Corel Unveils New Strategy: Adios, Linux

Corel has finally unveiled its strategy for returning to profitability--a controversial new corporate strategy that leaves Linux in the lurch. According to Corel, the company will focus its long-term growth on leveraging the WordPerfect market while innovating primarily with its "creative" products such as CorelDRAW, Corel Painter, and Kai's Power Tools (KPT). For months, rumors have circulated that Corel planned to exit the Linux distribution market, but news that the company will simply target the existing WordPerfect market for upgrades--rather than seek new users--brings up many questions.  Corel's creative products, however, are widely acclaimed, and the company's focus on these applications makes sense.

Despite its plans to sell off Corel Linux, the company claims to have an "expanding vision for Linux"; at the very least, Corel will continue to develop WordPerfect and CorelDRAW for the UNIX-like OS. And Corel says it's interested in "retaining an interest" in whatever company ends up with its Linux distribution. The company also says that its flagship WordPerfect office suite will "continue to generate significant revenues and contribution." But Corel has no plans to bargain-price the suite to undercut Microsoft. Instead, the company will focus on its existing user base and target future upgrades, such as WordPerfect Office 2002 (due this year), on the needs of this market. "We're not going to go into a head-to-head battle with Microsoft Office," says Corel CEO Derek Burney, noting that Microsoft commands more than 90 percent of the market.

Corel's "primary engine for revenue growth" will be its creative products, which in future releases will be more oriented toward Web content and graphics. The company estimates that this market will reach $2.9 billion in revenues by 2003, although Corel will be but one player among many. Still, the company expects its creative product revenues to double in that timeframe. And Corel will port CorelDraw, Painter, Bryce, KPT, and KnockOut to the Macintosh, with versions for both Mac OS 9 and Mac OS X. The Mac still has a loyal user base in creative communities.

Corel's strategy, overall, is questionable. Given inroads by products such as StarOffice and OpenOffice, the company might easily have targeted WordPerfect at the value market and provided a middle ground between the Microsoft's overly expensive products and the Linux community's freebies. Corel's decision to abandon its Linux distribution was probably wise, given that product's inability to achieve revenues anywhere close to the company's original estimates. But why the company would want to retain any interest in the purchaser of that technology is unknown. And although Corel's creative products are popular enough, they reside in a fairly low-volume niche market. Developing a stronger relationship with the Mac during such a tenuous product transition also is risky: Mac OS X is technically well regarded but is unlikely to resuscitate Apple's sales this year--and it's equally unlikely to resuscitate Corel.


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