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December 16, 2004

Defenders on the defensive after Microsoft moves

The PC security industry has known for 18 months that it's only a matter of time before Microsoft moves in on its turf, and it has employed a variety of tactics to mitigate that threat. However, with the news yesterday that Microsoft has bought another company in that market, time appears to be running out. Kevin Murphy explains...

By CBR Staff Writer

Microsoft said it has picked up Giant Company Software, maker of anti-spyware software, for an undisclosed sum, and will make a free beta version of the software available to users within a month.

Pricing and delivery plans for the post-beta software were not disclosed, although the firm described the Giant software as a complement to the firewall and other security features in Windows XP Service Pack 2, which was released earlier this year.

Company representatives declined to say whether antivirus software will be delivered on the same schedule as the spyware offering. Microsoft bought Romanian antivirus developer GeCad in the summer of 2003, and has been sitting on the technology ever since.

McAfee was hit hard by the news. Its shares dropped in value over 10% yesterday, after an analyst at Garban Institutional Equities downgraded the stock on the basis that the deal signaled Microsoft’s intention to enter the antivirus market too.

There is simply no reason to buy an anti-spyware player if you are not planning to compete in the AV market, which is joined at the hip with AS, Garban reportedly advised clients, adding that Microsoft could own up to half of the market within two years.

The industry has, of course, long known that Microsoft stands to eventually take market share away from the incumbent AV leaders, but protection from threats like spyware and phishing were seen as areas where the security pure-plays could add value and retain customers.

Symantec stock also took a huge dive yesterday, down by about 8% on the day, but that was due in a large part to the company announcing that it plans to use stock to buy storage security leader Veritas Software for $13.5 billion.

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That acquisition in itself is part of Symantec’s strategy of broadening its product portfolio, putting more emphasis on enterprise infrastructure management and reducing its exposure to consumer PC security, which accounts for about half of its pre-merger revenue.

While Symantec built up its consumer business via a huge channel – putting Norton AntiVirus on the shelves of unlikely venues like gas stations and supermarkets – McAfee has also been successful in pushing its products closer to the consumers, so that they don’t even need to make that kind of reactive purchase from either Symantec or, in future, Microsoft.

McAfee recently won a deal to put its security software on the desktop of every America Online subscriber in the US. It has wormed its way into NTT DoCoMo phones in Japan, and yesterday said Sony Communication Network, a Japanese ISP, will offer McAfee as an option.

The company has also styled itself as an intrusion prevention player, acquiring two leaders in that field almost two years ago in an attempt to move into the increasingly interesting post-firewall perimeter protection market.

McAfee has even been touted as a possible acquisition target for Microsoft. The magazine CRN said in June that resellers thought a forthcoming round of layoffs was to prepare the ground for a Microsoft takeover, but it seemed also likely that the layoffs were related to the disposal of a business unit.

Microsoft has yet to disclose how it will deliver its AV software. It is known that there will be a subscription component that consumers will have to pay for, but the means by which the application engine itself will be delivered have not yet been publicly discussed.

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