Network Associates Stands Firm

When 22-year IBM veteran George Samenuk joined Network Associates in January 2001, the security and network management software vendor was in upheaval. The Santa Clara, Calif.-based company had experienced a management shakeup that included the departure of then-CEO Bill Larson and posted a huge fourth-quarter loss. It also was plagued by accounting problems, a tumbling stock price and shareholder lawsuits. Today, as Network Associates chairman and CEO, Samenuk is credited with turning the company around and returning it to solid financial footing. In an interview with West Coast Bureau Chief Marcia Savage, he discussed the changes at Network Associates and its business strategy going forward.

CRN: Network Associates has undergone a lot of changes. Which key changes drove the company's turnaround?

SAMENUK: We're in the process of rebuilding Network Associates with investors, customers and our employees. Last year, our stock [price when I joined was at $4 a share. We were $30 two weeks ago. We've concentrated on a couple things. No. 1, focusing on our customers,I call it a maniacal focus on our customers. No. 2, we've had a huge emphasis on partners. I thought a year ago our partner relationships weren't that great. I think we had lost focus on our partners, and I've been visiting our partners around the world. We had to re-earn and rebuild their trust. And we've done that. We're not 100 percent there yet, but Mike Menegay [vice president of channels and alliances for the Americas at Network Associates' McAfee unit and the team focused on our partners and have made tremendous progress. The partners I have seen are pretty energized. And when we show them the future, they get more energized. We've signed up some of the world's leading partners for our McAfee ASaP online antivirus service. No. 3 is bringing out great, new and innovative products, and we've done that. We had a good year last year on product launches, and we will this year, next year and the coming years. We've spent a lot of money on R and D.

CRN: How much?

SAMENUK: About 16 percent of our revenue. If you look at the top 20 software companies, their average may be 12 percent. We feel it's necessary because we have the two leading positions in the world with McAfee antivirus and Sniffer network management. So we think continuing to bring out new, innovative products will give our customers and us an advantage.

CRN: What's the focus of Network Associates' product development?

SAMENUK: We're the only company in the world with McAfee antivirus and Sniffer network management under one roof. It's a very unique position, so we're building our business around those two pillars, which are coming closer together. We're taking technology from McAfee and putting it into Sniffer and taking Sniffer technology and putting it into McAfee. Over time, you're going to see products come out in both camps that concentrate on security and network management. That's what our customers want.

CRN: On the product front, you sold the Gauntlet firewall and are still trying to sell desktop encryption. Why?

SAMENUK: I looked at our business last year and, early on, I figured we had some business units and products that weren't best of breed. In January, we merged the myCIO.com online antivirus service for companies and worked that into McAfee. We closed a bunch of products in April. I had to make some tough calls. We weren't No. 1 in firewall. By my best guess, we were No. 10 in firewall. And we were losing $50 million, so we closed that business. And encryption, it wasn't a product customers were buying. We weren't the leader. We're going to continue to sell off products and businesses that aren't best of breed and that our customers are not voting for with their dollars.

We're sitting on a billion dollars in cash, so how do we best utilize that? We're generating good cash on a quarterly basis, and we've been looking at acquisitions, but small technology acquisitions.

CRN: What technologies are you looking for?

SAMENUK: We're looking for a lot of different things: denial-of-service technology, content filtering technology and reporting technology for Sniffer. We're going down a dual path,either develop it ourselves or buy it.

CRN: You said Network Associates had lost focus in its partnering strategy. Was that the main problem?

SAMENUK: We didn't treat [solution providers like partners. A partner is, 'Both sides win.' I call it the triangle: The customer wins, the partner wins, Network Associates wins. The partners complained to me, 'You change your strategy every quarter, you change your pricing every quarter, you change your emphasis every quarter.' So I said we're not going to do that anymore. Our partners have been great. In the 14 months I've been here, the partnerships have really solidified. It shows in our revenue, it shows in our profitability, it shows in their businesses. We're trying to think like partners think. If we can, the relationship is much better.

CRN: Do you have a goal for how much of Network Associates' business you want to go through the channel in the U.S.?

SAMENUK: We'd like to see a majority of it go through the channel. We're bumping up in the 75 to 80 percent range across all our businesses [worldwide. Europe's higher than that, Asia's higher than that and Latin America's higher than that. So we're putting a lot of business through the channels. Over the years, it started declining, and then in the last year it has taken an upswing. It has been a much more channel-friendly Network Associates.

CRN: Managed services are something you're driving through the channel. However, there's been a big shakeout in that market, and some security experts say it's a tough business model.

SAMENUK: [Research firm IDC has us at 75 percent market share in the antivirus online service for customers. We were the first to market and signed up all the key partners, and we hold a patent for it. Don't minimize that last statement,the patent for the online service for antivirus and security. In the last couple months, partners are just starting to implement this service for their customers. The early results are good. Partners make more money because it's a more comprehensive service; you're not just shipping a CD. And we're making more money on it; the prices are higher. It's a good strategy. It fills a void.

CRN: What's your product forecast for the security market? There are a lot of point products, and customers complain about being overwhelmed.

SAMENUK: Customers will continue to buy best of breed. We tried a couple years ago to put it all together in a product called NetTools. It failed miserably. We weren't best of breed. We were best of breed in antivirus, but not firewall or vulnerability scanning. We're [now bringing out products that are best of breed. Customers today don't want a one-size-fits-all box. Every customer's operating environment is different. Some are Unix-based, some are NT-based, some are IBM mainframe-based. They want to buy the best-of-breed products that fit their environment. We've built something called ePolicy Orchestrator, which has turned out to be maybe one of our best products ever. It allows you to manage tens of thousands or hundreds of thousands of desktops from one central site, and you roll out antivirus policy and antivirus protection across all of those. You'll see us continue to enhance that product so that it will manage a desktop firewall. On March 20, we're shipping our new desktop firewall. If an attack occurred at my desk, [ePolicy Orchestrator would isolate that desktop so the virus or security breach would not spread. Brand-new, hot stuff.

CRN: Microsoft has stepped up its focus on security. The company also said it has a new business unit to develop security products. What do you think about that?

SAMENUK: I think it's great. They're a partner of ours. Protecting their operating systems and making them more secure will help our customers. In the end, if the customers win, the good companies are going to win. And this will be good for customers.

CRN: If Microsoft starts integrating things like antivirus and intrusion-detection capabilities into its products, what will that mean for security software vendors? Do you see that as any kind of threat?

SAMENUK: No. Customers are going to choose best-of-breed products and solutions for their environment. That's what we provide for our customers. I'm not going to comment on Microsoft going into any other business. They've been a great partner.

CRN: What do you think about Symantec's integrated product strategy? Some industry observers have compared it to Network Associates' previous suite strategy.

SAMENUK: Right, NetTools. I don't think one size fits all. We found that out painfully. We probably took a two-year hit bringing out the NetTools security suite, and customers didn't buy it. So we're anxious to see if customers will buy it two or three years later than when we [offered it. We're going down different paths. All Symantec has are antivirus security products. We have that plus network management. They have no network management, nothing like Sniffer. We have a two-pillar strategy, and I think we have a competitive advantage.

CRN: New IT security threats are popping up constantly. Will there need to be new developments in antivirus technology?

SAMENUK: You're going to have more artificial intelligence and more automation in this whole process. One very large customer said [to us they want to deploy virus protection when a virus outbreak happens in one hour or less around the world. We're working to figure out how we can help everyone deploy an antivirus solution to a new virus in less than one hour. There will be more computerization of the solution here. It will become much more automated, and we're working feverishly on that.

CRN: I hear there's a story behind your goatee.

SAMENUK: Last year, on Jan. 4, my second day on the job, three young guys wanted to meet the new guy on the block. One guy has a goatee, shaved head and some earrings. They said, 'Network Associates stock is at $4 and if it goes to $20 will you grow a goatee?' I said yeah, yeah. 'If it goes to $40, will you shave your head?' Yeah. 'If it goes to $60, will you do earrings?' Yeah. The stock hit $20 and then hit $30 a couple weeks ago, so I grew my goatee. It's a little grayer than I expected. My wife said, 'No way are you shaving your head at $40.' I said, 'Watch me.' The marriage has survived 26 years already. It's going to survive a shaved head. We've had a lot of fun here. We brought the fun back in the business.