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The Way Business Is Moving

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Issue Date: January 2009

Symantec expands SaaS base

1 January 2009
Timothy Stammers, Ovum analyst

Symantec recently agreed to pay approximately $695m for MessageLabs, an established and successful UK-based provider of online e-mail spam filtering and anti-virus services. The move represents Symantec buying in help to grow its SaaS business, and is good for both companies.
Symantec is buying a platform from which to expand its SaaS presence. The platform is the business that MessageLabs has created over the last nine years, selling online services based on Symantec’s Brightmail anti-spam and anti-virus software.
MessageLabs now has 19 000 customers, operates from 14 data centres on three continents, and is the world’s largest supplier of hosted messaging security services. Other than its anti-virus services, Symantec launched into SaaS only last year and operates from just two data centres in the US.
When the acquisition closes, MessageLabs will become the keystone of a Symantec SaaS group that will be led by MessageLabs CEO Adrian Chamberlain, and will absorb most of MessageLabs’ 550 employees and all of its data centres. Chamberlain will report directly to Symantec COO Enrique Salem.
Growing quickly
MessageLabs is still growing relatively quickly. For its fiscal year ended last July it said revenue was $145m, up 20% year-on-year. That means that Symantec paid a fairly low price-to-revenue ratio of five to one. Given MessageLabs’ strong position in a fast-growing market, and its claims to be profitable, Symantec did well to negotiate that price.
The software giant cited estimates that MessageLabs accounts for 30% of this year’s $700m market for hosted messaging security services. Those numbers are not consistent with MessageLabs’ declared revenues, but they put the company comfortably ahead of the next largest player, which is Google with an estimated 19% market share courtesy of its purchase of Postini.
MessageLabs’ success is the result of an early market presence and high-quality services which according to Symantec have resulted in less than 5% customer churn. MessageLabs’ customers range from small businesses to the Fortune 500, many of which are potential buyers of Symantec’s existing online services.
Excepting its online anti-virus protection, Symantec only stepped into SaaS last year when it launched online storage for users of its Backup Exec software. Since then it has added a remote-access service and a consumer-oriented backup service that it gained this summer when it splashed out $123m to buy SwapDrive.
Cross-selling opportunity
The biggest cross-selling opportunity will be for that Backup Exec based service. The overlap between users of that service and MessageLabs’ customers is slightly limited by the fact that the former tend to be small to medium-sized businesses, and the latter include more large businesses. Currently online storage of backups is mostly being bought by SMBs that cannot afford a second data center but want a way get their backups offsite to protect themselves against disaster.
Nevertheless there is an overlap, and Symantec says it hopes to begin winning more large customers for its online backup service, especially among corporations looking to protect data at remote or branch offices.
Unlike many other suppliers, Symantec did not buy itself into SaaS, at least not in the business market. For online backup, Iron Mountain bought Connected and LiveVault, EMC acquired Mozy-owner Berkeley Systems, and IBM bought Arsenal Digital. Symantec, however, chose to build its business online backup service in-house. It is not saying how many customers it has for that service, but claims that demand is growing fast. The purchase of MessageLabs looks to be the result of a decision to follow others’ examples by giving its SaaS business an inorganic boost.
The biggest threat to Symantec’s investment in MessageLabs is about people and culture. Having brought in MessageLabs to show how best to handle SaaS, Symantec needs to make sure that it listens to Chamberlain and the other staff it is gaining.
Opinion
Symantec itself identifies this as the biggest risk. It said it is sure that the two companies’ cultures will blend well, and pointed to its successful acquisition of another British company, KVS, which originally developed Symantec’s now very popular e-mail archiving software. With that acknowledgement and background, the acquisition is very positive for both Symantec and MessageLabs.


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