Aldus Corporation

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Aldus Corporation

41 First Avenue South
Seattle, Washington 98104-2871
U.S.A.
(206) 622-5500
Fax: (206) 343-4225

Public Company
Incorporated: 1984
Employees: 1007
Sales: $174.1 million
Stock Exchanges: New York
SICs: 7372 Prepackaged Software

Aldus Corporation revolutionized the use of personal computers when it introduced its PageMaker program in 1985, virtually creating the desktop publishing industry. Although the company has not been able to match the inventiveness of its original program, it is a major American producer of desktop publishing and graphics software, selling a dozen different computer programs in 19 languages in 50 different countries. Since the mid-1980s, the company has grown steadily, but has continued to rely heavily on its flagship program into the 1990s.

Aldus was founded in late February 1984 by Paul Brainerd. Brainerd had earned a graduate degree in journalism at the University of Minnesota before taking a job in production at the Minneapolis Star and Tribune. In 1980 he joined Atex, a company that sold computer-assisted publishing equipment to the newspaper industry. In 1983, this company was purchased by Eastman Kodak, which decided to close the plant in Redmond, Washington, where Brainerd was working. Rather than transfer to another location, Brainerd and five other Atex engineers decided to stay in the Pacific Northwest and start up their own company.

After selling his Atex stock, Brainerd used the $100,000 he had earned to found the new enterprise. He and his partners decided to name their company Aldus, after Aldus Manutius, a fifteenth-century Venetian pioneer in publishing. Manutius had standardized the rules of punctuation and also invented italic type. He went on to found the first modern publishing house, the Aldine Press.

The founders of Aldus set out to produce a computer software program that would allow its users to “paste up” text and graphics together on a screen, creating a product that closely resembled a page made in the conventional fashion, with cutting and pasting. When a page was completed, it would then be printed out all at once on a computer laser printer. They aimed for a process that would be relatively easy to use and far less expensive than conventional printing processes. Brainerd called this innovation “desktop publishing.” This advance was made possible by the graphic capabilities of the newly introduced Macintosh computer, marketed by Apple Computer Inc., so Brainerd and his partners designed their program explicitly for use on the Macintosh.

After 16 months of work, Aldus released PageMaker in July of 1985. With this software program, users could create professional-quality newspapers, newsletters, brochures, pamphlets, and other graphic products. Retailing for $495, PageMaker opened up a whole new field of possibilities for use of the personal computer (PC). The program’s popularity soon began to drive sales of the Macintosh computer.

The interdependency of Aldus and Apple products spurred the companies’ close cooperation. Aldus helped Apple to market its hardware to customers who wanted desktop publishing capabilities. In return, Apple featured Aldus’s software in much of its advertising, and also helped the fledgling company distribute its program.

In October 1985, Aldus released an international version of PageMaker; half a year later, it began to market an upgraded version of the program, PageMaker 1.2. Demand for its unique software had grown rapidly, and Aldus anticipated sales of $10 million for 1986. Aldus took steps to expand its software offerings beyond the market made up by Macintosh owners to reach the vast majority of computer users who relied on IBM-compatible PCs. In October 1986, Aldus announced an agreement with two other companies to create a desktop publishing package. The Hewlett-Packard Company agreed to supply its Vectra computers and its LaserJet printers, and the Microsoft Corporation contributed its Windows operating system and its Microsoft Word word processing program. Together, the three companies agreed to spend about $2 million promoting the new system.

In January 1987, these efforts bore fruit when Aldus introduced its IBM-compatible PageMaker software for use with Windows operating systems. IBM later endorsed PageMaker as part of its own desktop publishing program. In addition, in December 1986 Aldus had finalized an agreement with computer maker Wang Laboratories to distribute Aldus software. Three months later, it also linked up with the Digital Equipment company to sell Aldus programs for use on Digital’s VAX computers.

After successfully making the PageMaker program accessible to all kinds of computers, Aldus decided to offer its program to computer users outside the United States. In January 1987, Aldus joined with a partner to form Aldus Scotland, Ltd., of which it owned 30 percent. The purpose of this venture was to market Aldus products throughout the United Kingdom and Europe. Nine months later, Aldus took one step toward further expansion when it converted Aldus Scotland, Ltd. to Aldus Europe, Ltd. Based in Craigcrook Castle, a sixteenth-century turreted stronghold outside Edinburgh, Scotland, Aldus had established itself as Europe’s leading producer of desktop publishing software by the spring of 1988. Controlling nearly half of the British, French, and German markets for these products, PageMaker was the world’s fourth most popular software program.

By March 31, 1987, annual sales of PageMaker had risen to $18.4 million, an increase of more than 100 percent over the preceding 12 months. In light of this dramatic expansion, Aldus offered shares in the company to the public for the first time in June 1987. Although the company had initially presented its stock at $14 to $16 a share, interest among investors proved so strong that the price was raised to $20. Enthusiasm for Aldus’s prospects was so high that this price had nearly doubled by the end of the first day of trading. Overall, more than 2.2 million shares were sold, reflecting confidence in Aldus’s strong position in the desktop publishing market. As the leader in that field, Aldus had sold more than 60,000 PageMaker programs for Macintosh.

Despite the popularity of the PageMaker, Aldus’s status as a single-product company caused some concern among investors. The company needed to move beyond PageMaker to other products and functions in order to continue its rapid growth and remain profitable. In November 1987, Aldus took its first step towards diversifying its product offerings when it bought the distribution rights to FreeHand, a drawing program which produced high-quality graphics. In addition, Aldus introduced Snapshot, an instant electronic photography software package for use on personal computers.

By the end of the year, sales of the company’s products had reached $39.5 million, and profits had tripled to $7.2 million. A third of those revenues had come from overseas sales, primarily in Europe, Australia, and New Zealand—areas where English language capabilities were strong and Macintosh computers were available. Aldus hoped to increase its international sales to 40 percent of its gross by adding products customized for foreign markets, such as a Japanese language version of PageMaker.

Even though new products were introduced, the company relied heavily on sales of PageMaker. In January 1988, sales of the PageMaker program topped 200,000, with 90,000 copies of the program shipped in the preceding year. That spring, Aldus introduced updated versions of PageMaker for use on the Macintosh and on IBM-compatible PCs. With this advance, Aldus maintained its dominant grip on the desktop publishing market.

In October 1988, in an effort to protect their copyrights and to fight international software piracy, Aldus joined with four other computer software marketers to form the Business Software Association. One month later, Aldus introduced another product that would be vulnerable to such abuses, Aldus Persuasion, to be used on the Macintosh. This program, which the company bought the marketing and development rights to, marked Aldus’s first departure from the desktop publishing field. Persuasion was designed as presentation software, to combine text and graphics in slides, transparencies for use on an overhead projector, and printed handouts for use during business meetings.

Despite efforts to diversify its offerings, Aldus’s growth slowed as PageMaker encountered more and more competition. Not only had other companies had a chance to catch up to Aldus’s innovations but the structure of the industry had also shifted. On the low end of the market, ordinary word processing programs had become powerful enough to incorporate more and more of the desktop publishing features that had originally been offered only through PageMaker. At the opposite end, other companies were offering packages popular with publishers and other corporate clients. Aldus’s days of steady expansion on the strength of one program’s popularity were over.

Aldus reacted sluggishly to the new industry challenges. The company was slow to bring new products to market, and much-needed updates of its old programs were delayed. To compound the company’s problems, two key members of Aldus’s management team, a marketing executive and the software designer who had originally created PageMaker, quit the company in May 1989 because they were unhappy with the overly aggressive and interfering management style of company founder Brainerd. Recognizing the problems in the company, Brainerd brought in a new management team and removed himself from day-to-day control of the company, taking on the task of developing new ideas for software, instead.

In an effort to freshen its product offerings, Aldus introduced a color version of PageMaker for the Macintosh and a long-awaited Japanese version. PageMaker for IBM machines in Japan followed. In September 1989, Aldus shipped a PageMaker program for use with the new IBM operating system, OS/2. In addition, the company instituted a restructured customer service program.

Despite these steps, however, Aldus’s earnings seemed to have reached a plateau, as unsold inventories of its products accumulated and sales slowed. Overall, gross revenues rose only 11 percent in 1989, and earnings were up only six percent, to $15.4 million. After years of much faster growth, these disappointing results caused the price of Aldus’s stock to drop.

In an effort to branch out beyond its core desktop publishing field and speed company growth, Aldus purchased Silicon Beach Software, a privately held computer program producer, in 1990 for $25.5 million worth of stock. This company’s offerings included SuperPaint, a drawing program, Personal Press, an inexpensive desktop publishing product, and Digital Darkroom, which allowed users to retouch photos. These products allowed Aldus to tap into the market of novice computer users, who were unfamiliar with more high-powered graphics programs.

In addition to this acquisition, Aldus made further progress in its push into international markets. The company introduced an updated version of its PageMaker program in Japanese. In May 1990, the company introduced a long-awaited upgrade of its American PageMaker program, which Aldus hoped would enable it to hold onto its 70 percent market share of desktop publishing software for the Macintosh. Nevertheless, Aldus’s executives indicated that they hoped to have this program contribute no more than half of the company’s revenues in the coming years, as other products gained popularity. Chief among these other products was Persuasion, the company’s presentation software, which had attained the number two spot in its market, behind a Microsoft program.

Aldus continued its campaign to win market share overseas in July 1990, when it introduced PageMaker versions in Chinese and Russian. In addition, the company brought a number of products obtained with its Silicon Beach acquisition to market, further diversifying its software offerings. By the end of the year, these efforts had led to an increase in sales of 37 percent, bringing revenues to $135 million. Sixty-six percent of these sales were contributed by PageMaker, which then retailed for $795 and could be used in 17 languages.

Aldus continued to expand its product line beyond PageMaker in 1991, as the company purchased the marketing rights to a number of programs, among them PhotoStyler, PressWise, and PageAhead. The company also continued to release updated versions of its old programs. To support these new product releases, Aldus renewed its advertising campaign in various publications.

Sales of Aldus’s old standbys, products such as Persuasion and PageMaker, were given a boost in 1991 when an updated version of the operating system for IBM-compatible computers, Windows 3.0, stimulated demand for new versions of programs to run on it. To further tap into this market, Aldus announced an aggressive trade-in marketing push, in which a customer who turned in one of the company’s competitors’ programs would get an updated version of Persuasion for Windows 3.0 for only $99, a deeply discounted price.

Despite domestic efforts, Aldus did not experience dramatic growth in 1992. To strengthened its position and spur growth, Aldus focused on its international prospects. It began by purchasing 80 percent of its joint venture in Japan, Aldus Kabushiki Kaisha, for $7 million. In an effort to make further international sales possible, Aldus joined with the other members of the Business Software Alliance to test Mexican copyright laws, suing companies which had pirated its programs. This move was intended to make it possible for U.S. companies to increase their sales of software in Mexico, a potentially lucrative market, without risking large losses to counterfeiters.

Shortly after this legal action was taken, Aldus found itself involved in another type of legal dispute, when two shareholders claimed that executives at the company had sold high-priced shares in Aldus on the basis of inside information. This complaint was brought as a result of the company’s continued poor returns, which had caused its stock price to drop. In July 1992, this trend took a more ominous turn when Aldus reported its first quarterly loss. One month later, the company announced that it would trim its staff by 13 percent— 100 employees—as a cost-cutting measure. The company attributed the need for this restructuring to continued economic and competitive pressures in the industry as a whole, as the software industry went through a period of slowing sales.

Although Aldus was admired for its ability to produce software to be used on both IBM and Macintosh operating systems, the company’s new introductions never matched the popularity of PageMaker. This pattern continued throughout 1992, as Aldus released updated versions of its old programs and brought out new products acquired from other sources. Among the new introductions were Fetch, a multimedia software tool which allowed images to be retrieved for manipulation, and Intelli-Draw, a sophisticated drawing program.

In further efforts to boost sales, Aldus announced the creation of a Consumer Division to market its software to individual users outside a corporate setting. This indicated a shifting focus to low-cost, high-value consumer software. In addition, Aldus tried to upgrade its relationships with mail-order software distributors and retail superstores to increase the number of outlets for its products. Further marketing changes included the introduction of new product packaging. Nevertheless, sales responded only slightly, as the company suffered intense competition from two other software developers, Quark and Frame Technology. Aldus ended 1992 with revenues of $174.1 million, a small upturn from the previous year.

In January 1993, Aldus released PageMaker 5.0. The company hoped that this major upgrade would enhance sales. As Aldus moved into the mid-1990s, the company had a solid record of stability and growth behind it, provided largely by its perennially popular PageMaker program. Although its future did not appear to include the kind of spectacular early advances which the company had once enjoyed, Aldus was well situated to meet the challenges of the changing environment in specialized software.

Principal Subsidiaries:

Aldus Europe Limited (U.K.); Aldus Software G.M.B.H. (Germany); Aldus France S.A.R.L.; Silicon Beach Software, Inc.; Aldus Kabushiki Kaisha (Japan); Aldus Canada, Inc.; Aldus Software Pty. Ltd. (Australia).