Like Don Quixote, 38-year-old entrepreneur Mikel Urizarbarrena relishes a challenge. Not only does he run marathons and ultramarathons -- brutal 60-mile contests -- he also starts up companies. By age 24 he had three startups under his belt. Lantek Informatica Tecnica, his first, is now the leader in computer-aided design software in Spain. His second, a producer of educational software called Eurosoft, he sold to German media giant Bertelsmann in 1997. His third, Panda Software, is still going strong with Urizarbarrena at the helm.

Panda, based in the city of Bilbao in Spain's Basque country, is now the largest independent antivirus software publisher in Europe, the rest having been snapped up by U.S. competitors Symantec (which publishes Norton Antivirus software) and Network Associates (which sells the McAfee antivirus program). Rather than waiting for one or the other to try take over his company, Urizarbarrena has decided to go up against these two in the U.S. For a company whose 1998 worldwide sales totaled $15 million, this looks like tilting at windmills. Together, Symantec and Network Associates had a 69% share of the U.S. market, totaling $690 million in revenue in 1998.

Even so, there appears to be more than enough growth in the antivirus market to support Panda's entrance into the U.S. With 50,000 known viruses on the loose, and 800 more slithering off the Internet onto PCs every month, "it has been a banner year for viruses," says Chris Christiansen, an analyst at International Data Corp., the Framingham (Mass.) market-research firm. "They're no longer just beating up desktops. They're taking down whole networks." In 1998, the year the dreaded "Melissa" virus struck, antivirus sales in the U.S. rose by 28%, and they could well double this year and treble by 2003, according to Christiansen.

Aside from its small size and lowly market share, Panda's biggest problem may be the direction its market is heading in. It has always positioned itself as a pure antivirus player. But now the distinction is blurring between antivirus sofware and so-called security software -- a $3 billion market. Security software provides complete protection from hackers, system intruders, virtual thieves, and all forms of malicious code that randomly destroys systems. "In the next two years the [antivirus/security software] industry is going to transform [itself] from providing single-application protection to offering a security console as the standard," says Christiansen. "Network Associates could be the closest to that, but nobody's really got all the pieces yet."

Certainly not Panda. By promoting its Platinum product as the "Cadillac of antivirus software" and pointing out that 80% of viruses come from Europe in the first place (the implication being that Europeans are somehow more qualified to be virus killers), Panda says it may quadruple its 1999 U.S. sales, to $6 million. This could help put it in the top 10 of the 40 or 50 antivirus companies in the world today, with $40 million in worldwide sales. That's just the start, says Urizarbarrena. "In four years we want to be the world leader in antivirus software," he declares. "That means sales have to grow by five times every year. The U.S. market is worth $1 billion. If we just get the Norton [Symantec] and McAfee discontents, we should be tripling our sales" each year.

So Panda is turning its back on the strategy that made it the No. 1 antivirus software in Spain and Portugal and No. 2 in Denmark and Sweden. For the first time in the company's nine-year history it's going to broaden its product line beyond pure antivirus applications and use wholesalers to distribute its product -- rather than going direct to customers via Panda franchisees or its internal sales force.

"Our philosophy has always been: Go direct to the end user -- the Fortune 500, the PC manufacturers, the small to midsize companies," says Pedro Bustamante, executive director of Panda's U.S. division. "Then we show up in the U.S. in 1997, and the entire market is driven by indirect channels." Panda's internal sales force butted their heads against this wall for a year, before the company decided to retrench.

In mid 1998, Bustamante and his team started to court the big wholesalers -- D&H Distribution, Ingram Micro, Merisel, Tech Data -- who sell to such retail chains as CompUSA and OfficeMax. In the past year, several of these distributors picked up Panda. They account for 60% of Network Associates' $440 million in sales, so you might think they'd give Panda's product short shrift. But Panda has managed to distinguish itself.

"The support received from Panda is 100 times better than what we get from McAfee," says one wholesaler who handles both products. "Panda is available to us for informational phone calls. They're eager to make the customer happy."

Panda provides its customer support for free with the software. Not so its competition. Both of the big guys offer limited-time free customer service, after which they charge for support, per phone call, or via yearly contracts. "Customers are sick of companies trying to gouge them after they've already paid for the software," claims Bustamante. "A lot of people come to us complaining about how they tried to call [a Norton or McAfee rep] and had to sit on hold for an hour and a half before someone picked up the phone just to take their credit-card number."

Network Associates denies that its customer service lines are understaffed. About 90% of its business comes from corporate clients, who can pay up front for a service contract that gives them round-the-clock support. Its technical support staff handles 22,000 calls with an average response time of 3.23 minutes, according to the company's data. "The advantage of our service is that the account representative knows your company inside and out," says Wes Wasson, director of product marketing at Network Associates. For its retail clients, Network Associates has created a separate support subsidiary, McAfee.com, which offers Web-based updates and telephone support.

If you consider that Network Associates' 300-person customer support team services $440 million of sales and Panda's 80-person team supports $40 million in sales, it's clear how being small might translate into customer loyalty. Whether Panda will keep that edge if it grows exponentially remains to be seen, however.

While Panda's customer support is getting high marks, it has limited development resources and is behind in developing a more complete security software product. At this year's Comdex IT fair in Las Vegas, it will unveil the first software it has ever designed that isn't solely aimed at killing viruses. "The trend in the industry is definitely toward providing a suite of security products," concedes Bustamante.

Indeed, Symantec has a suite product called "Norton System Works" that includes antivirus software as well as crash protection for your hard drive, uninstall programs, and other utilities. Network Associates has its WebShield e-Pliance software, which it developed in partnership with Sun Microsystems and which includes virus protection, a firewall security feature to fend off system intruders, and filtering of messages -- all in a single product. "How does a small company provide this level of service and the broad platform coverage that customers are demanding now?" asks Network Associates' Wasson. He says that 90% of his corporate customers want a suite product that protects a computer system from a variety of assaults, of which viruses are only one type.

"You need to make a significant capital investment to support your products in this market," says Suzanne Dickson, a product consultant to Symantec and former vice-president for marketing at Quarterdeck, an antivirus software manufacturer that Symantec bought last year. Panda's technical excellence in the antivirus part of the package and its reputation for good customer service may simply make it another tasty morsel that Network Associates or Symantec swallows up. Or -- just maybe -- Don Quixote will take out a couple of windmills.

By Margaret Popper margaret_popper@businessweek.com