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Rainbow, Apple Make CD Licensing Deal : Computers: The encoded software technology will be marketed as an alternative to floppy disks.

October 09, 1993|DEAN TAKAHASHI | TIMES STAFF WRITER

IRVINE — Helping to usher in the age of electronic software shopping, Rainbow Technologies Inc. plans Monday to announce a deal to license its encoded compact disk technology to Apple Computer Inc.

Cupertino-based Apple will announce that it has formed a software distribution division, Software Dispatch, and will launch an advertising campaign promoting the distribution of software on compact disks as a more convenient alternative to standard floppy disks, which could become obsolete.

"This will allow Apple to become a publisher of software, not just a manufacturer of hardware," said Walter Straub, chief executive of Rainbow. "And our name will be on the label of each CD that they sell."

Scott Schnell, general manager of Apple's Software Dispatch division, said Rainbow's technology offered the most convenient and secure system for CD software distribution.

Rainbow's Straub said the deal with Apple goes a long way toward making his company's technology a standard in the industry for software distribution. Sales of the new product are expected to account for as much as 10% of Rainbow's revenue next year. For 1992, the company reported sales of $28.2 million, up 49% from the previous year.

"This is the major player we were after," Paul Bock, Rainbow's vice president of business development, said of Apple. "It took a year and half of talks. They were our priority because they have always been risk takers."

With Rainbow's technology, software programs can be stored on a CD-ROM (compact disk, read-only memory), which is based on the same technology as music CDs.

CD-ROM drives have been around for years, but the technology is finally becoming mainstream. Dataquest Inc., a San Jose market researcher, estimates that 3.3 million CD-ROM drives will be sold this year.

Using its proprietary encryption code, Rainbow can lock the programs on the CD, preventing any copying.

A customer can call Apple, buy the program with a credit card and then receive a secret code to "unlock" the program.

The system can deter rampant illegal copying of software and allow computer manufacturers to bundle software together on a disk.

A CD-ROM can store about 640 megabytes of data--400 times more than a typical floppy disk. It also is more convenient, since users can pick up the phone at any time of the day to buy software instead of making a trip to a store. CDs also cost less than floppy disks; one program typically takes six or seven diskettes, whereas one CD can store scores of programs.

Straub would not give financial details of his company's relationship with Apple. He did say that Rainbow typically receives license fees for the technology and ongoing royalties for each program "unlocked."

Rainbow developed its VendorSystem technology over the past several years and announced its first major licensee earlier this year, computer distribution giant Ingram Micro Inc. in Santa Ana.

Straub said Rainbow is holding discussions with many major hardware and software companies, including Microsoft Corp. No final deal is ready to be announced, however, he said.

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