You Should Be So Lucky

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MENLO PARK, Calif. -- This month, Be Inc. confronted a problem most companies wish they had: The newly released BeOS operating system for Intel PCs proved so popular the company ran out of the 8,000 copies it had pressed. Be's vice president of sales and marketing, Alex Osadzinksi, remembers calling up customers to dissuade them from using the product. "We wanted to verify that they really, really had the supported hardware," he said. "It's all over the Web site: Do not order unless... ! And what most people said was: 'Yeah, I know what I'm doing. I'm an enthusiast. I'm a geek.'" So a few days later, Be pressed more CDs and filled the back orders.

It's a small start, but an encouraging one for a company that's either brilliant enough or crazy enough -- take your pick -- to try to enter the desktop operating system arena dominated by

Microsoft

. Be insists it is aiming at a small niche that Microsoft doesn't go after. Be's strategy is unusual and relatively modest for an operating system company, but necessary when "Microsoft is the air," as founder Jean-Louis Gassee puts it.

Gassee, the stylish, intellectual Frenchman who established the company in 1990, is best known for having headed up

Apple's

product development under the reign of

John Scully

in the '80s -- and is nearly as famous for his signature earring. The earring is now gone, and he's dismissive of questions about it, finally snorting, "It obscured the more important issues in my work."

Other important things have also changed since Be began. Microsoft has consolidated its ownership of the desktop, and Be, which originally planned to make its own hardware, has discovered that it must adapt to a new world defined by

Bill Gates

. For the better part of this decade, Be ambled along without shipping a product, leading some wags to joke that "Be had never been." Then the company nearly sold its BeOS to Apple in 1996, but Apple turned to

NeXT

instead.

When Apple killed off its clones, Be decided it was time to move off the PowerPC and onto Intel. The Wintel monopoly appeared eager to embrace Be: The company got money from venture capitalist

David Marquardt

, who sits on Microsoft's board, and an investment of an undisclosed amount from Intel, which also sent over three programmers to help with the switch to its chips.

Be is still small, with 62 employees on two floors of a nondescript office building on a busy thoroughfare across from a

Chevy's

restaurant. The company hasn't wasted any money on fancy office furniture. The cubicles are sparse, and the big open space outside Gassee's corner office is dominated by four ancient, ripped floral couches and a gaggle of garage-sale coffee tables that look as if they were made to hold boxes of pizza and Chinese takeout, which is what the engineers were eating last Thursday.

If Microsoft didn't own more than 90% of the commercial desktop market, Be could probably say it was going after some of that pie with a straight face. But the company's stated strategy is to coexist with Microsoft, not compete with it. Be even recommends its customers load the BeOS on their

Windows

machines and two-time between it and Windows, rather than dumping the older operating system. So Be says it is focusing on three distinct markets where it has a technical advantage. These are the rather large video hobbyist market in Japan ("pretty videos of ducks and nice Japanese ladies," says Osadzinksi); amateur and professional musicians; and, here in the U.S., wedding videographers, freelance video producers and regular folks with camcorders. The company says it's not aiming at the general office market, even though BeOS word processors, spreadsheets and email are available. But, in an unusual arrangement, the company plans to take a cut of all third-party applications sold through Be partner

Starcode

, an online distributor. Obviously, if Be customers buy productivity tools, that will mean more money for Be. Osadzinksi also claims Be isn't courting the ABM ("anything but Microsoft") crowd, but there's no question that the BeOS will appeal to them.

The preferred sales pitch is that the BeOS handles multimedia better than Windows or the

Mac

because it supports multithreading and multiprocessor systems for speed and reliability. Be customers will be able to apply multimedia effects such as "Blur" much more quickly than they would on comparably priced Windows or Macintosh systems, and their PCs won't crash as much, according to the company. Be envisions that a professional configuration will cost about $2,500 (including hardware), although any consumer could get started for just a couple hundred bucks. The operating system is priced low to sell, as they say in car commercials (it's $69.95, or $129 for the deluxe developer version). Video-editing applications are expected to be available from third parties later this year for a few hundred dollars, significantly less than

Adobe's

$600

Premiere

editing package.

Be aims to sell one million copies by 2000. This year, it plans to do $3 million in revenues, but hopes to beef that up to $40 million in 1999. The company has raised close to $50 million dollars since its inception, said CFO Wes Saia, including a recent $26 million private placement. Be expects about 30% of its revenues will come from OEM deals and 70% from direct sales, including the Starcode deal.

Venture capitalist Marquardt says Be can get to a million users without competing with Microsoft. "That's the central premise behind the investment," he told the

Wall Street Journal

in March. True -- if the video market is as large as Be estimates. Theoretically, if a company could create a low-cost, easy-to-use video-editing system, it could create a mass market for do-it-yourself digital video, just like desktop publishing gave rise to 'zines and newsletters in the late '80s. But analysts have been predicting the arrival of just such a platform and market for years, and they still haven't materialized yet.

So far, the BeOS has sold mostly to developers and hobbyists who like to fiddle with new technology and write programs in their spare time --"midnight programmers," as Osadzinksi puts it. Like the freeware

Linux

operating system and the old Mac, which was hip and fun and

not

IBM

, the BeOS, with its stylish interface and advanced technology, will probably appeal to renegades, artists and do-it-yourselfers who want something Microsoft doesn't have. Be hopes its audience will expand beyond the geeks once the operating system works with a wider variety of hardware configurations and more applications. (Right now, there are about 500 applications available for the PowerPC version, and 75 have been recompiled to run on Intel.)

Analysts said they were initially skeptical, but became more optimistic after they saw the early sales numbers. "I think they can carve out a little niche and quite possibly more," said William Peterson, a market research analyst with

International Data

of Framingham, Mass. At first he didn't think the company would sell 10,000 copies, but based on its record so far, he now estimates it could move 35,000 this year. Then again, a million by 2000 is a lot, he said. But since Linux has managed to gain several million adherents, perhaps the BeOS has a chance. Intel's support will be crucial, he added.

Developers, another key to the company's success, say they are taking a chance on the new platform because they don't stand a prayer on established ones. "If we were on Mac or NT, I probably wouldn't be talking to

the press right now," said Stephan Adams, the CEO of

Adamation

of Oakland, Calif., which plans to ship an easy-to-use multimedia editing program in November. He added that he also likes the Be platform because it is technically superior to the Mac and Windows.

Ironically, the

Department of Justice

investigation has given Microsoft a strong incentive to encourage the tiny company. "This is a very bad time for Microsoft to be attempting to stamp out competitive operating systems," said Osadzinksi. "Bill Gates has mentioned the BeOS as a shining example that there is competition in the commercial OS market."

Of course, he's the only one who thinks Be competes. If Be reaches the million-unit mark or strikes a chord with something other than video, however, the two companies might very well clash. Be's video strategy, it seems, could turn out to be something of a Trojan horse.

"We're consciously not trying to move the giant," said Osadzinksi. "It's not a sensible thing to do." But then he added: "That is the usual mealy-mouth marketing stuff you get from someone like me. Sooner or later, if we get to a million units a year, we will be noticeable and we will receive competitive pressure from Microsoft and others. No question."

"It's an adventure game," said Gassee. "If you play it well on the first rung, you get more weapons, lives, and jump one level up. But we need to do a good job where we are. Then the developers, customers and investors will take us to the next level if we deserve it."