The secret of Softkey’s success

Kevin O'Leary credits much of his software company's phenomenal success to the lessons he learned from marketing cat food.They must have left a strong impression because his Mississauga, Ont.-based company, Softkey Software Products, is now the fastest growing in Canada, according...

Kevin O’Leary credits much of his software company’s phenomenal success to the lessons he learned from marketing cat food.

They must have left a strong impression because his Mississauga, Ont.-based company, Softkey Software Products, is now the fastest growing in Canada, according to a profit magazine survey conducted earlier this year.

With sales of $36.8 million, and a profit of $6.1 million in its last fiscal year, Softkey’s revenue growth has catapulted 9,738% since 1986.

Softkey’s biggest moneymaker is its tax-software and processing service, followed by a systems division for industrial users.

Software publishing is the smallest of the three divisions, but O’Leary, the 38-year-old president of Softkey, is convinced that will not be the case for long.

‘Our major market now is in retailing products,’ he says, adding that is no different from cat food or any other consumer good.

‘What’s inside the box is important, but it’s not as important as how it’s marketed.’

As a software publisher, Softkey buys the rights to software applications packages from their authors and distributes them under its own ‘Key’ label.

It now has about 35 products for a wide range of home office applications, from spreadsheets and grammar checkers to desktop publishing and cad.

This diversity has figured strongly in Softkey’s strategy, due to what O’Leary sees as the prohibitive cost of marketing a single product.

Wide range

‘When we approach a retailer, we can offer them a wide range of titles that diversifies their risk,’ he says. ‘So if they give us five or 10 square feet of store space, we’ll guarantee X dollars of sell-through.’

Most of Softkey’s products sell for between $40 and $100, which often works out to the bare minimum return for the dollar.

What Softkey gives up in price per unit, however, it makes up for in volume.

‘Would you rather sell one copy at $400, or 5,500 copies at $49.95?’ O’Leary asks. ‘I think the answer is obvious.’

Hand in hand with giving the buying public products it can afford goes Softkey’s strategy of displaying them where shopping traffic is heaviest.

That is why you will now find Softkey goods at retailers that two years ago were never in the software business, such as a large California chain better known for its fish and tackle department.

O’Leary says fishing is a major pastime in California, adding most of the people who fish also own a computer.

‘What does a computer dealer get walking through his store every day?’ he asks. ‘Maybe 50 people, tops.’

Meanwhile, O’Leary says a major office supply chain such as u.s. retailer Office Depot gets 2,700 people walking through it every day, and adds ’33% of them own computers.

‘Where do you think you’re going to sell more software?’

While most of Softkey’s business is in the u.s., it deals through such retail giants in Canada as Radio Shack, Willson Stationers and SmithBooks.

Floor space

In return for a guaranteed sales volume, the retailer provides an agreed-upon area of floor space to display Softkey’s wares.

Softkey makes all of its packaging uniform, and puts the various products together on a rack it gives to the retailer.

It employs eye-catching graphics on the boxes, and communicates in great detail on the front just what the product is all about.

He says marketing software is no longer a question of pushing technology so much as how it is presented.

‘It is truly a packaged goods philosophy that’s taken over this industry,’ O’Leary says.

‘It’s about facings and shelf space and advertising dollars and driving sales through the door and profit per square foot in gross margin,’ he says.

More aggressive

O’Leary sees the fight for that shelf space becoming much more aggressive.

To prepare itself for the coming market share battles, Softkey recently took the step of hiring its first ad agency, Toronto’s Salter de Gruchy.

As well, O’Leary says the retailer is becoming the more powerful partner in the software wars and likely to want some guarantee of profits from a company just for carrying its product.

‘That balance between the retailer and the software publisher is becoming much more delicate,’ O’Leary says. ‘The smaller companies are having a very hard time in getting their fair facing in retail channels.’