SAN FRANCISCO — In its first major acquisition, software powerhouse Microsoft Corp. announced Tuesday that it will buy privately held Fox Software for about $173 million in stock.
The deal instantly transforms Microsoft into a major player in database software--the only significant PC software category in which the company does not have a presence--and poses a major challenge to database leader Borland International.
Analysts applauded the move as logical for both Microsoft and Fox. While Fox's product is considered technically strong, the 250-employee company, based in Perrysberg, Ohio, does not have the marketing muscle to challenge Borland. Microsoft, meanwhile, has long been eyeing the database market but has been unable to get its own product out the door.
Database software is used to organize large amounts of information, and the PC database market was at one time dominated by Ashton-Tate's dBase program. But Ashton-Tate stumbled in its efforts to keep the product up to date, and was acquired by Borland last year.
Fox's product is in crucial respects a clone of dBase, and Ashton-Tate had sued Fox for copyright infringement. But Borland agreed to drop the lawsuit when it acquired Ashton-Tate--in part to satisfy antitrust concerns--and the underlying dBase technology is now an open industry standard.
Borland Chairman Philippe Kahn said Tuesday's deal represented "an obvious admission that Microsoft's database efforts have not done too well. We welcome them into the dBase world."
Kahn said the acquisition "validates everything we've said" about dBase emerging as a standard. He added that it would have been more dangerous for Borland if Microsoft had pursued a different strategy and "fragmented the market."
Wall Street, however, did not agree. Borland's stock plunged $7.25 to close at $63 in heavy over-the-counter trading. Microsoft shares were down $1 to $127.50 in over-the-counter trading.
Betty J. Lyter, an analyst with Montgomery Securities, noted that the sudden strengthening of the dBase standard called into question the need for Paradox, Borland's other database program. "This is a major long-term negative for Borland," she said of the Microsoft/Fox deal.
But just as Borland has faced a tricky challenge in selling both dBase and Paradox, Microsoft now confronts a similar problem: Its own database product, code-named Cirrus, is scheduled to be available later this year.
Microsoft Chairman Bill Gates said the Fox products, which work on many types of desktop computers, will complement Cirrus, which is designed for PCs that use Microsoft's Windows program.
But some analysts were not so sure. "They have a potential problem in marketing two products," said Nancy McSharry, an analyst with International Data Corp. "For the typical end-user, it will be unclear" which product to buy, she said.
The job of forging Microsoft's long-term database strategy will apparently fall to David Fulton, president of Fox, who will become "database architect" for Microsoft's newly formed Database and Development Tools division.
Fulton, who co-founded Fox in 1983, said he is excited about the prospect of having Microsoft's muscle to support his technology. "I feel like a kid with the biggest electric train in the world," he chuckled.
While Fulton and the rest of Fox's product development group will move to Microsoft's campus in Redmond, Wash., an undetermined number of Fox employees will be laid off. The companies said the deal is expected to be completed by June 30.