Lotus `Notes' Leaves Microsoft in the Dust

The software, which allows people to share information more easily in a computerized group, dominates the market

ALMOST a year ago, software mogul William Gates was asked in a Boston appearance about Notes, a popular computer program made by Lotus Development Corporation.

``That structure of product won't exist even a year from now,'' predicted the chairman of rival Microsoft Corporation, trying to downplay the importance of Notes, which allows people to share information more easily in groups. Mr. Gates said many of the capabilities embodied in Notes should reside in a computer's most basic software, the operating system (Microsoft's stronghold). Unchallenged leader

Whether his vision will ultimately win out remains to be seen. But for now Lotus, based in Cambridge, Mass., is the virtually unchallenged leader in the important ``groupware'' market - software that enhances computer workgroup productivity. Microsoft, the world's largest software company, is struggling to bring its vision to reality. Some analysts say the Redmond, Wash., company would need a major breakthrough to stand any chance of catching up to Lotus.

``Lotus Notes ... has really defined in many people's minds what [computer] groupware is,'' says Bob Flanagan, senior analyst with WorkGroup Technologies Inc., a market research firm in Hampton, N.H.

Notes, introduced in 1989, provides the richest variety of features and has had the broadest appeal of any product in this category. The product is so rich and broad, in fact, that it has spawned a host of products, made by other software developers, that help companies take advantage of Notes for their specific needs.

Thus, Notes has become much more than just another piece of software. Many users see it transforming the way their organizations work, decentralizing information among employees and making it easier for managers to track the flow of work.

``Notes is the lens through which we want people to see their work,'' explains Don Evans, chief operating officer of the West Coast law firm of Bulivant, Houser and Bailey.

The software allows users to customize the way they gain access to the computerized information they use at work. John Bartlett, Lotus's product manager for Notes, shows how his computer screen is set up with graphical icons that he can open with the click of an electronic mouse. Behind each icon is a database of information. Notes users can customize both the icons, which organize the retrieval of data, and also the way the data itself is presented.

Mr. Flanagan says Lotus is expected to ship about 260,000 copies of Notes this year, at a suggested retail price of $495 a copy, with discounts for volume purchases. ``We think they're going to be crossing the million-seat boundary in the next six months,'' John Donovan, another WorkGroup Technologies analyst, projected in October.

The strong sales are rooted not only in a lack of competition, but also in the solid results users see. A survey commissioned by Lotus last year found that, due to productivity gains, the system pays for itself in about three months.

Moreover, the study concluded that the more widely used Notes becomes in a company, the greater the return on investment. This is because the product enhances the flow of communications with several features:

* Sophisticated electronic mail messages.

* ``Bulletin boards'' that serve as forums for discussing specific issues, storing questions, answers, and comments where anyone in the company can get at them any time.

* ``Replication'' of databases, whereby a company with branch offices in 20 cities can arrange to automatically update databases in each location at regular intervals, such as every day or every few hours. Customers thus avoid the need for a continuous phone link between their branches and a central database. Sales people, dialing in from the road using portable computers, can be fed just the information that relates to their tasks.

The four-year-old product still has some rough edges, critics say, but Mr. Evans says the latest version (3.0), released earlier this year, gives the law firm ``so much to digest'' that he is more interested in learning to use the current potential than in future enhancements to the product. Attorneys use the system to track fees they have billed and costs they have incurred, to search legal databases, and to share case information with their clients.

Other Notes clients include oil companies, accounting firms, and government agencies.

In October, 18 West African nations jointly agreed to use a Notes-based system to track cargo shipping. That deal also involves add-on software from Synetics Corporation, another Boston-area firm.

Synetics has helped Vermont tailor Notes for scheduling motor-vehicle license tests and, in Connecticut, helped streamline the work of an economic-development hot line (operators use the software to refer callers to other agencies or to arrange to fax information).

The insurance company AIG Inc. likes Notes so much that it is requiring any law firm it hires - currently about 400 - to use the software. This is boosting business not only for Lotus but also for ELF Technologies Inc. of Mercer Island, Wash., which makes add-on software for the legal profession.

ELF, which stands for electronic labor force, was in business before Notes, but found the Notes software to be the ``perfect solution for what we're trying to do,'' says Cynthia Lavoie, marketing director for ELF.

The company's Notes-based system alerts attorneys when key trial dates are drawing near. It also arranges databases of case-related documents, enabling rapid key-word searching on the full text of the electronic files. Advanced applications

Notes still has a ways to go on its goal of being a ``cross-platform'' service - one that operates on many different types of computers. Bartlett says Notes currently can run on top of the major operating systems: Microsoft Windows, Apple Macintosh, and IBM's OS/2. Lotus is working on Notes for more-advanced operating environments such as Unix and Microsoft's Windows NT and the forthcoming ``Chicago'' upgrade of Windows.

Microsoft, meanwhile, is pursuing a different groupware strategy, putting information-sharing features into many products, including operating-systems.

``What we give you are the building blocks'' rather than a one-product solution, says Lisa Weil, a workgroup product manager. One example: The company's word-processing program contains handy message-routing applications. But Ms. Weil concedes Microsoft does not offer full-scale database replication like Notes. Flanagan says that, to be successful in mounting competition to Notes, Microsoft will have to create a product that leapfrogs Notes in some significant way. Because Notes is developing such a large base of users and applications developers, Microsoft must provide more than just alternative products that do similar things, he says.