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Killing junk e-mail is big business for many companies

By Dan Lee
Knight Ridder Newspapers

	PATRICK TEHAN / KNIGHT RIDDER NEWSPAPERS Postini founder Scott Petry, left, and President and CEO Shinya Akamine in the server room of their Redwood City, Calif. headquarters. The anti-spam company helps companies cut down on junk e-mail.
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A growing number of businesses see big money in wiping out the junk e-mails that have become a scourge of the Internet age.

Dozens of companies with differing strategies and technologies have turned the business of killing spam into one of the hottest sectors of tech. The players range from established anti-virus companies such as Symantec to venture-backed startups. By one estimate, as many as 150 U.S. companies sell anti-spam technology.

Last month, anti-spam leader Brightmail of San Francisco filed for an initial public offering it expects will raise $80 million — which would be the first IPO by a spam-focused company.

The rise of a spam-fighting industry comes as the public outcry over junk e-mail reaches a peak. Pitches for cheap drugs, mortgages, investment scams and other types of spam now account for upward of 60 percent of e-mail traffic, according to various estimates. As the volume of junk e-mail rises, companies and Internet-service providers see spam as not just a nuisance but a security threat and a drain on time and technology.

"Over the last 18 months, it's the No. 1 issue they're trying to solve," Symantec's Chris Miller said of customers' focus on spam. Miller, the Cupertino, Calif., company's product manager of enterprise e-mail security, said worms — often introduced by spam — were the other recent top concern.

Different techniques

Customers can pick from a wide variety of spam-fighting methods. Companies such as Brightmail specialize in selling anti-spam software subscriptions to businesses and ISPs. Others such as Palo Alto, Calif., startup Corvigo — recently purchased by e-mail security software maker Tumbleweed Communications — sell hardware appliances to businesses that plug into computer networks to block spam. Redwood City, Calif., startup Postini provides managed services, routing a customer's e-mail through its own network that filters out junk e-mail.

Large computer-security companies like Symantec and Trend Micro are integrating anti-spam software into their broad offerings designed to stop viruses, worms and other Internet attacks.

Brightmail's anti-spam software is used at the "gateway," where e-mail enters a customer's private network.

The software uses a variety of methods to filter e-mail for content, servers and Internet addresses used by spammers.
 
Brightmail's more than 2,000 business and ISP customers represent more than 25 percent of the world's e-mail inboxes, according to the company's IPO filing with the Securities and Exchange Commission. The company declined a request for an interview, citing its quiet period as it prepares to go public.

Brightmail, founded in 1998, has grown from a loss of $10.8 million on sales of $6.43 million in 2002 to a profit of $1.2 million on sales of $26 million for the fiscal year 2004 ending Jan. 31, according to the filing.

Postini sells neither software nor hardware, but a service that provides a "security checkpoint" between the public Internet and a customer's private network, said Scott Petry, the company's founder and vice president of products and engineering.

The company, which sells to about 2,500 businesses and ISPs, filters e-mail for spam, viruses, denial-of-service attacks and other threats using data centers also used by Google, eBay and Yahoo!

Petry said that, based on sales, Brightmail is "not much bigger" than his company, and that Postini is "on the path" toward its own IPO filing. "It's going to start a stratification of the anti-spam market," he said of Brightmail's intent to go public.

Some spam-fighting companies are moving toward multiple methods of combating the problem. In March, Tumbleweed paid $38.5 million for Corvigo, which makes a Linux-based anti-spam appliance.

Tumbleweed, a software maker already selling anti-spam products, said it wanted to offer customers multiple approaches.

Corvigo's appliance, which plugs into an organization's network, uses artificial intelligence. It makes a judgment whether something is spam by using filters for keywords such as "Viagra" or looking at past frequency of words in junk e-mail.

Big companies

Meanwhile, tech titans are stepping up their spam-fighting efforts.

Microsoft is launching its own tools to fight spam, including a "caller ID for e-mail" designed to stop spam that uses "spoofed," or authentic-looking addresses. The system, announced in February, uses much the same approach as caller ID for phone calls to verify the numerical Internet addresses in computer servers sending out e-mails.

Increasingly, anti-spam technology is being seen as just one aspect of the overall computer-security equation. That may be one reason that some anti-spam companies also have close ties with potential rivals who may offer different pieces of technology.

Microsoft has close ties with Brightmail, as does Symantec. Microsoft accounted for 10 percent of Brightmail's sales in fiscal year 2004, according to Brightmail's SEC filing, while Symantec has a 13 percent stake. Analysts predict security startups will not be able to survive on spam alone, adding that some of the close ties between spam-fighting companies could break down or lead to acquisitions as the computer-security market evolves.

They say larger companies will buy promising rivals, with a few choice startups becoming publicly traded companies themselves.

"The anti-spam market is just too crowded right now, and nobody has too big of a market share," said Michael Osterman, president of research and consulting firm Osterman Research, which focuses on messaging.

The Brightmail IPO will be a "wake-up" call for smaller anti-spam rivals, said Bill Bosen, partner of Trusted Strategies, a Pleasanton, Calif., research and consulting company in computer security. "You're going to see a flurry of activity," he said.

Copyright © 2004 The Seattle Times Company