sales organization today.

More than just getting [a specific number of] partners, what we really care about is quality partners that want to make a business from selling Corel products and have a commitment to that. So my focus now is trying to find VARs that will do more than $50,000 to $100,000 of annual business with us. There are obviously dozens that already do that. We're just looking to expand that number pretty aggressively. I'd like to double that number over the course of the next 12 months or so. And the amount of revenue that we're dealing with through a lot of our direct-marketing reseller partners has already started to go up. But I'd like to see that also grow at 15 percent to 30 percent, depending on which partner and which geography.

CRN: So will there be other products to up-sell, based on what Corel currently has? I can envision more stuff coming from Corel in the area of, say, workflow targeted at the SMB space.

MEHTA: Yes. Right now, our focus is very much on WordPerfect and graphics. Like any software company, we'll continue to innovate, but for the next 12 months all of our sales and marketing focus is going to be on WordPerfect, CorelDraw, Painter, Designer and the other graphics applications. One of the things I should highlight is that we rolled out a program called Corel Freedom License, a suite of applications [consisting of] eight or 10 of our most successful products, ranging from Painter, Designer and CorelDraw to KPT and Knockout. It's priced at just $250 per user, and a company has access to all of those products [through the suite]. And that is focused particularly on SMBs and value-conscious customers. So we feel there's a lot we can offer the marketplace with the current product portfolio for the next 12 to 18 months. Obviously, we'll also be looking at new products that we think make sense to offer to this market.

CRN: What are you doing to make your suite of products more attractive to the channel?

MEHTA: Simply put, the channel makes more money selling our products than selling Microsoft products.

CRN: Please explain.

MEHTA: If you're a channel partner of Corel, you'll definitely make more gross profit margin and have more dollars in your pocket by selling our product than Microsoft's product. Microsoft hogs way too much of the margin. They have the monopolistic power, and a lot of people have demanded that channel partners have to carry it. I can't tell you how many conversations I've had with channel partners where Microsoft [Office] is a loss leader for them, but they have to offer it. They don't make a penny, and they probably lose money on it. With Corel, we're finding that so many channel partners--and particularly VARs--are seeking to build businesses around Corel because of how generous our offer is in terms of gross profit margin.

CRN: Don't VARs have to spend more time and more sales dollars selling the Corel brand instead of the Microsoft brand?

MEHTA: Well, there's no question that we spend a little bit more time trying to convince new customers on Corel vs. Microsoft, and that's why we're paying [VARs] the extra margin. But we're also looking to support that effort by delivering a phenomenal product and by providing all kinds of marketing programs. We have, depending on the product, a 50th to a 10th of the market share for companies of that size. There's no way we'll ever spend as much money [as Microsoft does]. So we have to focus on our markets, which I've identified as SMB and value-conscious customers, and provide our channel partners focused on that business with incredible incentives to sell our products. And if you talk to most channel partners, they will tell you that we are much easier to do business with and we're more fun to do business with. That's certainly part of the intangibles that draw people to Corel.

CRN: Are you telling your guys to sell against Microsoft and go after that business? Or are you more interested in, say, opportunities on a Linux desktop or opportunities around a closed-loop system like a call center, where you don't really need the file compatibility all the time? There are lots of other places to make money on the desktop besides Microsoft's business.

MEHTA: Definitely, [we're targeting] some of what you just mentioned. Frankly, from a compatibility perspective, the new WordPerfect product offers 95 percent cross-compatibility with anything you may ever want to do with Excel, PowerPoint or Word, including operating in those modes where it looks and feels [the same]. The keys are even the same, and the menus are even the same. So we're certainly not backing down from the compatibility element, but there's no question that SMBs and value-conscious customers, as they buy their second and third PCs, and people in grade school, high school and college don't need nearly the level of compatibility as enterprise users. And we think it's a very, very compelling position for them, and [they] can buy our products at well under half the price of what the others are offering.

CRN: So if I'm at a site that has Microsoft Office, and I'm up to my eyeballs in VBA code wrapped around Office, I may not be a candidate for Corel? But if I am just using basic spreadsheet and word-processor functions, I may be an ideal candidate?

MEHTA: Absolutely. And if you look at some of the large PC manufacturers out there, all the major ones are carrying WordPerfect. In fact, on Dell you have to opt out of WordPerfect. You have to go tell Dell, 'No, don't give me WordPerfect. I want to pay more and buy Microsoft.'

CRN: We consider Dell a channel.

MEHTA: Our channel partners like Dell are actively promoting our software on their machines. We have sold--and we can't reveal the exact number--millions of copies of our software through Dell, just in the last 12 months alone. And that's because Dell wouldn't dare risk the relationship with its customers by offering them crap. So they certainly felt that what Corel offers is very capable of meeting the demands of their customers.

CRN: How do you view Sun Microsystems' StarOffice play?

MEHTA: I would say that, at the end of the day, we're competitive. But, frankly, we just don't really see them much [in the marketplace]. If you take Microsoft out of the market, we have over 75 percent market share of the non-Microsoft market. So we're the clear No. 2 alternative. And we're finding that many channel partners would prefer not to offer StarOffice for free, because that product isn't quite where it needs to be to address the compatibility and functionality issues of the target market.

CRN: Do you think the licensing terms that Microsoft uses to sell Office could become a selling point in getting customers to switch to Corel?

MEHTA: Absolutely, unequivocally. People don't want to be gouged and be told they don't have an alternative. Our perspective is that 15 years ago, nobody ever got fired for buying IBM. Who would shut their eyes and buy IBM today? [Similarly] people don't get fired for buying Microsoft. We plan to change that. You've got to at least consider the alternatives, particularly if you've got 10 people in your office who are going to use a product but have 100 people in your company. Microsoft would probably force you to buy 100 licenses. Well, with Corel, if you're only going to have 10 people using the product at any point in time, you only need to buy 10--and at half the price.

CRN: What is Corel doing to court the custom systems channel, which builds systems primarily for small businesses?

MEHTA: We are not doing enough for that channel today. It is clearly on our radar screen, and you can anticipate that we'll be rolling things specifically for that growing channel in the coming months.

CRN: So what's the profile of the VAR that Corel is targeting now?

MEHTA: There are all kinds. You have academic VARs. You have VARs that are in the legal community, [serving] the lawyers. These could include the types of [solution providers] you're talking about--small white-box manufacturers--but we don't have a specific program right now that reaches out to them. That we plan to change. Our VARs provide SMBs with IT support technology and services and are a one-stop shop where SMBs can go for their software needs. Our efforts could involve larger VARs that have a national franchise in which we could bundle some services, not just hardware. They vary by geography. There are just so many different flavors of it.

CRN: One thing that every small business needs to do is keep track of its contacts and customer relationships. Is Corel doing anything with other application developers to extend the proposition of its core products?

MEHTA: We are absolutely talking to other providers. To give you an example, we've got some campaigns in the market today with companies like Intuit. There are companies of that size and scale that also have similar types of issues in competing against Microsoft and Adobe that we're very much looking to partner with.

CRN: What level of integration does Corel have around XML Web services? One thing many people are interested in doing is using desktop software as a default front end for more complex, back-end applications such as business intelligence and ERP.

MEHTA: There are two ways to address that. One is that even with WordPerfect Office 12, there are various levels of XML capabilities. But, second, you have a professional services team that works actively with government agencies and businesses that want to spend $5,000, $10,000, $50,000 and in some cases more to develop customer XML functionality.

CRN: Does Corel have services that VARs can resell?

MEHTA: Absolutely.

CRN: So are there SKUs for that, or is it a one-off, customized kind of thing?

MEHTA: Right now, there is a SKU for that, but we're looking to broaden the number of SKUs available. We have created a catch-all SKU, where if one of our VARs wants to offer something that we do, we can do it through that SKU.

I think the most important thing from a VAR perspective is that Corel is back offering a product that is outstanding and viable in the marketplace. It is offering it at price points that are compelling to the end user--as well as the VAR partner, in terms of making money off it. And we're offering it all behind a company that is healthy, stable and has a direction. That hadn't been the case, frankly, at Corel for many years, but we are doing whatever we can to reach out and get that confidence back in the company again with our VAR partners. There are hundreds that do business with us, but we want to increase that number.