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If Srivats Sampath has his way, computer-security software delivered in a cardboard box will soon go the way of 8-track tapes. Sampath, the CEO of McAfee.com, says there's a better way. Rather than sell software on a CD over-the-counter or through the mail, Sampath thinks it should be downloadable and based on subscriptions, much like cable-TV or cell-phone service. McAfee.com is already doing that, and it could be the future of security software for consumer and small business PC users.
Here's how McAfee.com's business works. Customers log on to its Web site and sign up for a year of service. The company immediately places either antivirus or firewall software on their machines. Whenever a subscriber connects to the Internet, McAfee.com scans their computer to make sure virus and firewall definitions are up to snuff, updating them when necessary. That could be crucial in times of digital epidemics, such as outbreaks of the Nimda worm or "I Love You" virus.
Although McAfee.com is a separately traded and independently operated company, Network Associates owns 80% of its stock. For now, Sampath sells only NA-based products. That may change in the future, however. Analysts seem to like the idea of protection that requires zero thought, save paying for an annual subscription fee. Says John Pescatore, a Net security expert at Gartner: "The first thing you are forced to do when you log on is update the antiviral signature. With the McAfee.com subscription, you have to do that at home or for small-business systems, too."
ACRES OF SERVERS. Apparently, customers also like it. On Oct. 10, McAfee.com reported that it had added 200,000 new subscribers during the third fiscal quarter of 2001, bringing its subscriber total to just over 1.2 million, with an annual renewal rate of 80%. That's still a fraction of the tens of millions of home PCs in use in the U.S., and an even smaller fraction of additional millions in use abroad. But Sampath says his model achieves stellar gross margins of 77% to 80%. That includes the $2 million to $3 million the McAfee.com spends each quarter to maintain a gigantic server farm with dedicated connectivity to the Internet to allow for quick response times. "We are larger than some of the largest ISPs," says Sampath.
So why is McAfee nearly alone in this market? First, the company was spun out of parent Network Associates specifically to develop an online channel for software delivery. That means it doesn't conflict with a network of resellers or salespeople still pushing shrink-wrapped product or selling it as part of original equipment manufacturer (OEM) agreements. "They don't want to undercut their bread-and-butter retail channel with a different channel," says Jonathan Feeney, an analyst at Credit Suisse First Boston.
Second, McAfee.com has secured a wide-ranging patent for "securing, managing, or optimizing a personal computer," which could be construed to cover providing software as a subscription service. Sampath has indicated that he'll use this patent to protect his turf in the security sector. "It's something that we plan to use. I have to defend this franchise. If it fits in the parameters in the methods that we have patented, you either pay us a license fee or you engineer around it," says Sampath.
USUAL GRIPES. McAfee.com does have one near-rival in this market. The Live Update service from Symantec's Norton Internet Security package is quite similar. Instead of updating automatically, however, a Live Update user needs to click a single button to update virus and firewall definitions. Users can also set up scheduled updates.
Furthermore, not everyone loves McAfee.com. On consumer ratings site epinions.com, the service recently received negative comments from 6 of the 13 users that posted opinions. Most complained about customer service and conflicts with McAfee.com operations that can cause computer crashes.
That said, such gripes are common for many security-software companies that sell to consumers and small businesses. The bottom line is that anything that makes security software easier to install and maintain could make the Internet a better place. While all PC owners should keep their boxes tightly sealed against viruses and other hazards, few are prepared to regularly update security software. With an online delivery system that caters to customers who prefer not to be bothered with such tasks, McAfee.com may have secure future.
Salkever covers computer security issues twice a month in his Security Net column, only on BW Online Edited by Douglas Harbrecht
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Copyright 2001 , by The McGraw-Hill Companies Inc. All rights reserved.
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