Eugene Kaspersky: Growing In Times Of Crisis

You started Kaspersky Lab 11 years ago in Russia, in a time when there wasn't a lot of infrastructure to support IT startups, much less security companies. What was the motivation for starting up an antivirus company in Russia at a time when not a lot of people even owned computers?

That was quite a difficult time. Five or six years we were working on an antivirus project at an IT company in Russia. The owner of that company was my former teacher in the university, so we had a very good relationship. And he just believed in my project. And the company was working with software engineering and at the same time assembling computers. But sometime in the 90s, 96 or so, they decided to be more focused on the system integration business. And they cut all their projects one by one. I was the last one. So there was an agreement that we just leave the company, and we started our own independent enterprise.

It was a very small company. There were about 15 people, and the revenue was really close to zero. Of course there were problems. There was no such thing as investment in software companies in Russia. And the next year, just after the company launched, there was a financial crisis in Russia. But we managed to survive, and actually we did it with the help of our technologies. We just started licensing our technologies to other companies. That was easier business to us, because in the industry, everyone knows everything about the competitor, about their colleagues. So we didn't need to explain who [we were] or what we were doing because other players in the industry just knew us, and they started to license our technologies. Now we have more than 100 partners. We're a leader in this market, but this market's not so huge. We have more than 100 partners, mostly from the United States.

Now when you started out, did you plan to go international right away? Or did you start in Russia and branch out?

We didn't think about that. We were asked to do that. We were on a good course from European countries. The first contact was from Switzerland, and then from Germany, from Italy, and from the United States later. And so we got some partners. But the problem was that we were an almost unknown Russia-based company. There were partners that were not so serious. They were risky entrepreneurs, they were looking for new products, new technologies and looking for start-ups. Actually we started with that, and understood that we had the only chance to develop the business and be flexible. And so there were some cases when our partners were not 100 percent honest. And we accepted that because in Russia, we didn't have money to promote our products. We didn't have money for marketing. All the money we had, we invested back into the technologies and just back to the products. At the same time we were developing a team of experts, because from the beginning, the eighth year we were fighting with people who develop malware. To fight these guys, we had to have bigger technological muscles. When others were saying that antivirus is going to be a commodity and they put more investment into marketing, we were collecting the team of experts.

As you talk about your gaming and market share, you say you want to make inroads into the enterprise. And many of your critics will say that you might have a strong product but it's mainly for the SMB. Do you ever see that you will be on par with Symantec or McAfee?

It's our target to be a leading player. We have a plan to incorporate more business. And actually, we're the market leader with our technologies. We are a very strong player in the consumer business. You may see the data. All the companies have gone down. Kaspersky has gone up almost 60 percent.

The difference is that we have a high-end product from a technology point of view, and we pay a lot of attention to market education. And it's not that it's all traditional advertising. We educate the market with the real data, which is usable for the marketing people. We explain what cyber crime is, who the bad guys are, what they're doing, and what the risks are for individuals, or for the businesses. And actually it was this information which has helped build our brand, and build the trust of the company. This is a work of 10 years. We have about 30 experts. About half of them are in Moscow, working at the lab. And about half of them are internationally located, in the Americas, in Boston, in Latin American countries, in European countries, in Japan.

Speaking about location, you said that you can take advantage of your talent pool that you have here in Russia. The irony is that Russia is one of the places where malware generation is most prolific. Does that give you an advantage, and if so, how?

There's no help. It's just a coincidence. If you talk about the sources of cyber crime, Russia is not No. 1. The No. 1 is China. The second source is Spanish, Portuguese speaking countries, I think Latin America and especially Brazil. But also there are California, Texas, Florida. And the third source is Russian-speaking countries -- Russia, Ukraine, Kazakstan, Belaruse, Balkan countries, but probably Hanover, Germany, there's a very big Russian (population) there, and probably New York or Seattle.

Malware doesn't have passports. IT doesn't have any data with which we can recognize the country other than the language. So Russia is just a source number three, and it's a bit different than malware that is received from China. Thanks to the education system, the Russian malware in most of the cases is really complicated. Russia is a source of talented software engineers. Most of them are developing legitimate software. Some of them develop malware. And I think in different countries they have specializations in different types of malware. So from China, it's mostly online game Trojans. From Latin America and Brazil, it's mostly bank Trojans that steal personal bank information. In Russia there are many examples of cyber crime as a service. So they develop malware and trade malware to others. Or they develop infected machines to build a botnet, and they trade this botnet to others. And you may find the price lists on the Internet. And many of those services, they have Russian origin.

You said malware will continue to grow as the economy worsens. Can you tell us what the parallel is? And how do you plan to deal with the onslaught of malware resulting from the economic crisis.

In the case of economical depression, there is more joblessness. Unemployment level is higher. There are more people looking for any opportunity to get money. In these times there are more criminals, because now there are jobless engineers around the globe that will use this opportunity to get money. That means that there will be a lot of AV projects. I'm afraid that will be a challenge for antivirus companies to fight the growing number of cyber criminals. And I'm not sure that all antivirus projects will survive. That's really expensive. And at the same time, we have to fill the jobs with engineers. And actually, not all countries have enough human resources. You have to have enough people, and you have to have enough highly educated people, especially in fighting the cyber crimes. Many of them of them are very clever. They are well educated. And they're professional. So we have to find high-end software engineers, and thanks to the education system, we have a lot of them.

Moscow is also a place of technical universities. Moscow State University is one. Technological universities are here and there are other names, about five or eight universities in Moscow.

The best places to develop software projects are Russia and the United States. Not India. Not China. There are more software engineers, but they're less highly educated. Again, it's because of the education system. The traditional education system in Russia takes four, five or six years. I heard that in India there's some months, then they get certificated to be a software engineers. That's the difference.

Some of the challenges that Russia faces are customers using pirated software. Certainly in the last few years, customers have gravitated toward legitimate software because they can afford it. Heading into a worsening economic crisis, do you see more customers going back to using pirated software?

First of all, it's true that there are mainly individuals and consumers that use the pirated versions just to save money. Probably some businesses will also use legal software but less [of it]. At the same time, I think that those businesses will cut costs, will bring more services online. IT just saves you money. There is some negative way if the businesses stop investing in IT for some period of time, or invest in it less and less. But they're able to recognize that the better idea is to invest in IT just to save money. But I see there will be more demand on their security. So it will be a positive and negative force at the same time.

I think that IT security is a very safe area, because of what people will buy in any condition: kids' education, investing into the future, food, sex, security, entertainment, communications. Who's going to stop using mobile phones? No one. Who's going to stop using the Internet? We're in the area of security and communications and I think that the malware industry is very, very safe. But, I think that no one knows how deep the financial crisis is.

How do you plan to overcome these challenges you'll inevitably face with the worsening global economy? What strategies are you going to rely on?

We have to understand the worst possible scenario. Some people say that it will be really, really short and that in the spring next year things will get back to their normal stage. Some people say that the economic crisis will end with economic collapse like in Japan in '89. I think that it will be somewhere in between -- that there will be an economic slowdown for two or three years. But we will see. What we are not going to do differently is decrease investment into technologies. So for sure we'll keep investing in our technologies and products. It's a critical factor for our success, we can't stop that. But I'm optimistic because we're very successful. And we're successful in different countries. So we don't depend on some national market. You say that we're a Russian company and it's partly true because we have Russian roots, but at the moment it's an international team. The financial, the corporate the consumer business are people from France, people from the U.K., from the United States. We have an international team and international management. The research and development, that's Russian. That's a special team.

Do you see growth slowing or reaching a plateau in 2009 as this crisis takes hold?

Of course in some territories and businesses, of course yes. For example in Europe and Germany, we have about 60 percent of market share. So it's not possible to make all the Germans buy two boxes. Of course it's slowing down in Germany because they're a market leader in this segment. In other countries, for example, in the United States, we're just entering the market, and so we're growing with a speed of about 200 percent because we have a lot of opportunities there, also these regions like Latin America, Middle East Asian countries, we are also just entering those territories, the growth is more than a 100 percent. In Russia, the last year was fantastic growth because people started going from illegal stuff to legal.

So Russia is still growing?

We will see how deep the financial crisis affects human brains. Of course they're in the same situation, same as other retailers in the United States. Some of them just disappear. Actually, the Russian economy is not so developed as the United States. Unfortunately in this situation, better developed economics means that they're the main victim of all this. But I'm optimistic about all that. We have to do something, and I think that all this change will be positive for the global finance system. I'm sure that will make countries work more closely with each other. Just develop a better relationship. And, I think that all the crisis -- it might be a very hard time, but the result is positive.