Microsoft Corp. last fall introduced its consumer software division, called Microsoft Home. Like other software marketers, the company understood that a computer in the den is neither fun nor educational nor productive without software.
For Microsoft, as well as other software vendors, the home represents new customers at a time when the business market has matured.
Last year, reports the Software Publishers Association, consumer software sales grew 53% while business software sales climbed just 16%, though business still counts for 85% of software sales.
Like Microsoft, other business software marketers are tapping into the burgeoning home market, where 27% of U.S. households now own a PC
But until Microsoft's entry, the home market was largely the domain of consumer specialists. Microsoft's reputation as a ferocious competitor with the enormous resources of a $3.7 billion company, including a $90 million marketing communications budget, worries even established rivals.
"Even if they don't dominate, they will be a major player," says Tim Sullivan, VP at Culpepper & Associates, a consultancy that evaluates business practices of software companies. "They have the marketing resources, and they have more staying power than smaller, more niche-oriented players out there."
As evidence of this power, last year this new home division generated about $200 million in sales.
However, retail, the main distribution channel for the home market, is far from Microsoft's "home" field.
While business software is marketed as a strategic purchase for higher productivity, consumer software is discretionary spending, even an impulse buy.
Research by SPA in January and February found 15% of entertainment software purchasers hadn't even planned to buy.
"Shelfspace and shelfspace and shelfspace are the only rules that matter," says Kevin O'Leary, president of SoftKey International, which markets consumer software exclusively.
Like the 22-building campus outside of Seattle that houses Microsoft's headquarters, the number of Microsoft Home titles and the division's revenues are expected to grow.
Microsoft Home now has 50 titles available and nine more announced, including the first CD-ROM/on-line service hybrid, Microsoft Complete Baseball.
More are due by July 1 on the way to the goal of 100 products by April 1995, 18 months after it launched the line.
Microsoft Home's marketing staff spreads the paraphernalia of retail marketing over a huge table in a conference room at the company's campus: Packaging, ad proofs, reviews (including a prized New York Times Book Review software review), Microsoft Home baseball cap, CD-ROM Sampler, cassette of a direct-response TV spot and a soft-sell video on Microsoft Home products.
The division's 500 employees will crank out a title a week this year, hoping to boost the sector's share of Microsoft sales from about 4% last year to 10% in three years.
"There was an eight-week period in the fall," says Ruthann Lorentzen, director of consumer marketing for Microsoft Home, "when the home market just exploded."
Microsoft Home carries titles in four lines: reference, entertainment, personal productivity and children's creativity (see chart at right).
Microsoft Home uses package-goods marketing techniques-TV commercials, 800 numbers, packaging and merchandising-but its products aren't yet sold like soap.
Retail distribution is a key aspect of Microsoft Home marketing, though the channel is diversifying.
The top two Microsoft Home-selling chains are Egghead Software, a traditional software storefront, and superstore CompUSA, a computer superstore. But at No.*3 is Best Buy Co., the consumer electronics chain.
Following this path, mass merchants Price Club/Costco, Wal-Mart Stores' Sam's Wholesale Club and Sears, Roebuck & Co. have started carrying this software.
"We want our consumer products to be where customers are, within arms length of buyers," says Monica Harrington, Microsoft's group manager-communications, noting that mass merchants also are selling PCs.
Microsoft Home also takes its products directly into the home-or, in some cases, the community.
Several PC makers, including Dell Computer Corp., Gateway 2000 and AST Research, sell multimedia PCs with Microsoft Home titles pre-loaded. Microsoft Home also markets via direct mail and catalog sales.
Furthermore, it takes software to target markets through "SeniorNet," a group of about 60 centers nationwide to teach computer skills to senior citizens, and Family Technology" nights for local PTAs.
"Educators are major influencers on what types of software children and parents use," says Ms. Harrington, whose program has dual targets, teachers and parents.
The division has done relatively little advertising. It offers a co-op program for retailers, and it's advertising in the first home computing magazine to hit the street, HomePC.
Last fall, Microsoft Home put $533,000 into cable TV direct-response spots from Ogilvy & Mather Direct, Los Angeles, according to Competitive Media Reporting. It will spend at least that much this year.
"It's a no-brainer because [the direct-response TV] was hugely successful," says Martin Leahy, senior product manager.
In 60 days before Christmas, Microsoft's 60-second spots ran 660 times and generated 60,000 calls-three times expectations-to an 800 number.
Callers got a free video on Microsoft Home titles; 50,000 videos, which show a dozen titles being used in four separate families, were distributed.
The free video strategy emerged from focus groups on Encarta, Microsoft Home's first blockbuster product.
When the multimedia encyclopedia on CD-ROM was described to focus groups, about 15% of participants said they would consider buying the product. Given a chance to sample the software, the figure jumped to over 80%.
"We see that result coming back again and again in market research," Ms. Harrington says.
So the division markets a "CD sampler" that lets users try 36 pieces of software; the $4.95 package includes a $10 coupon toward a purchase.
Microsoft Home also does point-of-purchase advertising, to capture impulse buys. It offers retailers revolving racks, like those used for books, that let retailers display as many as 96 Microsoft Home titles.
It's also adjusted pricing. When Microsoft dropped the price for its Encarta encyclopedia from $395 to $95, sales leapt by a factor of 24, reports Mr. Leahy. The suggested retail price now stands at $135, but many retailers will discount the price to under $100.
These enhancements are important to home-market sales. SPA's research found POP works well for software.
Among entertainment software, 26% of buyers know the type of software they want but not the title.
To reduce the number of stockkeeping units, Microsoft Home sells upgrades in the same box as new software, giving registered users a rebate coupon.
With its size and resources, Microsoft will be a big player in consumer software, but it won't automatically dominate every home-software segment.
One test will come when Microsoft Home has to pull the plug on its losers, something it hasn't done yet.
Watch Microsoft Money, for example. The personal finance package has been a comparative bust against Intuit's Quicken, the category leader that was developed and marketed like a package-goods product.
Against such focused competitors, Microsoft Home may have trouble getting past the front door.
So not all competitors are worried, despite Microsoft's might. (With a $40 million worldwide branding assignment now searching for an agency-reviewing finalists Leo Burnett Co., Chicago; O&M, New York; and Wieden & Kennedy, Portland, Ore.-Microsoft stands to become an even bigger marketing force.)
Still, one competitor thinks Microsoft's entry may be good for everyone in this category.
"With such a powerhouse delivering the message to the consumer that the PC belongs in the home, it's going to enhance the number of homes with them," Mr. O'Leary says.
Business PCs typically run five software packages, says Mr. O'Leary. At home, he says, a family might run up to 30 applications.
"For whatever reason somebody can be convinced to buy a PC, it opens up a whole new market for all of us in the software business," he says.
Sales of entertainment, home education and personal finance software hit $1.06 billion last year, according to the SPA, up from $784.2 million in 1992.
Early signs show the boom has echoed into 1994, validating Microsoft Chairman-CEO Bill Gates' prediction: "We see 1994 as the threshold year when home computing will really take off."