The Web - The Next Wave

Head Table Guests

Ann Curran, Partner, Lewis Companies Inc. and a Director, The Empire Club of Canada; Rev. Canon Paul Feheley, Rector for St. George's Memorial Church, Oshawa; Christopher Cowperthwaite, Grade 12 Student, Lawrence Park Collegiate Institute; Norm Kirkpatrick, Executive Director, Canadian Advanced Technology Association; Robert Humphrey, Chairman of the Board and CEO, Harry Rosen Inc.; Rod Bryden, Chairman and CEO, World Heart Corporation; James C. Tory, Partner, Tory Tory DesLaurier and Binnington; Patricia Best, Editor, The Globe and Mail Report on Business Magazine; Spencer Lanthier, Chairman and CEO, KPMG Canada; and Julie Hannaford, Partner, Borden & Elliot and Immediate Past President, The Empire Club of Canada.

Introduction by Gareth Seltzer

I don't think it is too difficult to compare the industrial revolution of the 1900s to the technology revolution of the 21st century. There is virtually no business that has not been radically altered by systems innovations whether it is the manner in which advertising is prepared or how production design is determined. And as with all technological leaps there are innovators. Dr. Cowpland is one of those innovators. 1 was first offered a chance to buy Corel stock in 1989 by an impressive Corel sales representative who was providing my company with desktop publishing hardware and software. At the time Corel and Ventura Publisher were two of the leaders. The Corel we know today is radically different from the Corel of even two years ago, particularly since the acquisition of WordPerfect from Novel.

Here are some of the current issues that I'm sure you are all aware of. Microsoft jostles with Corel as the powerhouse in personal productivity in the retail market. Admittedly Corel has lost some of its senior executives in 1997. At the same time Corel Java technology has changed the face of the Internet. And speaking of shares let's not forget that the investment community has frequently priced at extraordinary levels companies that have yet to produce a single thing. So keeping that in mind we may find that Corel is an opportunity well worth looking at. Dr. Cowpland helped form Mitel in 1973 with Terry Matthews and that company was sold later in 1984.

Dr. Cowpland has certainly not short-changed the issue of publicity. His outgoing lifestyle, his fundraising for the Children's Hospital of Eastern Ontario, the Children's Wish Foundation and Carlton University all put him in the news. Now I'm fascinated to know that Dr. Cowpland reached the men's quarter finals in the veteran's division of Wimbledon in 1995 and you hold the black belt in martial arts. Anyway it is a pleasure for us as a club to have somebody as distinguished as you. The Club really welcomes innovators and I would like you to please join me in extending a warm welcome to the present CEO of the second-largest vendor of personal productivity applications in the world-Corel Corporation-Dr. Michael Cowpland.

Michael Cowpland

Thanks very much Gareth and thanks to the Empire Club for this perfect opportunity to share with you our views of what's happening in the world of Windows software and the exciting world of the Web and Java software ahead. It is certainly a very exciting and rapidly changing industry we are in and over the last few years you have seen in the newspapers how we have been going through some turbulent times since the acquisition of WordPerfect.

But we are very pleased with the results recently and we think we are ready for a whole new surge of growth. We think we have tremendous opportunities both in the Windows and the Java area ahead. It's amazing to think that it's 30 years since Marshall McLuhan proclaimed the concept of the "global village" thanks to the medium of radio and television. It is amazing how much foresight he had far before the Web was created. Now we have the interactivity of the Web and are seeing a whole new mechanism of economic wealth creation. People will be able to get things done far more efficiently than ever before.

The WEB Phenomenon:

Adoption rate is accelerating--years to reach 50M NA users--

Radio-1920 - 38

TV-1950 - 13

WEB-1994 - 5

Three Laws driving the WEB

• Moores Law--Silicon doubles every 18 months

• Gilders Bandwidth Law--Bandwidth trebles every year

• Metcalfes Network Law- -Network value is the square of the connections

In last 30 years PCs are up 10 Million in price/performance--A Boeing 747 for the price of a pizza?

This chart [Ed. Note-the information above is rendered as a graphic image in print--the information here is rendered as type.] shows that to reach 50 million North American users it took radio 38 years, it took TV 13 years and it took the Web only five years. And this incredible momentum is driven by not just one exponential law but three. We've all heard about the Moore's Law which says that silicon doubles in capability every 18 months, but lesser known is the Gilder's Bandwidth Law, where bandwidth is in the process of trebling every year and finally Metcalfe's Network Law which says that the value of the network is the square of the number of connections. As Bill Gates said to me recently: "The productivity of PCs has zoomed amazingly where the price performance has gone up 10 million to one in the last 30 years. If aeroplanes had done the same thing you would be able to buy a Boeing 747 for the price of a pizza." The only problem is it would crash four times a day.

People On Line 107M in Feb 1998 200M in 2000

Corp LAN 60M 110M

Dial up 45M loom

Cable Modem 1m 6M

DSLIISDN 1M 2M

People Wired (Millions)

N America Europe Jzo Asia Pacific X14 S America h.3 Africa h Mid East p.s

% of population on line NAmerica = 30% Europe = 10% World = 2%

As far as people on-line are concerned, in the last year they have virtually doubled and there are now 107 million people on-line worldwide. It will be 200 million by the year 2000. Of these currently about 60 per cent are on corporate LAN and about 45 per cent are on dial-up modems. Looking ahead to the year 2000 we are looking at roughly 100 million on the corporate LAN and 100 million on dialup. This means that software does need to be able to handle the speed of modems in terms of reaching at least 50 per cent of users. North America has the bulk of people wired-about 64 million; Europe 20 million; Asia 14 million; and the rest of the world very little. The percentage of population on-line is 30 per cent in North America, 10 per cent in Europe and 2 per cent in the world as a whole.

Corel' s Software Strategy

*PC World today: 99% Windows, 1 %Java *PC World soon: 50% Windows, 50% Java s Corel is a software leader in 3 main areas: • Windows Office suites--Corel@ WordPerfect@ Suite

• Windows Graphics--CorelDRAWTM • Java--Open•JTM--JavaBean component assembly

• Strong Corel commitment to innovation • $90M in R and D--30% of sales, 1000 developers

The PC World is now 99-per-cent Windows and 1-percent Java. Looking forward we see in the next few years it may be a 50-50 world. So we are positioning ourselves to be not only a strong player in Windows but also in the Java area. We have three main areas of interest. We are number two in the world of Office suites to Microsoft. We are number one in the world in Graphics with CorelDraw and we are now number one in the world of Java communications with our recently announced Open•J component Java software which is now downloadable from our home page. We are spending over US$90 million a year in R and D and two-thirds of our people, 1000 people, are actually in development and we spend 30 per cent of revenue on R and D.

Microsoft Windows Monopoly

Microsoft Sales $B--Morgan Stanley est Windows Office Other June 98 • June 99

Factoid from Barrons last week

Q1 Increase in Value of Microsoft = $40B Q1 Increase in US $7 Trillion GDP = $38B

Microsoft beats entire USI

• Windows is the most powerful Monopoly ever! Corel goal:

• Co-existence with MS Office as compatible, value based altrnative

We believe we are now positioned for a new surge of growth. Microsoft is a pretty formidable competitor and this chart shows just where its revenue comes from. The year ending in June '98: $7 billion came from its sales of Windows and this is probably one of the world's greatest ever monopolies. Try to find a PC without Windows. It is impossible. As far as the Office suite software is concerned, Microsoft gets about $5.3 billion from the Office market. It has the monopoly of Windows. Our goal is to prevent it from having a monopoly in the Office market because one monopoly should be enough for one company. One factor shows how powerful Microsoft is. According to Barrons last week during the first quarter of 1998 the value of Microsoft increased by $40 billion. The GDP of the entire US economy of $7 trillion increased by $38 billion so Microsoft beat the entire USA.

Dr. Cowpland then showed slides of Corel's position today and some of Corel's latest products.

Corel Today--Ready for Growth

*Sales level of $300Mlyr after 12 years growth

• 1997 was a Transition year in which we had accounting write downs due to:--Write off of WordPerfect acquisition

- Divestiture of non-core products

- Reduction of channel inventory -moving to JIT model *Corel is financially strong despite write downs

• Positive cash flow in 1997--up $7M to $30M cash (after $5M stock buyback) • Zero debt

*In 1998 Corel plans to be profitable

• and continue to provide customers with cutting edge, compatible products with superb value

The appreciation of the meeting was expressed by Ann Curran, Partner, Lewis Companies Inc. and a Director, The Empire Club of Canada.