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Software — Customer Base Prods Software USA’s Expansion

Retail: Retention a

Key for Mail-Order

Software Company

There’s book-of-the-month clubs, CD-of-the-month clubs, and for those who are computer literate, there’s Software USA, a San Diego firm that distributes software on a monthly basis.

The 6-year-old business recently expanded to another office in Sorrento Valley that doubles the space it has at its nearby original address.

Last year, the company did nearly $5 million in sales, or 35 percent better than the previous year, but it could have done much better with a bigger sales staff, said James Clelland, Software USA’s president and CEO.

“We have 70 employees now, but we expect to double that to 140 by the end of this year,” Clelland said. The jobs are in sales, customer service, project development and administration.

To finance the company’s expansion, the firm conducted a private placement offering last year that netted about $2 million. Clelland said most of the funding went for the five-year lease on the expanded office at the Waples Tech Center, and new equipment.

Another driving force behind the stock offering was to enable the company to offer stock options to employees, Clelland said.

Before settling upon the office next to the existing space, the company considered locations in England, Canada and Jamaica, as well as several sites within this country, Clelland said.

“We realized San Diego is not such a bad place,” said the 47-year-old Englishman who served in the Royal Air Force.

Thriving Business

Business at Software USA appears on the upswing. Before last year’s sales of $4.8 million, the firm did $3.6 million in 1998; $3.1 million in 1997; and $1.5 million in 1996. It lost about $336,000 in its first year, and $286,000 last year, but made profits in between.

The business plan isn’t novel and requires the company to entice new and current computer users to accept the software every month. The firm charges customers a $39.95 one-time membership fee, and a monthly fee of $29.95 for the service.

Customers receive a monthly CD that contains 30 different software programs that have been downloaded from “shareware” programs off the Internet. These programs usually contain only a sampling of the full program and are free for a trial period. Members who want to purchase the entire program contact the program authors directly.

So, why would members pay for something that can be obtained gratis? Convenience, and getting quality software programs, Clelland said.

The Internet is full of shareware programs but finding quality among the dreck is difficult and time consuming, as well as potentially dangerous to a PC if the product contains a virus, Clelland said.

“We sort through them and find the programs that really work,” he said. “We make sure it’s downloaded right, the spelling is correct, and make sure it works.”


Besides doing the quality control, Software USA offers tech support. Also, customers don’t have to deal with downloading programs onto their PC’s hard drive that could take hours and hog valuable memory, he said.

Most of the firm’s customers are families with children, who use the monthly CDs as an alternative to buying much more expensive software games from computer retailers.

Such games can range from $10 to about $100 and often lose their appeal when the youngsters master them, which usually doesn’t take them long, said David Rose, Software USA’s vice president.

By holding a membership, customers can try out as many as 30 different programs each month, most of which are educationally oriented. The company equates their service to a magazine subscription that allows readers the option of reading a few or all of the articles.

Clelland said the company has about 20,000 members, but retaining them isn’t easy.

“We lose 47 percent of our members in the first 42 days,” he said.

That means there’s always a hunt for new members, and always a need to make more sales contacts. That, in turn, entails hiring more sales people, and additional funding. Management is considering a second stock offering later this year of perhaps $10 million.

As to the future, revenues this year are expected to climb to more than $6 million and could get past $50 million within three years, Clelland said.

“I see us as the AOL of learning,” he said.

Sizzler Acquires Oscar’s

Sizzler International Inc. is acquiring 82 percent of locally based Oscar’s Restaurants for $16 million.

Sizzler, which is based in Culver City, Calif., has also agreed to pay as much as $3.1 million or more “if certain targets are achieved,” according to a statement released by the company.

The deal is expected to be completed by September.

Founded in 1991, Oscar’s currently owns and operates eight restaurants, seven in Southern California and one in Phoenix. Its menu includes pizzas, ribs, salad, breadsticks and chicken dishes. The restaurants’ business is estimated at 50 percent dine-in, 40 percent takeout and 10 percent catering.

“Our alignment with the Sizzler team should provide us with the market prescience and restaurant expertise to help create a solid foundation for us to build our brand and continue our expansion,” said John Sarkisian, Oscar’s CEO, in a statement released by Sizzler.

In the release, Charles Boppell, Sizzler’s president and CEO, said he was pleased with the acquisition. With Sizzler’s backing, Oscar’s should grow “rapidly,” Boppell said.


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