Dataware Technologies Rides CD Boom to Infobahn Express

Early CD-ROM success could help the company become an electronic librarian on the information superhighway

Bill Gates in 1986 confidently predicted a CD-ROM drive in every PC by 1990, two years after the technology first hit the market.

Gates, as it turns out, "was off by six years," says Kurt Mueller, who in 1988 founded his company Dataware Technologies with Gates' prognostication in mind.

Still, CD-ROM drives have become a standard PC feature. That development has fueled a booming business for Dataware -- finally. The company's early presence in the market has helped vault Dataware to the top of the CD-ROM software heap, suggesting that in technology markets as in nature, the early bird gets a decent crack at the worm.

Now the CD-ROM boom has given the company breathing room to plot its course into the next frontier of the information revolution - providing electronic librarians to index, search and fetch online electronic information.

"Corporate [information systems] planners consider the problem of managing documents that are already online as pressing as the problem of managing documents on paper," noted a research report from Dataquest, explaining one of the biggest challenges of the information age. "The veritable onslaught of libraries of digital documents delivered online and on CD-ROMs put the spotlight on text retrieval companies."

Seeking to exploit this trend, Dataware completed its acquisition of BRS Software Products in March 1994. BRS adds a critical information search and retrieval capability to the firm's growing portfolio of online and CD-ROM information handling products. The acquisition added about $9 million in annual revenues, an R&D facility in Albany, N.Y., and sales offices in Denmark, Singapore, Australia and the United Kingdom. It also gave Dataware a company with nearly 10 percent of the fast-growing market for full-text retrieval software, just behind Verity, Fulcrum and Folio, according to Dataquest.

The company now has 274 employees worldwide and more than 1,700 customers, including Arthur Andersen & Co., the Social Security Administration, the U.S. Department of Defense, Boeing Corp. and the Los Angeles Times.

Using Dataware products, the Social Security Administration has developed the world's largest internal CD-ROM application -- distributing operations manuals to 90,000 employees. The application could save about $28 million in printing costs in the next five years.

But Dataware eschews technological dogmatism. CD-ROM may very well be a temporary solution to the inadequate communications infrastructure now binding together computers. Once that infrastructure gains more capacity and becomes more reliable, large amounts of information can then be stored, managed and sent to PCs from servers on the network. Hence the company's move into online search and retrieval.

Some analysts are impressed -- even if there are lingering doubts about the company's staying power in a fast-consolidating software industry. "Dataware [is] moving strongly in the information retrieval market," says James Bair, an analyst with the market research firm Gartner Group Inc.

One thing is sure: It has been a winding route to entrepreneurial success for Chairman and CEO Mueller. He first cut his management teeth in Boston and then Germany, where he ran Lotus' German and Austrian operations. While there he got the itch to start up his own company -- now called Dataware Technologies.

"In those days, no one had CD-ROM drives," says Mueller. So he got the idea to help produce CDs for publishers and distribute them. He subsequently came to the United States in search of compelling CD titles that could drive acceptance of the technology. What he found: A company called Knowledge Set, owned by Gary Kildall, the now dead industry entrepreneur whose DR-DOS program inspired the DOS standard. Knowledge Set had produced the original Grollier's encyclopedia on CD, a perfect candidate for Mueller's plans. But by the time Mueller found the jet-setting, heavy-drinking Kildall, Robert Maxwell (now also dead) had gotten exclusive European distribution rights for the title.

So Mueller, of German ancestry and born in Canada, shifted plans and decided to sell software that would help mostly large private and public organizations put their reams of documents on CD-ROM. He hired James Kearney, now vice president for R&D, to write the software. When he couldn't find a German backer to help fund the business, Mueller went to the U.S., where he eventually raised $3 million. He established headquarters in Boston and began business with seven employees and 10 customers.

The rest, as they say, is business history. Two related products -- CD-Author and CD Answer -- quickly became market leaders and provided the firm with a business and technology base from which to expand operations. The company, arguably, was ahead of the market. But when CD-ROM technology finally went mainstream, Dataware was positioned with products to both develop CD-ROM applications and pull data out of CDs once those applications were created. Based on that position -- solidified with the acquisition of a primary competitor in 1992 -- Dataware completed a successful public offering in July 1993, and in 1994 it grew to $32.4 million in annual revenues. Its stock is now trading at $13, roughly the initial offering price. Revenues grew nearly 50 percent in the first quarter for fiscal year 1995 compared to the same 1994 quarter; and the company continues to round out its technology portfolio, including the purchase of BRS Software Products and development of advanced new searching technologies. In the meantime, good news continues. The company reported record net income of $626,000, or $0.10 per share, for the second quarter of 1995, compared with net income of $174,000, or $0.03 per share, for the same period a year ago.


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