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Security Companies Battle Viruses, Spyware - and Now Microsoft ; Competitive Landscape Could Be Changing

Posted on: Wednesday, 16 February 2005, 06:00 CST

McAfee Inc.'s chief executive was appearing at a conference last week to discuss the security-software company's business strategy. But the strategy of a different company was first on his agenda.

"Today's announcement by Microsoft was a little astonishing to us, based on the reaction in our stock price," George Samenuk began. "Let's set the record straight right from the beginning."

Samenuk went on to stress the minimal effect that he said Microsoft's planned acquisition of a New York-based anti-virus company, announced that morning, would have on McAfee's business. He questioned the resulting dip in McAfee's stock.

But the scene illustrated the potential impact of the Redmond software giant's broader move into security software. Microsoft's entrance promises to change the competitive landscape for companies specializing in software to clean up and protect computers from viruses, spyware and other online threats.

More information about the company's plans could emerge today in San Francisco at the RSA Conference, the nation's largest annual computer-security convention. Bill Gates is scheduled to deliver a keynote address at the conference this morning.

It's the Microsoft chairman's second consecutive appearance at the event, which has grown in size and significance in recent years, reflecting the general proliferation of computer security problems. Companies in attendance include such Microsoft competitors as Sun Microsystems, IBM Corp. and Linux vendor Red Hat Inc.

Microsoft has so far kept key elements of its security-software plans under wraps. The company acknowledges it will offer its own anti-spyware and anti-virus products, based on technology acquired during the past two years. But executives have remained quiet on such issues as pricing, packaging and timing.

Those are potentially critical details for McAfee, Symantec, Trend Micro and other companies already established in the security- software industry. One major question: whether Microsoft will offer its security software strictly on a standalone basis or also integrate it with the Windows operating system.

Microsoft executives say their goal isn't to elbow out the existing players but rather to address broader concerns about security. Customers have made it clear that they expect Microsoft to help solve the problem, said Mike Nash, corporate vice president in Microsoft's Security Business and Technology Unit.

"Some customers want Microsoft, and some customers want a third- party vendor," Nash said. "If you're going to buy it from Microsoft, you're going to have what I hope will be a fantastic offering to choose."

However, he added, "If you decide you don't want a Microsoft solution, there will be a healthy ecosystem of third parties that have those technologies."

Microsoft plans to charge for the server-based anti-virus technology it will receive through its planned acquisition of New York-based Sybari Software, announced last week. The company hasn't been specific about its pricing plans for the anti-virus and anti- spyware software it expects to offer for desktop computers.

But analysts say the company's primary motivation in getting into the security-software business doesn't appear to be revenue - at least not directly.

Many of the problems encountered by personal-computer users result from the exploitation of vulnerabilities in Windows and other Microsoft programs, such as Internet Explorer. The company last year released a massive collection of security fixes and adjustments, known as Service Pack 2, for Windows XP.

But for a more fundamental security overhaul, Windows users must wait for the next version of the operating system, due sometime in 2006. Code-named Longhorn, it will be the first version of Windows developed entirely under Microsoft's 3-year-old Trustworthy Computing initiative.

Yesterday's initial presentations at the RSA Conference demonstrated how much work the company has to do if it wants to recast itself as security savior. Mentions of Microsoft during sessions on security fundamentals focused not on its push into the anti-virus and anti-spyware business but rather on vulnerabilities in its software.

Nearly every anecdote during a session on "Intrusion Detection and Prevention," for example, dealt with security problems in Microsoft software.

Those problems don't help the company's efforts to battle open- source programs such as the Linux operating system and the surging Mozilla Firefox Web browser. Analysts say such competition is one motivation behind Microsoft's decision to offer its own security software.

"One thing they're looking at is lots of people saying, `Hey, I'm on Linux - I don't get any viruses. I don't get hit by spyware,'" said industry analyst John Pescatore, vice president for Internet security at the Gartner Inc. research group. "They have a big incentive on Windows to create as high a probability as possible that everybody's got anti-viral, and it's up to date."

Pescatore said he expects Microsoft to charge for its desktop security software. That would avoid the potential antitrust problems that would come from bundling or giving it away for free along with the dominant Windows operating system.

One possible clue about Microsoft's plans comes from a feature it unveiled at RSA last year and later rolled out as part of Windows Service Pack 2. Dubbed the Windows Security Center, it's a central place for monitoring the status of a computer's security, including the status of anti-virus protection from third-party vendors such as McAfee and Symantec.

Rick Sherlund of Goldman Sachs and other analysts say the company might use the Windows Security Center to help connect its desktop anti-virus and anti-spyware offerings. Even in that case, the Windows Security Center would still be expected to work with security software from other companies, as well.

But because Microsoft isn't looking to its anti-spyware or anti- virus software as a major revenue source, Gartner's Pescatore said, he expects the company to price its security programs at least 20 percent less than the cost of comparable software.

Analysts say that type of potential long-term impact is one of the factors causing the share prices of McAfee and Symantec to dip as Microsoft begins to step into the security-software industry.

"I think the market is expecting Microsoft to come in, and to come in with much fanfare," said Rob Owens, an analyst at Pacific Crest Securities in Portland who covers McAfee and Symantec.

But Owens said the stock market thus far seems to be overreacting to the potential short-run threat posed by Microsoft. Among other things, he said, it's likely to take more than one version before the Redmond company gains widespread adoption of its security software, particularly among businesses.

Microsoft is also at a disadvantage because, unlike many of the existing players in the market, it doesn't yet have a comprehensive package of security software to offer companies. In the long run, however, that could change.

"There has always been a risk of Microsoft entering this space," Owens said. "Both companies have been awaiting the day when they would do battle with Microsoft, and that day seems to be nearing at this point."

RSA Conference organizers expect record attendance of more than 11,000 people this week. In addition to Gates, speakers include Secret Service Director Ralph Basham, 9/11 Commissioner Jamie Gorelick, Cisco Systems Chief Executive John Chambers, Symantec Chief Executive John Thompson and Frank Abagnale, the real-life figure behind the "Catch Me If You Can" book and movie.

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

RSA 2005

Follow the news from the RSA computer security conference in San Francisco this week in the Seattle Post-Intelligencer and on the P- I's Microsoft weblog, http://blog.seattlepi.nwsource.com/ microsoft/

MICROSOFT'S SECURITY

Security-software companies such as McAfee and Symantec, whose tools combat online threats to Windows and other programs, have seen their share prices fall as Microsoft has signaled plans to begin offering its own anti-virus and anti-spyware software.

(Chart unavailable electronically, see microfilm.)

Source: Seattle Post - Intelligencer

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