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App-suite market ready for a fall?

As the big three application-suite vendors gear up for end-of-year and 1997 upgrades, a Dataquest study reports concern about the health of the application-suite market.

As the big three application-suite vendors gear up for end-of-year and 1997 upgrades, market research company Dataquest released a study today that reported concern about the health of the application-suite market.

The market, dominated by Microsoft (MSFT), grew by 24 percent from the second quarter of 1995 but has experienced a slowdown from the first quarter of 1996, the study said.

"This market is still astonishingly healthy and profitable, but these early warning signs warrant careful attention," said Dan Lavin, Dataquest senior industry analyst.

Based on percentage of revenue increase, the biggest winners in the past year were Lotus Development and Corel (COSFF), the two companies nipping at Microsoft's heels.

Lotus, a subsidiary of IBM (IBM), boosted its market share to 26 percent of the application-suite pie, more than double its slice of 12 percent in the second quarter of 1995. The increase was due in part to the bundling of SmartSuite on every shipping IBM Aptiva PC. Lotus also increased its revenue by 29 percent over the same period.

Corel, which bought the WordPerfect line from Novell in January 1996, enjoyed a revenue injection from the purchase as it pulled in $68.6 million in the second quarter, an 87 percent increase over its $36.5 million revenues in the second quarter of 1995. However, Corel's second-quarter market share of 7.5 percent was actually down a tenth of a percent from the year before, and Dataquest's Lavin cautioned that continuing sales or "sell-through" of the WordPerfect suite were not as strong as the initial sales, or "sell-in."

Corel is currently rewriting its Office Professional suite in Java, a move some analysts take to be the company's acknowledgement that Microsoft has won the app-suite battle. Microsoft revenue increased over the year from $626 million to $752 million, but the 20 percent increase represented the smallest among the three software makers during the year. Lotus's encroachment in the market chipped Microsoft's market share to 66 percent, down from 80 percent a year ago.

In July, Lotus used a similar Dataquest study to tout its increasing market share but failed to point out that the increase was mainly due to shipments from original equipment makers.