Symantec's New Target: Consumers

CEO John Thompson opens the curtain on a strategy for shoring up the embattled security outfit. Trouble is, what he is selling, rivals give away

As head of the largest information security company in the world, Symantec Chief Executive John Thompson is used to hearing doomsday scenarios. But usually those dour outlooks focus on threats by computer worms or malicious hackers -- not the state of his own company.

Then 2005 came around. Over the past year, Symantec (SYMC) has withstood slings and arrows from every side -- from doubts about his company's acquisition of storage software company Veritas to the arrival this month of a long-awaited competing security product from Microsoft (MSFT).

Lowered earnings forecasts and the departures of COO John Schwarz, CFO Greg Myers, and Vice-Chairman Gary Bloom didn't exactly instill confidence either (see BW Online, 11/03/05, "Symantec: From Stumble to Stagger"). Symantec's stock lost a third of its value since the end of 2004. And the typically outspoken and very public Thompson hunkered down, grappling with the integration of Veritas, avoiding the spotlight.


  But in recent weeks, Thompson has come up swinging again. On Feb. 7, Symantec introduced plans for a new consumer security product, code named Genesis. Due out in the autumn, it's an ambitious gambit to prove that customers will still pay Symantec top dollar to secure their information, even as competitors all but give away basic firewall and antivirus software.

Symantec executives spent the last few weeks pitching the idea to investors and the press alike, making a case for why things may not be as bad as they seem. The campaign reached its pinnacle Feb. 15, with Thompson's keynote speech at the annual RSA Conference in San Jose, the biggest security event of the year.

Unlike some of his tech counterparts, Thompson isn't one to use conferences to unveil products or do demos, but the subtext of his speeches was clear just the same: Symantec is still the company to contend with in security. At last year's RSA, he talked about "information integrity" -- or the need to combine security with data backup and recovery, a natural sell for the Veritas deal, which had left many investors scratching their heads (see BW Online, 3/14/05, "Symantec Defends the Veritas Deal").


 This year, he preached trust. New research shows that online fraud and attacks are finally taking a toll on consumer confidence. According to a survey of 10,000 households by the Conference Board, 41% are purchasing less online than a year ago. And with good reason: In 2005 identity theft cost consumers $680 million. "Trust is the foundation of the online world," Thompson argued, and that foundation has been compromised.

And Thompson has a plan for restoring trust -- and not just for the Internet. He's intent on shoring up confidence in his own company as well, and he's starting with consumers. That's a new tack: Thompson has spent most of his tenure nurturing and feeding the side of the business that caters to large corporations -- while the more profitable consumer business grew like a weed.

These days, the consumer division needs care and feeding. For one thing, threats are more insidious and clandestine. No longer does a mass virus attack send consumers racing to retail stores for bright yellow boxes of Symantec's Norton Anti-Virus. Now, most people don't realize they're victims until it's too late. And increasingly, hackers are exposing and selling vulnerabilities in Symantec's software -- a threat to its premium brand name (see BW Online, 12/01/05, "Norton Gets a Bit Less Secure").


 Meanwhile, competition is fierce. For years, Symantec could raise prices. But its ability to do so has come under pressure, with Microsoft's $49 all-in-one suite and rival McAfee's (MFE) aggressive partnerships with Internet service providers, which basically give security software away for free.

Thompson has refused to follow suit, saying, "I think the strategy that McAfee executes is a bit foolhardy. Why would you in the face of a monopolist entering your market lower prices? They felt a sense of desperation." But in an exclusive interview with BusinessWeek Online, he hints that the company may release a new consumer brand to go toe-to-toe with low-cost outfits -- and do so without tarnishing the Norton name.

"If you assume the market is underpenetrated, we may be willing to forgo some of that low value service, at least with the Norton brand," he says. "What if you had a different brand? It's not unlike Toyota and Lexus."

Meanwhile, Thompson will use the high-end Genesis product to defend margins. Software such as firewalls and anti-virus protection for PCs has become a commodity, he says. The new battlefield is protecting the amorphous interaction between a PC and a Web site. Instead of being purchased and installed, Genesis will be available over the Web as a service, so that it can be updated in real time as hackers expose potential threats. It will feature more user-friendly updates and support, offering real time instant-message chats with security experts.


  What's more, Genesis will protect not only PCs but the entire networked home, including DVR boxes, smart phones, and iPods (see BW Online, 2/16/06, "Aiming for a Pest-Free PC"). And it will come with automatic backup of important content like music and photos. In the guts of the system is technology that can find threats based on their behavior -- not just search out a piece of code that's known to be bad. That can mean staving off more attacks, more swiftly.

McAfee sniffs that Symantec's efforts are more imitation than innovation. McAfee has been offering software as a service since the late 1990s, and is now working on digital-home protection. Microsoft also offers data backup, as part of its new security suite.

"Now, all of the sudden, software as a service is a vision?" says Bill Kerrigan, executive vice-president of McAfee's global consumer business. "It's a misnomer. They sat out the next generation and are playing catch up."


 Others say the vision is compelling, but they are reserving judgment until they see a product. "They're going to lose market share, that's a given," says Gartner analyst John Pescatore. "But I bet they'll still be the market-share leader. They have that brand name, and so far have made acquisitions and aggressive schedules to stay ahead. But they have to execute."

As its code name hints, Genesis is a new beginning for Symantec in consumer security. It's a whole new market, presenting a new breed of computer threats and a formidable roster of competitors. As growth slows, the consumer business will need a lot more cultivation than in the past -- and it may prove too much for a company still primarily focused on the corporate security market.

But Wall Street can take comfort in one thing: The man who just a year ago said he "couldn't wait" to compete with Microsoft appears to be back on the offensive.

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