Well, I did not see this coming. Today Symantec Corp has agreed to acquire Message Labs for $695 million. That represents close to a 5x multiple on $145M in revenue. While market conditions are not rosy, this price is not out of line for a segment leader who is seeing growth in the highly competitive email security market. This appears to be a good strategic move; they address their largest weakness in email security (SaaS), they can leverage the continued convergence of security offerings in messaging and data protection, and there is a substantial cross-selling opportunity. If memory serves, the 19,000 customers of MessageLabs represents an order of magnitude larger customer base Brightmail brought to the table in the 2004 acquisition. It’s hard for me to fault this acquisition.
The primary growth opportunity in the email sector appear to be on the hosted services side, and the bet here is being made that SaaS is the model for the future. Today you can get Brightmail as software, hosted email security or an appliance, so it’s not like you did not have the choice, but the focus was clearly not on SaaS. MessageLabs, along with Google’s Postini, are the current leaders in this space with hosted services. The danger for for the vendors who offer email security as a service is the ease of migration from one platform to the next. It’s not like software or hardware purchases where the investment & employee training creates a degree of ‘stickiness’. Migration from one hosted email security vendor to the next is relatively low, and Symantec will be under immediate pressure to keep the MessageLabs customer base happy as they are in serious competition from Postini. Postini is dirt cheap, so failure to convey the overarching vision or a significant alteration to pricing could result in a very quick loss of customers.
Still, I don’t see that happening as Symantec offers a low risk choice for many companies. A large stable firm with strong commitment to the segment and the breadth of product offerings makes a compelling choice. Upstarts with better technology just cannot compete with the mature, high availability, low risk vendors. As the other major growth opportunity in this segment is the convergence of messaging, web and DLP security feature sets, customers are more commonly viewing these as similar problems and want to address with a unified solution. It is difficult for companies to offer highly competitive products in all areas, but Symantec is now able to take a leadership role in each.
And what does this mean for Brightmail? Undoubtedly this will be rolled out as a hybrid model for now, with at least a short term commitment to existing customers. Symantec can hedge their bets on what the market will want in terms of technology for the short term. In response to John Thompsom’s quoate, yes, today’s customers have a great choice as far as the type of solution they choose, but my guess is the Brightmail investment will slowly atrophy, and Symantec will migrate customers onto the more profitable hosted platform.