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Microsoft in Deal for Anti-Virus Company; Sybari Sells Security Software

Posted on: Thursday, 10 February 2005, 06:00 CST

Microsoft Corp. yesterday announced plans to acquire a New York company that sells anti-virus software for corporate e-mail systems, taking another step in its steady march into the security-software business.

The agreement to buy Sybari Software Inc. stirred new questions about Microsoft's potential impact on the security-software market. Microsoft already had announced plans to offer its own anti-virus and anti-spyware products for desktop computers, based on technology bought in two earlier acquisitions.

The latest deal, which needs regulatory approval, gives Microsoft technology that works with computer servers to scan and block viruses in e-mail messages. After the deal closes, the company plans to offer the acquired Sybari technology under the Microsoft name, said Mike Nash, corporate vice president in Microsoft's Security Business and Technology Unit.

Financial terms of the pending deal weren't disclosed. However, documents Sybari filed in conjunction with a proposed initial public offering - which had been planned for this week - valued the company at between $163 million and $186 million.

Sybari had 278 employees at the end of September, none unionized, according to the documents. The company has about 10,000 business customers. The operation will remain based in East Northport, N.Y., as part of Microsoft.

It's not clear whether there will be job cuts, Nash said. But he called Sybari's research and development groups "a key part of the acquisition."

Microsoft is in a delicate position as it prepares to enter the security-software market, given the fact that many computer viruses exploit vulnerabilities in its Windows operating system and other software from the company. Underscoring that situation, yesterday's acquisition announcement came on the same day Microsoft released eight security-related patches rated as "critical."

But Nash said the company's push into the security-software business is something its customers want.

"We've gotten very clear feedback from customers that they expect us to be helping them solve this problem," he said. "Overall, these investments together demonstrate our commitment to making that happen."

Microsoft's anti-virus software for desktop computers will be available for both businesses and consumers, Nash said yesterday. But the company hasn't announced further specifics, such as timing or distribution.

More details could come next week, at the big RSA Security conference in San Francisco, where Microsoft executives including Bill Gates are scheduled to speak.

Publicly, Microsoft has only talked about offering its anti- virus and anti-spyware products on a stand-alone basis. But Goldman Sachs analyst Rick Sherlund wrote in a note to clients that the latest deal "further solidifies the company's ability to offer a broader suite-type security solution" that would pull together its various security-related programs.

At the same time, Microsoft's push into the security-software business puts a new and potentially uncomfortable twist on its relationship with some of its longtime partners - companies that sell security-related software for Windows.

In one sign of the potential impact on them, shares of security- software vendors McAfee Inc. and Symantec Corp. both fell yesterday on news of the latest Microsoft deal.

Executives with both companies downplayed the impact of the Sybari acquisition on their businesses. But the fact that they had to address the question of Microsoft as competitor illustrated just how much the situation already is changing.

George Samenuk, McAfee's chairman and chief executive, noted during a speech yesterday that the McAfee product that competes with Sybari generates only $1 million to $2 million of McAfee's more than $930 million in annual revenue.

"We see it as a non-event for the McAfee business," Samenuk said at the Merrill Lynch Computer Services and Software Conference.

Based on that, the McAfee CEO called the reaction to yesterday's Microsoft deal, as reflected in the McAfee share price, "a little astonishing." Shares of McAfee closed down $2.14 yesterday, or more than 8 percent.

But in the bigger scheme of things, yesterday's deal means "Microsoft has gotten more serious about going after the enterprise anti-viral market," said industry analyst John Pescatore, vice president for Internet security at research firm Gartner Inc.

After completing the purchase, Microsoft plans to offer Sybari's existing Antigen products for Lotus Notes and Microsoft Exchange, Microsoft's Nash said. The products will continue to be offered on a stand-alone basis, not pre-installed with Exchange, he said.

Sybari's Antigen products use multiple virus-scanning engines licensed from companies including Sophos, Computer Associates and Kaspersky Labs. In addition to those, Microsoft plans to offer its own virus-scanning engine for the rebranded Sybari product, based on technology acquired by the company in an earlier deal with GeCAD Software.

The fact that the Sybari product uses licensed scanning engines diminishes the significance of the Microsoft acquisition, said Ajei Gopal, senior vice president of technology and corporate development with Symantec. He called it "primarily a harness that allows you to plug in third-party security products into Exchange."

More broadly, Gopal said, Symantec's experience and the existing breadth of its business give it an advantage over a company just entering the security-software market.

"What customers are looking for is a broad-based enterprise solution that deals with the complexity of security across the enterprise," he said.

In contrast, he said, the Sybari software to be acquired by Microsoft is a "very specialized" product for a specific situation.

P-I reporter Todd Bishop can be reached at 206-448-8221 or toddbishop@seattlepi.com

Source: Seattle Post - Intelligencer

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