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Will Microsoft cut into security sector's bottom line?

Recent revenue reports show security firms continuing to cash in on heightened threat concerns. But one analyst says Microsoft could end the "gravy train."

Growing cyberthreats may be bad for computer users. But if a recent flurry of revenue reports is any indication, the dangers continue to make major money for security vendors. Ironically, one analyst warns, the company many like to blame for the Internet's insecurity may eventually have a hand in ending this gold rush.

"Microsoft seems poised to end this gravy train with several offerings for both the enterprise and consumer segment," Teney K. Takahashi, market analyst for the Palo Alto, Calif.-based Radicati Group, said in an e-mail exchange. "For consumers, the company is testing OneCare, which is a subscription based antivirus/antispyware service. If Microsoft is able to secure deals with PC manufacturers -- Dell, HP, Acer, etc. -- OneCare will take the place of competing AV solutions from companies like Symantec that come bundled with PCs as free trials. This could make a major dent in earnings for the big AV vendors, since for most of these companies, the consumer segment accounts for around 50% of total revenue."

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But since Microsoft tends to move slowly, Takahashi believes the gravy will keep flowing for now. "In the enterprise segment, Microsoft acquired Sybari and Frontbridge, but has yet to announce any solid plans," he said. "It took Microsoft a couple of years to turn GeCAD into OneCare, so it may be some time before these acquisitions are tightly integrated into Microsoft's product portfolio."

For now, companies like IMlogic are benefiting from the security concerns that come with increased use of instant messaging programs, he said. Others are growing more organically.

"It seems at this point that there is still a lot of low-hanging fruit in the security market," he said. "On one hand, you have vendors like IMlogic that are tapping a relatively nascent market and experiencing year-over-year [growth]. On the other, you have established players like McAfee, Symantec and Trend Micro driving growth by upgrading existing customers to updated security solutions that address new risks like spyware." And there are the millions of consumers throwing money at security software due to press coverage of threats like phishing and spyware, he said.

Companies reporting robust growth as a result include:

  • Tokyo-based Trend Micro, which reported $159.57 million in consolidated net sales for the last quarter, a nearly 16% gain over the same quarter last year.
  • Cupertino, Calif.-based Symantec, which reported revenue of $700 million for the last quarter, a 26% increase over the $557 million it made for the same quarter last year.
  • Santa Clara, Calif.-based McAfee, which reported consolidated net revenue of $245 million for the last quarter, a 32% increase over last year.
  • Waltham, Mass.-based IMlogic, which reported a 200% increase in quarterly revenues over last year. At the time of writing, the firm hadn't answered a request for a dollar amount.
  • Finnish firm F-Secure said its antivirus business grew by 40% to $17.3 million in the second quarter, with strong growth in its ISP channel and consumer business.

Of course, Microsoft recently offered its own robust revenue report, saying it took in $10.16 billion for the last quarter, a 9% increase over last year. This accounts for sales across the software giant's product line, but the company has moved aggressively to bolster its security offerings. Last year it released Windows XP Service Pack 2 (SP2), equipped with a firewall and other security enhancements. In January it rolled out a beta antispyware program and a malware-removal tool that is updated each month. The company is also developing an antivirus program and has made moves to improve its patch deployment process with tools like WSUS.

All this activity doesn't mean security vendors are quaking in their boots. Andrew Lochart, senior director of marketing for Postini of Redwood City, Calif., said companies like his will continue to succeed for a variety of reasons.

"Of all the large companies to enter this market, rightly or wrongly Microsoft has the biggest credibility problem, given all the vulnerabilities in its applications that have been attacked," Lochart said. "They're obviously trying to respond and fix the vulnerabilities. That's what people expect. But when that same vendor goes into the business of selling protection, I have to suspect a lot of buyers will chafe against that. Windows shops want them to focus on fixing Windows."

He also noted that Microsoft hasn't blown the competition away in other sectors it has dabbled in.

"When they acquired PlaceWare a few years ago and created Microsoft Live Meeting for online presentations, WebEx was the leader in that market," he said. "WebEx is still the leader, from what I can tell. They also bought Web TV… then rolled out a product based on Internet TV. They didn't put ISPs out of business."

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