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6/20/2011
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CA Security Spinoff Vows To Surprise The Marketplace

Total Defense has a new name and VC funding, but it faces a tough battle against market-dominating antivirus products, most of which are free.

Strategic Security Survey: Global Threat, LocalPain
Strategic Security Survey: Global Threat, Local Pain
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A venture capital firm has purchased CA Technologies' Internet Security Business Unit and publicly re-launched it Monday as a standalone company. Called Total Defense, it counts 60,000 businesses and four million consumers as customers, as well as 5,000 business partners that resell its products.

Financial terms of the deal, first announced in May 2011, were not disclosed. The transaction didn't involve CA's enterprise security business, which focuses on identity and access management.

Helming Total Defense is Paul Lipman, formerly chief strategy officer for Webroot, who had been working with the VC firm, Updata Partners. "I was working with Updata in evaluating this business, then decided to join the venture," said Lipman in an interview.

The deal is the latest in what's been a seemingly nonstop series of security industry mergers and acquisitions since 2009. According to Thomson Reuters data from the National Venture Capital Association, information security investments in the first quarter of 2011 hit $147.4 million, and will likely exceed last year's total of $432.3 million.

Exactly why did CA sell its endpoint security division? Interestingly, the group had been made a separate operating group inside of CA, circa 2007, complete with its own profit and loss statement, setting the stage for this type of deal. On an earnings call last month, CA's CEO, Bill McCracken, said that the sale of the Internet Security group would "further focus our resources on areas of strategic importance to CA Technologies." As a result of the sale, CA reduced its 2011 fiscal year--ending March 30, 2011--results by $83 million in revenue, $15 million in operating income, and $4 million in cash flow.

"If you roll the clock back four or five years, CA was focused primarily on the mainframe market," said Total Defense's Lipman. "Listening to the earnings call that the company did just a few weeks ago, it's is now very focused on cloud infrastructure, virtualization, and enabling businesses to take advantage of those new technologies."

CA's endpoint security group also had difficulty distinguishing itself in a market dominated globally by Avast Software and AVG Technologies, which each had 12.4% market share as of June 2011, according to OPSWAT. That's ahead of Avira (12.2%), Microsoft (11.2%), ESET (10.0%), Symantec (8.8%), and Kaspersky Labs (8.0%). In fact, CA's endpoint security products didn't place amongst the top 15 most used antivirus products either in North America or globally.

Part of the difficulty may be poor product performance. For example, in its review of CA Internet Security Suite Plus 2010, PC Magazine called the new user interface "unique, stunning and user-friendly" but lambasted the security components as "second-rate, and the suite's default settings can cause serious trouble for users."

Asked how Total Defense will address those concerns, Lipman said, "there's nothing more exciting than being able to surprise the marketplace, and that's what we intend to do here very soon."

But another difficulty faced by paid antivirus incumbents is that the market has become highly commoditized. Indeed, according to OPSWAT, the top four antivirus products worldwide by market share are Microsoft Security Essentials, Avira AntiVir Personal, Avast!, and AVG Anti-Virus. All are free.

"Five, six, seven years ago, vendors from Eastern Europe came and said, good antivirus could be cheaper, and that just pressured the market down," said Eric Domage, manager of western European security research and consulting for IDC, in an interview. "Three years ago, when Microsoft launched Microsoft Security Essentials, they killed the market. I'm not saying Microsoft did wrong, they are doing quite well and it's a smart move: Now they can clean many more Windows users."

Perhaps CA's management saw the writing on the wall when it separated its endpoint security division's operations. Regardless, "the natural step is that CA, which is concerned about its revenue, is spinning off something that is not a cash cow now," said Domage.

The challenge--or business opportunity--now for Total Defense, he said, will be finding someone who wants to buy the company. "Perhaps the VC will sell it back to HP--they would be a good client for that, they have many research labs but not for that, or maybe to IBM, which has ISS," but might still want a dedicated antivirus product.

Another possibility, meanwhile, is that Total Defense would get sold to--or its services built into--a cloud company. "Amazon doesn't have security service. Google has, kind of. eBay has nothing."

Security concerns give many companies pause as they consider migrating portions of their IT operations to cloud-based services. But you can stay safe in the cloud, as this Tech Center report explains. Download it now. (Free registration required.)

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