SoftKey
| Company type | Public |
|---|---|
| Industry | Software, Edutainment |
| Founded | 1986 |
| Founder | Kevin O'Leary, John Freeman |
| Fate | Acquired by Mattel in 1999; merged into Mattel Interactive, Riverdeep Interactive Learning, and Software MacKiev |
| Headquarters | Cambridge, Massachusetts , United States (after merger) |
Area served | Worldwide (over 40 countries) |
Key people | Kevin O'Leary (Founder, CEO) |
| Products | Educational software, shovelware compilations, CD-ROM software for Windows and Macintosh |
Number of employees | (not specified) |
| Parent | Mattel (from 1999) |
SoftKey International—initially established as SoftKey Software Products, Inc. by Kevin O'Leary in 1986 in Toronto, Ontario—later operated under the name The Learning Company from 1995 until 1999 following its acquisition and subsequent rebranding.
By the early 2000s, SoftKey played a major role in the downturn of the edutainment sector. Its approach involved reducing prices by distributing shovelware discs filled with freeware and shareware, executing aggressive takeovers of prominent edutainment companies, drastically cutting staff within acquired firms, and utilizing controversial financial methods aimed at maintaining its stock valuation.
In 1999, Mattel purchased SoftKey in a transaction that Businessweek later identified as one of "the Worst Deals of All Time." Following the acquisition, SoftKey was merged into Mattel Interactive, Riverdeep Interactive Learning, and Software MacKiev.
Products
Throughout the late 1980s and 1990s, SoftKey developed and distributed CD-ROM software compatible with Windows and Macintosh platforms. Its primary market was home users, offering mainly shovelware compilations containing freeware or shareware titles. The company gained traction with its "Platinum" series, which featured software sold exclusively in jewel cases.
Operating as a publisher for home and small office software, SoftKey secured distribution rights from various developers to release applications under its "Key" brand. By the end of 1992, its portfolio included 35 such software products. Beginning in 1994, SoftKey ventured into creating original software, broadening its offerings to include educational games and CD-ROM-based titles.
In 1986, SoftKey introduced KeyChart, a graphics program for IBM PCs designed to facilitate chart plotting. By 1993, it marketed KeyMap, a DOS-driven mapping and routing application equipped with database annotation capabilities. Around this period, Computer Associates acquired Easy Tax (DOS) from SoftKey and rebranded it as Simply Tax.
The acquisition of The Learning Company brought popular educational programs like Reader Rabbit and Math Rabbit into SoftKey’s lineup. Purchasing MECC added The Oregon Trail series along with Word Munchers, Number Munchers, and Storybook Weaver. The Broderbund acquisition further enriched its catalog with acclaimed titles such as Carmen Sandiego, The Print Shop, Living Books, Family Tree Maker, Arthur, and KidPix.
Marketing
Kevin O'Leary characterized SoftKey’s commercial strategy as treating retail software similarly to consumer packaged goods. The company was among the few that leased retail shelf space directly to control distribution channels. O'Leary stressed the importance of providing retailers with a broad range of products to minimize their risk while ensuring consistent sales volumes in return for shelf placement.
SoftKey introduced revolving racks designed for standard CD jewel-case packaging to enhance product visibility. It successfully transitioned software sales from specialized outlets to mainstream retail chains including Office Depot, Radio Shack, Willson Stationers, and SmithBooks by leveraging uniform packaging paired with visually appealing graphics to attract buyers.
By October 1995, SoftKey had expanded operations to ten cities across Europe, Asia, Canada, and the United States. Its products were available in more than 18,000 retail locations—including grocery stores and airport gift shops—and distributed across 47 countries worldwide.
Pricing
SoftKey emphasized high sales volume rather than maximizing profit per unit, pricing its software titles between $40 and $100 with slim margins. This strategy was considered revolutionary within the sector, resulting in reduced prices and expanded presence in retail outlets.
The firm's objective was to become "the foremost electronic publisher of affordable consumer software worldwide." O'Leary targeted the 40% of consumers previously discouraged by high costs. He observed a market transition from business-centric sales toward commoditized consumer software offerings.
SoftKey gained a reputation for aggressively minimizing development expenses and terminating staff at acquired companies. Casey Dworkin of Retail Price Week highlighted SoftKey’s appeal to spontaneous buyers reluctant to pay premium prices, comparing the approach to marketing multiple brand tiers—luxury, budget, and generic—within a single product category.
The company expanded by acquiring financially troubled software businesses and then repackaging and repricing their products. SoftKey held the view that much consumer software was overpriced and out of reach for most buyers—a stance that challenged established multimedia software pricing norms but found traction amid industry instability.
Profit
In 1992, SoftKey Software Products became Canada’s fastest expanding company, achieving $36.8 million in revenue and $6.1 million in net income, largely fueled by its tax software and processing operations. By April 1995, SoftKey's shares were valued at $25.50, approximately 20 times its yearly earnings, following a public offering of 2.3 million shares priced at $28.875.
SoftKey’s products were available in more than 19,000 retail locations across upwards of 40 countries. In 1995, Montgomery Securities helped raise over $60 million for the company, succeeded by an additional $350 million through an unrated private placement. On November 28, 1995, SoftKey’s outstanding shares rose from 3.2 million to 4.7 million, marking the largest increase in open interest among Nasdaq-listed stocks.
Trading of The Learning Company’s stock was suspended in August 1998 due to accounting irregularities. The sharp decline in share price affected both The Learning Company (NYSE: TLC) and its parent firm Mattel (NYSE: MAT). Despite accumulating a deficit of $1.1 billion by the end of 1998, The Learning Company maintained growth with reported revenues reaching $800 million.
History
SoftKey Software Products was founded in 1986 by Canadian entrepreneur Kevin O'Leary and John Freeman in O’Leary’s basement, backed by a $10,000 loan from his mother. O’Leary’s approach involved bundling SoftKey’s offerings with other companies’ products and licensing software externally—methods that proved more economical than developing software internally.
In 1993, SoftKey International emerged following a three-way merger among SoftKey Software Products, WordStar International, and Spinnaker Software. Shareholders of SoftKey held roughly 53% ownership in the newly formed entity. After the merger, operations moved to Spinnaker’s Cambridge, Massachusetts headquarters.
MECC and The Learning Company
In October 1995, SoftKey initiated a hostile takeover bid valued at $606 million for Learning Company, competing directly against Broderbund. Concurrently, SoftKey agreed to purchase Minnesota Educational Computing Corporation (MECC) for $370 million, complicating Broderbund’s competing offer. CEO O’Leary criticized Learning Company’s high-priced products as outdated. Following the acquisition of The Learning Company, SoftKey adopted that name as its own and implemented substantial staff reductions. MECC’s senior vice president Susan Schilling observed that O’Leary prioritized profitability over educational objectives.
Acquisitions from 1994 to 1998
On September 14, 1994, SoftKey completed the purchase of Software Marketing Corp., paying approximately 600,000 shares alongside $1.6 million in assumed debt.
Towards the end of 1995, following a lawsuit against Tribune Company for securities violations related to SoftKey, the original owner of Learning Company witnessed SoftKey’s acquisition of Compton's New Media from Tribune. This transaction was valued at $106.5 million in stock. Compton's, previously part of Encyclopædia Britannica, was recognized for its encyclopedia CD-ROM products.
In 1996, SoftKey expanded its reach by acquiring EduSoft, a French educational software developer, for $14.3 million.
By March 1998, under the new name The Learning Company, it purchased Mindscape Inc. from Pearson PLC for $150 million in a combination of cash and stock; Broderbund’s Red Orb Entertainment division was subsequently merged into Mindscape.
In June 1998, The Learning Company agreed to acquire Broderbund Software Inc., a competitor known for publishing the popular game Myst, in a stock transaction valued around $416 million.
Later that year, in December 1998, The Learning Company further broadened its software offerings by acquiring Palladium Interactive.
Nevertheless, Booz Allen Hamilton identified two of SoftKey’s acquisitions among the ten worst U.S. deals between 1994 and 1996 when evaluated by shareholder value two years post-acquisition.
Sale to Mattel
In the autumn of 1998, Mattel consented to acquire The Learning Company through a stock-for-stock merger valued near $4.2 billion. Both companies’ boards unanimously approved the agreement on December 14, 1998, with completion following shareholder consent on May 13, 1999. Jill E. Barad, Mattel’s CEO at the time, emphasized that the merger introduced a $1 billion software division featuring strong brand assets and profit margins surpassing those of Mattel’s traditional operations. The Learning Company was incorporated into Mattel’s newly formed Mattel Interactive division.
Aftermath
The acquisition soon revealed significant difficulties. A report by the Center for Financial Research and Analysis criticized Mattel for insufficient due diligence and highlighted systemic problems within The Learning Company. Shortly thereafter, co-founder Kevin O'Leary—then president of Mattel’s TLC digital division—divested his shares for $6 million. In the fourth quarter of 1999, Mattel announced a loss of $184 million attributed to weak sales and inventory complications, which led to a one-day decline in stock value amounting to $2 billion. Founders Michael Perik and Kevin O'Leary subsequently departed from the company.
The Telegraph described this event as "one of the worst takeovers in recent history," while industry experts regarded it as a catastrophic failure for Mattel. Bloomberg, Businessweek, and CNBC have all ranked this merger among history’s most unsuccessful.
In January 2000, Mattel appointed Bernie Stolar, former president of Sega of America, to manage financial recovery efforts. On February 3, 2000, Jill E. Barad resigned from her roles as Chairman and CEO. Mattel’s Annual Report for 1999 acknowledged that the adverse effects of this acquisition overshadowed other company achievements that year.
This botched acquisition symbolized the decline of the edutainment surge experienced in the mid-1990s. Toby Levenson, a former design manager at The Learning Company, remarked that "edutainment" had become a "toxic word," reflecting a shift in industry attitudes away from blending education with entertainment in product development.
Divestiture to Gores Technology Group
On April 3, 2000, Mattel declared its intention to sell off its software division. The Learning Company was purchased by Gores Technology Group for $27.3 million, along with a profit-sharing arrangement. Gores restructured the company into three segments: entertainment, productivity, and education, which became GAME Studios, The Learning Company, and Broderbund respectively. In 2001, Ubisoft acquired GAME Studios. Subsequently, Gores divested the majority of its assets—including The Learning Company brand and its educational software series—to Riverdeep Interactive Learning, an Irish corporation that later transformed into Houghton Mifflin Harcourt. During Houghton Mifflin Harcourt's ownership, several book collections were launched under The Learning Company label, including titles like Oregon Trail Adventures and The Little Box of Love. By April 2018, Houghton Mifflin Harcourt had phased out the use of The Learning Company brand.
Acquisitions Timeline
- February 1994 – WordStar International and Spinnaker Software
- June 1994 – Aris Multimedia Entertainment
- July 1994 – Compact Publishing
- September 1995 – Software Marketing Corporation
- July 1995 – Tewi Verlag GmbH
- August 1995 – Future Vision Holding
- December 1995 – The Learning Company
- December 1995 – Compton's NewMedia
- Late 1995 – EduSoft
- May 1996 – Minnesota Educational Computing Corporation (MECC)
- October 1997 – Microsystems Software
- December 1997 – Creative Wonders
- March 1998 – Mindscape
- August 1998 – Broderbund
External Links
- Official website (archived 1997)