Microsoft’s Exchange 2007 Puts Squeeze on Messaging-Security Vendors

Inbound email security, sometimes called email hygiene, not long ago was perceived by market analysts and venture capitalists as a surging growth market in which pure-play startups could prosper and thrive. Great things were expected, and market projections soared into the statistical stratosphere.

It’s amazing how quickly situations can change. Now, email security is seen as a market where big players, namely Symantec and Microsoft, are poised to gobble up market share at the direct expense of smaller, venture-funded players, with only one or two of the upstarts managing to survive an intense consolidation shakeout.

Perhaps this was inevitable. Many of the email-security startups, such as IronPort and CipherTrust, were generously funded by investors, but they depended on antivirus vendors (and sometimes anti-spam vendors) for key intellectual property that they integrated into finished appliances based industry-standard hardware. It was only a matter of time before the antivirus vendors, confronting a looming threat to their core business from Microsoft, began looking at how they could lessen their exposure by diversifying their product portfolios.

One way to reduce the impact Microsoft might have on them was to go from supplying antivirus technology to email-security appliance vendors to building the appliances themselves. After all, there was nothing particularly special about the hardware, which was just a hardened box for the software inside. Sot that’s precisely the course Symantec took after its acquisition of anti-spam vendor Brightmail. Other antivirus vendors soon follow suit, if they hadn’t already come to a similar conclusion and made the move earlier.

This set off a chain reaction, with email security vendors scrambling to differentiate themselves by adding other features and functionality, including IM security, reputation networks and services, outbound content control, and various other bells and whistles. That, of course, brought them into competition with other startups in those market segments; those vendors, in turn, looked at how they could extend their products and technologies to preclude competitive incursions from the email-security interlopers.

Unfortunately for the inbound email-security appliance vendors, Microsoft hasn’t limited its security ambitions to antivirus, anti-spam, and anti-spyware on desktop clients. Instead, through its acquisition of FrontBridge Technologies, a messaging-security services company, and through its other acquisitions of security capabilities, Microsoft has assembled a formidable array of inbound email security that will now reside on its Exchange 2007 server.

According to a note on the blog at Ferris Research’s website, Exchange 2007 will include several features to protect against inboard email threats. Integrated alongside Exchange 2007’s spam-filtering functionality will be several features that help defend against denial-of-service (DoS) attacks and mail-system overloads.

Previously these sorts of capabilities were the preserve of email-security vendors, including the likes of IronPort, Proofpoint, CipherTrust (recently acquired by Secure Computing), Mirapoint, and others.

It is no wonder that so many of these companies, of which there are many, are trying so desperately to find acquirers. It’s also no wonder that not many acquirers can be found.

With its long-overdue commitment to and emphasis on securing its own operating systems and applications, Microsoft has brought a sea change to many security markets. The waves first were felt in the antivirus market, but they are not pounding on the beachheads of the messaging-security players. Not many will survive the storm.

Microsoft Provides Hardware Design Tips to Vista OEMs

Perhaps emboldened by its forays into hardware design with the XBox family of gaming consoles and the forthcoming Zune media player, Microsoft is providing advice to its personal-computer OEM partners on how they ought to design machines for the Vista release of Windows. Microsoft’s intent is to have Vista-friendly PCs on the market that will stand out from predecessors and unleash a new wave of growth across the PC ecosystem.

Not only has Microsoft specified the minimum hardware requirements for the Windows Vista operating system, but it also has distributed the Vista Industrial Design Toolkit to 70 different companies, including PC and peripherals manufacturers and various design firms. The kits feature instructions on how to design stylish hardware that will complement and enhance Vista’s new capabilities, according to an article posted yesterday on the eWeek website.

Said a Microsoft spokesperson:

We developed the Industrial Design Toolkit as a way to easily show our partners how they can build PCs and devices that reflect the creativity and uniqueness of the Windows Vista UI, with the end goal of creating to a deeper level of cohesion between Windows Vista and the hardware that supports it.

Clearly, there is more to it than that. Any PC with an 800-MHz processor, 512MB of RAM, and a DirectX 9-capable graphics processor can run Vista, but Microsoft’s Windows Vista Premium Ready PC specification, which is recommended for users who want to derive the full array of benefits from the new operating system, demands brawnier hardware.

The challenge, for Microsoft and for the PC industry at large, is to have Vista act as a catalyst for across-the-board upgrades, not just of the Windows operating system but refreshes to hardware, peripherals, and applications.

Microsoft realizes it can keep PC vendors in its OEM camp if it can demonstrate that Vista is the key to a new wave of impressive growth. Otherwise, if Vista fails to trigger customer upgrades and doesn’t spin money throughout the PC ecosystem, perhaps the clarion call of Linux distributions will sound more like music to the ears of hardware OEMs.

As Roger Kay of Endpoint Technologies puts it:

If you’re Microsoft…you want [hardware design] to be something splashy. If the only thing you can point to is the Aero interface—customers might say, ‘Why do I have to go buy a new PC just to get this new interface?’—that’s a problem.

Indeed, and it’s a problem Microsoft hopes its hardware-design kit will help solve. There’s a lot riding on Vista, for Microsoft, for its hardware partners, and for the ongoing health of the relationships Microsoft has cultivated with those partners over the years.

Nokia Buys Loudeye in Mobile-Music Play

Nokia’s announced acquisition of digital-music aggregator and distributor Loudeye for $60 million in cash has been greeted by some observers as a sign that Apple’s days of online music supremacy are numbered.

These observers, most of whom are keen followers of developments and events related to mobile telephony, point to Nokia’s market-leading position in the handset market and its claim to be the world’s largest purveyor of digital music players, namely in form of the 15 million music-enabled handsets it sold in its last fiscal quarter as well as the more than 80 million music-capable devices it hopes to sell during the remainder of the year.

Also cited in support of the argument that Nokia is the latest iPod and ITune killer — has everybody forgotten about Microsoft’s Zune so quickly? — is Loudeye’s geographic coverage and its licensed catalogue of more than 1.6 million music tracks from major and independent recording labels. With that treasure trove of content on offer, Loudeye operates 60 live services spanning 20 countries and multiple languages across Europe and South Africa, Australia, and New Zealand.

With Nokia’s mobile handsets and Loudeye’s music content and distribution network, executives from the two formerly separate companies are bullish about their business prospects.

Said Michael Brochu, president and CEO of Loudeye:

Our combined teams will deliver a comprehensive mobile music experience to Nokia device owners all over the world.

Proclaimed a statement from Nokia:

By acquiring Loudeye, Nokia can offer consumers a comprehensive mobile music experience, including devices, applications and the ability to purchase digital music.

I am not as sanguine about the prospects for the Nokia-Loudeye digital-music combination. The flies in the ointment? The wireless operators, of course.

Loudeye depends on wireless operators as the final mechanism in getting digital music into the hands, and devices, of buyers. Wireless operators, unfortunately, have become addicted to the polite competition endemic to the cartel-like telecommunications industry, where everything is overpriced and customers are gouged into pulpy submission.

That’s why Loudeye, for all its success in spanning geographies, had just $27 million in revenue during 2005. That’s also why, Nokia, for all its music-enabled handsets, hasn’t seen meaningful consumer uptake on the mobile-music front.

The problem is, customers have choices when it comes to digital music. They can opt for Apple’s iPod and iTunes, or they can wait to see what Microsoft’s Zune offers, or they can patronize one of many other online services that do not require them to pay exorbitant over-the-air charges and markups for the pleasure of having their music collections on the same overpriced service they use for mobile telephony.

I’m not one of those who feels Microsoft will be an irresistible force in the digital-music industry, but as long as Nokia and its new acquisition must depend on wireless operators as integral players in the digital-music value-delvivery chain, Apple will have more to worry about from Microsoft than from Nokia.

All of which means, I don’t yet see anybody who’s poised to dislodge Apple from the market’s pole position.

Brocade and McDATA Combine for SAN Survival

As news arrived this morning that Brocade Communications had announced the acquisition of McDATA Corporation for approximately $713 million in an all-stock transaction, it seemed reasonable to deduce that Brocade has overpaid whereas McDATA has managed to cut the best possible deal for its beleaguered shareholders.

With the transaction occurring exclusively via stock rather than cash, however, one can expect Brocade shares to be under selling pressure today. By time the deal closes, given the stock-for-stock nature of the transaction, it might be worth a much lower figure than the $713 million cited this morning.

The two companies have gone through their dark nights of the corporate soul. Brocade has been attempting to climb out of a crater of its own making, a result of stock-option backdating misadventures under former CEO Gregory Reyes and a series of strategic and tactical errors.

McDATA’s situation has been even worse. The company had been losing market share to Cisco and others in storage-area networking, and its OEM relationship with Hewlett-Packard seemed to have moved along a continuum that began with promise but slid inexorably into the territory of the moribund.

One of the reasons Brocade offers for today’s move is that the acquisition will benefit OEM partners, presumably HP among them. Brocade suggests it will allow OEM partners of the two companies’ products and technologies to reduce operational costs by having fewer vendor relationships to manage, but the OEM partners seemed well on the way to attaining those efficiencies without Brocade’s assistance.

Among the other reasons Brocade adduced for its acquisition of McDATA were accretive “annual synergies” of $100 million, the creation of a broader range of SAN products and services to protect and extend customers’ infrastructure, and an accelerated pace of innovation to meet the evolving needs of customers. The Brocade press release is written in impenetrable, obfuscatory IT-industry jargon, so you have to work hard to understand exactly what this deal is supposed to be about.

Then again, you don’t have to bother working through Brocade’s justifications for the deal. What Brocade is saying is mostly bunk. This deal was all about industry consolidation. These companies were both struggling, and they came to the conclusion they’d have a better chance of surviving as one entity rather than as two.

It’s that simple, folks, but it doesn’t look as good in a press release.