The layoff this week of about 1,000 Stream International employees who build packaging and replicate diskettes for shrink-wrapped software may be a harbinger for the industry as software makers move into electronic distribution.
"Electronic distribution has impacted demand for physical product manufacturing," Stream CEO Terence Leahy said, but culprits so far are corporate site licenses and CD-ROMs, not the Internet.
Stream is pushing aggressively into Internet distribution but has so far not made major investments in CD-ROM replication, a cutthroat industry with plummetting prices.
Stream, with $1.6 billion in sales last year, is the world's largest provider of manufacturing, marketing and technical support services to the software industry. Owned 80 percent by publisher R.R. Donnelley & Sons, it was created in April 1995 from the merger of Corporate Software with a Donnelley division.
"People don't buy diskettes and a mountain of manuals anymore. You buy a CD-ROM with a small number of manuals," William Lowe, a Donnelley spokesman, said, adding that demand for diskettes has shrunk tenfold in the last 12 months.
In May, Stream announced that its Internet storefront to sell software would be up in June; Leahy says it now is expected to be open by the end of this month.
Stream also is a co-founder of an independent software licensing clearinghouse, called the Electronic Licensing and Security Initiative, that would track software licenses purchased online. Testing of ELSI, which would be an important piece of the infrastructure for electronic software distribution, is due by year's end.
Allan Adler, chairman and CEO of MSI Consulting Group in Seattle, said distributing business software through site licenses, as Stream does, is an issue of fulfillment, not sales of software. For sales to end users, he identifies CyberSource, which runs the Web storefront software.net, and Online Interactive, which runs the atOnce software store, as leading online marketers.
"The Streams of the world really need a reassessment of their business model," Adler said, suggesting that they must move beyond fulfillment and into consulting and services to stay alive.