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Recently, WebRoot quietly released a beta of SpySweeper program which includes integrated antivirus functionality from Sophos.  Now, it’s official:  They will be bundling Sophos’ engine with SpySweeper.  PC Tools moved into the virus space a while back by licensing Kasperksy’s antivirus engine, sold as a stand-alone product.  And Aluria (now part of Earthlink) has had antivirus functionality for a while now, licensed from Authentium.

Obviously, these companies have all recognized that they need to have antivirus in order to have a solution to compete with the likes of Symantec, Trend and McAfee — and Microsoft.  And with VCs (venture capitalists) behind WebRoot and PC Tools, the stakes are high. 

It’s interesting to note that all the companies involved have gone the route of licensing the technology versus building it themselves.  A year ago, WebRoot apparently was building their own AV engine, but the VCs behind the company reportedly canned development. 

There are other issues which highlight the shifting sands of the business:  The spyware market is still a good market, but leveling off for these players. WebRoot is seeing its sales peak at about $75 million in sales and PC Tools at about $40 million. 

Each have their different strengths:  WebRoot owns the retail channel (and importantly, the “tech bench” channel, like GeekSquad) and PC Tools is a powerhouse in online marketing (with their infamous “scan and scare” tactics — scan a machine, find a bunch of “spyware” — usually cookies — and require the user to pony up cash for removal).   But WebRoot, no slouch in online marketing, is also getting into the more aggressive tactics, having also moved into the “scan and scare” methods to increase online sales.  

Both have made efforts with various degrees of success into the enterprise channel — frankly, where the real money is made.  WebRoot did it with big dollar techniques, hiring a field sales force, which they laid off after not seeing the returns expected.  PC Tools has gone into the market with baby steps, hiring veteran enterprise sales guy Chris Mossing, and promptly (and inexplicably) removing him three months later and then giving away their enterprise product for free.  

PC Tools raised about $20 million a few months back from an Australian private equity firm, part of which went to the founders.  WebRoot raised over $100 million (at a high valuation), out of which the founders, Steve Thomas and his girlfriend, Kristen Talley, were given about $80 million.  But WebRoot made a deal with some very powerful players, people like Technology Crossover Ventures.   At the valuation they invested in, and assuming normal valuation targets, they need WebRoot to be worth well over $700 million to make their target return. That’s a tough play.  

And the second tier players like Tenebril and Aluria have gone by the wayside.  Both sold out at firesale prices: Aluria for $5 million to Earthlink and Tenebril at $3 million to Process Software.   

So out of the triumvirate of antispyware players (WebRoot, PC Tools and Sunbelt) there are some interesting business issues.  And in my next blog posting, I’ll discuss some of the technology aspects of the antispyware space. 

Alex Eckelberry

Update:  See comments section for PC Tools response.