Despite New CEO, Webroot Faces Tough Challenge

Webroot Software announced today that Peter Watkins, executive vice president at McAfee, has assumed the role of CEO.

As reported by eWeek:

Watkins, who has been serving on Webroot’s board of directors since 2004, takes over the CEO role from current chief executive David Moll, who will remain on the Boulder, Colo., company’s board. Moll has filled the position of CEO at Webroot since 2002, and is considered one of the driving forces behind the company’s rise to the top of the anti-spyware sector.

Webroot’s anti-spyware software is under increasing attack from major rivals, including McAfee, Symantec, and Microsoft, which is integrating anti-spyware technology into its Vista operating system, slated to launch later this month.

Responding to stiffening competition from McAfee and Symantec in enterprise and consumer markets, Webroot formed a partnership with UK-based antivirus vendor Sophos that allows it to incorporate the latter’s AV software into a bundle to compete against the AV/anti-spyware packages offered by its larger adversaries. Meanwhile, as for Microsoft, Webroot is betting that enterprises in particular will be reluctant to entrust their security requirements to the Redmond giant.

Talking a big game, Watkins, Webroot’s new CEO, said the following:

The big boys have left huge gaping holes in the market for us to exploit, as customers don’t want the second- or third-most effective technologies, and we will continue to innovate, which is not Symantec and McAfee’s business. We’ve already moved beyond the anti-spyware niche with integrated, best-of-breed anti-virus [software], and our customer ranks are growing, not being displaced . . . .

. . .  .We have millions of users, continued investment, and a lot of momentum, which is what every startup strives for. There will be plenty of opportunity for us to grow our business as the larger players sit on the sidelines and allow us to innovate; the nature of the threats themselves will keep this a robust market for a number of players beyond those companies."

Jon Oltsik, an analyst at Enterprise Strategy Group, begs to differ:

Anti-spyware was a flash-in-the-pan market that’s now a feature. Unfortunately for Webroot, the other providers have more market share, more money and more resources; I think they’re fighting uphill battle for survival that gets steeper every day. Enterprise customers are looking for more desktop security features, fewer management consoles to look at and fewer vendors to deal with, and none of that is a good recipe for Webroot to succeed. . . .

. . . . Microsoft will take market share from everyone, and it will become a [three-horse race] between Microsoft, Symantec and McAfee. Everyone else loses except for some regional players like F-Secure [in Europe] and Trend Micro [in Asia].

It is difficult to argue with Oltsik’s logic. Microsoft will take share from everyone, and only resource-rich McAfee and Symantec will be able to survive the onslaught. Others will be niche players or be swept away.

That leaves Webroot in a precarious position. Even though it received a whopping $108 million in venture-capital funding early in 2005, Webroot appears overmatched by the likes of Microsoft, Symantec, and McAfee. Although Symantec is diversifying into other markets, it won’t just walk away from AV, anti-spyware, and other content-security markets. McAfee already has signaled its intention to stand and fight.

An IPO, long rumored for Webroot, seems unlikely at this point. I don’t think the company would get the valuation it wants. More likely is that Webroot will be acquired or will merge with an existing AV vendor. Even though its financial backers won’t see the return on investment they envisioned when they plunked down that $108 million, they’ll be pleased to escape without suffering a major loss.


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