Case Analysis Kaspersky Lab: from Russia with Anti-Virus

Case Analysis Kaspersky Lab: From Russia with Anti-virus Industry Background: Software Security Cybercrime has become a fast growing concern for the 21st century as businesses, institutions and individuals grow into an interconnected web of computer networks. Online business transactions, along with the sharing of personal information, are vulnerable to a host of disasters that can reap economic and social havoc. Some sources say that today, cybercrime costs more than $1. 0 trillion to society–Global Industry Analysts, Inc. forecasted the world cyber security market to reach $80 billion by 2017 (Gale, 2011).

Chief concerns for this Industry are: Internet-based fraud, sophisticated viruses, illicit network access, and computer network sabotage. Software security includes issues such as accidental disclosures caused by flawed or debugged programs and the active or passive infiltration of computer systems Active infiltration includes activities such as obtaining unauthorized information fusing legitimate system access, gaining access through improper means of obtaining identification, or unauthorized physical access in order to gain access to systems.

Passive infiltration includes wiretapping on data communications lines or databases and using concealed devices to transfer data in computers, databases, or data communications lines.

(Gale, 2011) Historically, information technology has had only basic security at best and highly vulnerable to attacks. In an effort to ward off cyber threats and capitalize from it, computer security companies began to market a wide range of services and products to prevent sabotage and unauthorized computer use.

These security applications include virus detection and removal software, firewall support, encryption software, intrusion detection and analysis software, security consulting services, and even devices for user authentication (Gale, 2011).

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Security software is a high growth market and is so mainly as a result of rapid technological advances in recent years. At the same rate, cybercriminals develop new ways to exploit vulnerable new systems. According to industry analyst Gartner, the global software security market should exceed $16. 5 billion in 2010, up from $14. billion in 2009 (Gale, 2011). Industry leaders: Symantec Corp. Symantec is a giant security software firm founded in 1982 and is now headquartered in Cupertino, California. The company grew as a result of acquiring smaller, niche market software vendors. During the early 90s, Symantec acquired IBM’s and Intel’s anti-virus operations along with AXENT Technologies’ risk assessment and intrusion detection products. The emerging Internet market during that time led Symantec to muscle its way for increased market share through a series of acquisitions of rival companies.

In 2004, Symantec partnered with Earthlink Inc. , an internet service provider to gain market share by offering online subscription services. Symantec then followed a trail of mergers and acquisitions and reported record revenues in 2009 for $6. 15 billion and was employing 17,100 people. The company offers products and services that protect computer systems from viruses, detect intrusion by unauthorized network users, and allow users to manage their systems remotely. Top selling products include: Norton Antivirus and Norton Utilities suites. (Gale, 2011; Symantec. om, 2011) McAfee Inc. McAfee, another leading software Company, is based out of Santa Clara, California. McAfee started in 1997 under Network Associates. Originally, its anti-virus products were offered as shareware that enabled McAfee to gain key enterprise security systems accounts. In 1998, McAfee. com was created as a dedicated consumer virus detection site. The company aggressively penetrated the intrusion detection market in early 2000 with the acquisition of rival companies—following Symantec in a similar path. In only 4 years, the company owned 15. % of the consumer market—45% of total revenue came from consulting and support services. In 2010, McAfee was bought by IBM for $7. 68 billion. The company’s product line includes: data protection, email and web security, endpoint protection, mobile security, network security, risk and compliance, Security-as-a-Service (SaaS), and security management. Industry leading products include: McAfee Total Protection for Endpoint, McAfee Network Security Platform and McAfee Enterprise Mobility Management. (Gale, 2011; McAfee. com, 2011) Kaspersky Labs, Inc. Brief Background:

Kaspersky Lab, a Russian based private equity company, is Europe’s largest software company, providing anti-virus software for individual, corporate and mobile users (Kshetri, 2011). Kaspersky’s product line includes software applications for protecting systems against malware, viruses, worms, Trojans, spyware, adware, and e-mail spam. In addition, KL offers firewall products, consulting, implementation, software development and support services (Kshetri, 2011). Kaspersky is different from its major competitors in that its headquarters borders Moscow; where most of its R&D activities are performed.

Kaspersky has regional R&D offices throughout the U. K. , France, Germany, the Netherlands, Poland, Japan, China, South Korea, Romania and the U. S. (Kshetri, 2011). KL has faced some challenges being that it is from an emerging country. It faced adversary from the beginning as the company started out without any external funding or investment capital. Russia’s intellectual property protection laws are weak and law enforcement is inadequate. Companies are not protected against the actions of their employees as confidentiality clauses and non-compete agreements are nonexistent in Russia (Kshetri, 2011).

Having a strong foothold in a developing country is not all bad–in fact, Russia has the world’s best software engineers as well as the world’s best hackers (Kshetri, 2011). Russia has benefited from heavy investments in engineering and science from the Soviet-era. This has led to the country’s large supply of highly skilled technical workers and a culture centered on sophisticated computer hacking. Kaspersky noted: “There are technical universities in every major city and with one million students graduating every year, and there is a big labor market for software engineers. (Kshetri, 2011) The vast cybercrime landscape throughout Russia and the rest of the world has actually benefited KL by allowing them to leverage the expertise of skilled workers for the development of new applications, allowing them to enter new markets. Cybercrime is what keeps security companies like Kaspersky in business. Fortunately, they have the resources available to keep up with the rapid rise of the cybercrime industry. SWOT Analysis Strengths: 1. Security. Kaspersky security software is technically superior to competitor products.

KL capitalizes on open innovation and open source. The company is able to provide more frequent updates than its rivals and is a leader in identifying and responding to threats as early as possible. 2. Highly skilled labor force: Soviet-era tech investments have led to a large supply of highly skilled software engineers. 3. Low turnover rate: KL has various incentives to attract and retain qualified employees—in 2000, KL’s turnover rate was less than 3%. A 2010 survey conducted by The Boston Business Journal named KL as one of the Best Places to Work in Massachusetts.

The company provides employees with stock options and relocation services—rare in most Russian companies. 4. Largest software company In Europe 5. Direct presence in 40 countries 6. Highly Innovative 7. Strong patent base 8. World’s largest privately-held Internet security company Weaknesses: 1. Lags behind large key rivals 2. Low market share in the U. S. and worldwide share 3. Weak competitive position in business market 4. Short Russian history of free market capitalism 5. Negative country of origin (COO) image this might be a threat as related to Russia rather than KL Opportunities: 1.

Strong growth and future potential in content and threat management sector 2. Trend among global technology developers’ business models based on open innovation and open source. 3. OEM’s use of KL’s anti-virus engine 4. Push KL’s products through retailers with attractive profit margins 5. Focus on consumers’ willingness to pay extra for high quality security programs 6. Co-branding with well established brands 7. Security software for mobile devices 8. Continued improvements in e-commerce strategy, capabilities and websites Threats: 1. Software piracy 2. Weak IP laws in Russia and developing countries . Strong responses from larger competitors Marketing Strategy: Target Market: Kaspersky Lab’s targets “savvy,” quality conscience consumers who are willing to pay higher prices for the added security The company’s secondary target includes the business market. However, the company has a much stronger competitive position in the consumer market. KL offers marketing and technical support to its retail customers. Positioning: KL positions its products as technologically superior, focusing on innovation and quality that the company leverages to achieve international success (Kshetri, 2011).

The company works hard to identify and respond to threats as early as possible, providing frequent updates and building a “best in class” reputation (Kshetri, 2011). Product Strategy: Kaspersky regionalizes its products to meet diverse customer needs, adding notable features to its products. The company’s focus is to produce a range of security software rather than strictly anti-virus. With the rise of netbook computers in 2009, KL designed and developed a security product specifically for portable wireless devices.

Kaspersky PURE debuted in 2010 and goes beyond its Anti-Virus and Internet Security products in providing the ultimate protection for home networks. KL’s top consumer products in 2010 were Kaspersky Internet Security and Kaspersky Anti-Virus (Quintura, 2010). Kaspersky offers stripped down versions of its software packages for emerging markets—part of an effort to help fight piracy in Russia. (Hoover’s, 2011) Building the Kaspersky brand across its entire product line is an integral part of their product strategy. The Kaspersky name and logo are used to demonstrate a clear relationship between the products and the company name.

The company undergoes efforts to co-brand with well known brands including AOL in 2006 and Ferrari in 2010. Pricing Strategy: KL’s high price strategy for the consumer market is reflected in their quality brand image. For retailers and distributors, KL gives higher profit margins compared to other competitors. Distribution: KL has operations in 40 countries and recently spent $2 million in 2010 to expand its operations to India. This move has enabled KL to acquire an additional 1. 2 million customers in India and is striving toward 8 million new users by 2012 (Hoover’s, 2011).

In 2010, over 300 million consumers and 200,000 organizations worldwide use KL’s products (Kshetri, 2011). Kaspersky has capitalized on growth markets in Asia and the Middle East. According to Gartner, KL was the world’s third largest vendor of consumer IT security software and fifth largest vendor of Enterprise Endpoint Protection based on 2010 revenues (Fastcompany. com, 2011). In 2006, KL began to penetrate the U. S. market through OEM manufacturers as it was lagging behind major industry players. Kaspersky is able to grow its business through partnerships with other IT and network companies.

KL has its anti-virus engine incorporated into the software of large companies including Microsoft, Blue Coat System, Juniper Networks, IBM and Cisco (Hoovers, 2011). Choices available to the company: 1. Gain business segment market share According to a New Report by Global Industry Analysts (GIA), network security makes up the largest segment of cyber security in terms of global market revenue. Traditional desktop anti-virus software is moving farther along the product lifecycle stage. Market players are shifting their product mix away from anti-virus software to software suites that oversee the protection of an entire network.

This focus would cater toward corporate clients as they would benefit most from a comprehensive endpoint security suite. The key to future growth is to offer a comprehensive suite that protects an organization form insider threats through applications including: asset management, tracking and recovery, Web filtering, data loss prevention and insider monitoring. (RPWeb, 2011) 2. Penetrate the mobile security software market The rising trend of mobile devices will eventually replace most uses of personal computers. Smartphones are being used by business persons and for personal use more and more each day.

The move toward phones’ increased data communications, the need for smartphone security technologies becomes apparent. Opportunities in this market segment will be driven by the growing risk associated with personal information stored within smartphones. The rise of downloadable applications is another growth driver for smarphone security software as they are primary sources of malware and other malicious applications. Demand for smartphone security software from the business segment will driven by increasing use of smarphones for corporate communications.

One survey states that only 23% of smartphone users have security software enabled which would mean it has good growth potential (SFGate, 2011). Smartphones sales are correlated with the demand for smarphone security software which are said to rapidly rise over the next few years. This market would require technologically advanced information security solutions because of the changing forms of cybercrime. Kaspersky would have the upper hand in this situation as new threats would most likely emerge from Russia. KL has the technical expertise to be number one in mobile security protection software—if they play it right.

Potential Outcomes and Implications: Kaspersky is already at a disadvantage because of its relatively small size compared to top industry leaders like Symantec and McAfee. To gain significant market share in the consumer and business markets, KL will have to go after key accounts once it becomes a publicly traded company. An aggressive move such as this would most likely cause big players to drop prices and campaign that they can do the same for less. Gaining considerable market share in the U. S. will be an uphill battle for KL as they would be contending in an arena of giant players.

What the company excels at is developing technological innovations with the expert resources it has. If it maintains its current consumer product strategy with high quality and prices, it might be able to grow steadily with the added help of OEMs. Businesses might gravitate more toward Kaspersky’s quality image since they have much more at stake than an average consumer’s home network. As of now, the mobile device security market seems like an open playing field with a lot of potential which Kaspersky has the resources needed to capitalize on. Key Decisions/Recommendations:

KL should maintain efforts for steady growth in both the consumer and business markets. The company should offer comprehensive software suites and maintain its quality image along with regionalized product marketing strategies. Throughout the next 2 to 3 years, KL will need to direct resources toward developing new innovations in order capitalize on upcoming trends/opportunities. This might possibly open a window for KL to gain considerable market share. To achieve this, the company should focus strongly on mobile security and be ready to deliver when mobile devices dominate the market.

They should continue to leverage the hacker playing field by staying abreast of potential upcoming threats for mobile devices. Their goal should be to outperform all competitors in mobile device security and strategically plan stages for product releases. Once the company has gained sufficient awareness in the marketplace, it would be imperative for KL to implement an IPO, which would in turn, allow them to win key accounts in mobile device security (This is okay but the case points out that an IPO would help access the big accounts in the U.

S. and the U. K. — Especially in many countries with common law as the legal origin, private companies such as Kaspersky Lab KL are perceived as small companies composed of family or close friends as shareholders) . Because a GIA report states that Asia-Pacific is the fastest growing regional market for smartphone security software, KL should focus on this region. This would help the company obtain a significant portion of the forecasted $2. 99 billion that GIA predicts the market will reach by 2017 (SFGate, 2011). Works Cited: Computer Security. ” Encyclopedia of Emerging Industries. Online Edition. Gale, 2011. Reproduced in Business and Company Resource Center. Farmington Hills, Mich. : Gale Group. 2011. http://galenet. galegroup. com/servlet/BCRC SFGate. com 2011. Global Smartphone Security Software Market to Reach $2. 99 Billion by 2017, According to New Report by Global Industry Analysts, Inc. , April 29, 2011, http://www. sfgate. com/cgi-bin/article. cgi? f=/g/a/2011/04/29/prweb8354131. DTL Kaspersky Lab: From Russia with Anti-virus. Dr. Nir Kshetri, 2011.

Prepared for use in International Marketing class. PRWeb. com 2011. Global Security Market to Reach $80. 02 Billion by 2017, According to New Report by Global Industry Analysts, Inc. , April 05, 2011, http://www. prweb. com/printer/8262390. htm Hoover’s. (2011, July 5). LABORATORIYA KASPERSKOGO ZAO. Hoover’s Company Records-In-Depth Records. Retrieved from LexisNexis Academic database. Quintura 2010. Kaspersky Lab Reaches Record Revenue in 2009, 03. 03. 10, http://blog. quintura. com/2010/03/03/kaspersky-lab-reaches-record-revenue-in-2009/