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Our experience with a LOT of clients has been that THEIR customers
consider software less than credible unless there's a manual with it.
Novell got bitten by that one big time a little over a year ago, when
they released their docs on a CD and their customers raised such a
protest that they went back and printed docs.
So my short recommendation would be to bite the bullet and realize
you're going to have to have SOME of the docs on paper. However, just
what all has to be on paper bears some rethinking.
Were I in your shoes (I'm not, admittedly) I'd take a hard look at just
how your customers use each portion of the docs. Some, probably more
reference material, is probably better done electronically both for
easier and faster update and because it's easier to search when
electronic. Some of the more hand-holding stuff, however, might better
suit paper presentation, especially if it's aimed at less technical
users. Some graphic elements, particularly if they're pretty involved,
work much better when presented on paper than electronically,
particularly if your software runs in a mixed environment.
You might also have a long chat with the technical service people in
your company and find out what kinds of calls they get, then ask for
their ideas on the subject. Often I find that the tech service folks
have some very useful perspectives on just what kind of information
users need.