Weekly Review: Microsoft Real Winner in Alliance with McAfee

The share price of security services ASP McAfee.com jumped 50 percent on Tuesday (May 22nd) when it announced a strategic alliance with Microsoft. But perhaps it was Microsoft shares that should have soared on the news, instead of creeping up just two percent.

Under the alliance, McAfee.com has signed up to integrate Microsoft .Net technology — in particular the Hailstorm Web services it announced recently — into McAfee's Web-based security offerings. The two companies will also carry out various joint marketing and promotional activities. (See related news story, McAfee Gets Passport to Microsoft's .NET.)

McAfee's first move will be to develop new security services using the existing Passport user-authentication service, providing single sign-on and registration across multiple Web properties. Additional Hailstorm services will be incorporated as they are made available, such as notification, which will enable McAfee users to receive automatic alerts about security and virus threats wherever they happen to be working (for those who like that sort of thing).

Traders started buying up McAfee stock so avidly on Tuesday because, at first sight, the relative user numbers of the two companies seem to stack up in McAfee's favor. The joint promotion agreed as part of the deal will theoretically put its services in front of 160 million users signed up for Passport, whereas McAfee brings just 920,000 users of its own to the table.

Quality Not Quantity
But quality counts more than quantity in the newly value-conscious Web services market of 2001. Most of Microsoft's 160 million Passport accounts are inactive, many of them a side-effect of registering for free email on Hotmail, others opened for one-off purchases or registrations on third-party consumer services as a result of cross-promotional deals. That user base of 160 million is hardly likely to translate easily into instant revenues for McAfee: The success rate for free services converting their casual consumer registrations into paying subscribers doesn't even struggle up to the one-percent level, as many dot-coms can testify from recent bitter experience.

All of McAfee's 920,000 users, in contrast, are already signed up as active, paying subscribers. What's more, McAfee is assiduously promoting the Web services message to them on almost a daily basis. In a consummate demonstration of one of the major advantages of Web services for both providers and users, McAfee last week simultaneously upgraded its entire user base to a new version of its application delivery software — which, since part of the code executes locally, meant performing an automatic remote installation on 920,000 user devices. The upgrade has introduced a new, unified presentation for its complete portfolio of services, making it even easier for McAfee to promote new offerings right at the user desktop — along with its celebratory tagline: "McAfee.com Online Services — The ASP Advantage."

Not only does McAfee have the user base, it also has the talent and experience at developing and marketing Web services to be a powerful ally for Microsoft in signing up paying users for Hailstorm. Which may indeed have become a factor that traders took into account on Tuesday. For while McAfee's 50 percent share price rise added $21 milloion to its market capitalization, Microsoft's 2 percent gain increased its market cap by a whopping $8.2 billion. It all depends on which way you look at the numbers.

Summit Confidence
I was priveleged to attend a rare event last Tuesday, hosted by the ITAA (Information Technology Association of America) in Santa Clara, Calif. Among other highlights, the ITAA ASP Leadership Summit brought together CEOs of five of the world's top ASPs on a panel for which I had the pleasure of acting as moderator.

There was surprising unanimity from the panel, consisting of the CEOs of Agilera, Corio, Interliant, Qwest Cyber.Solutions and USinternetworking, along with IBM's vice president of Net Generation. Despite the tribulations of the past year, the panel exuded confidence and cautious optimism about the future.

Earlier panels of users and analysts had brought two issues to the fore, which I put to the panel. One was repeatability — whether the ASP model can achieve economies of scale and still deliver real benefits to users. The other was survivability — simply being able to convince customers that ASPs are here to stay, and then proving it by reaching sustainable profitability.

The answers were considered, yet backed up by evident conviction. The ASP industry is now mature enough for its leading pioneers to be able to admit that they have made mistakes, and for the experience to have left them feeling stronger and more confident. Although all concede that there are still tough times ahead, these five company leaders believe they have carved out a unique and winning model that is destined not only to survive but also to prosper.

This review of the week's news highlights is by ASPnews.com founder and consulting analyst Phil Wainewright. A comprehensive news digest is published every month in the ASP News Review newsletter, available exclusively to subscribers.

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