Reorganized Network Associates on the Rebound

SANTA CLARA, CALIF. (05/08/2000) - Last year was a nightmare for Network Associates Inc., one of the world's largest software companies. It ended up more than $50 million in the hole, struggling to digest eight separate security and network management companies it had bought in the past two years.

Internal chaos and the prospect of top talent exiting to dot-coms prompted Network Associates management to reassess its monolithic organization in which each sales representative was responsible for selling everything from McAfee antivirus software to the Magic Solutions help desk software to the Sniffer network tool and the Gauntlet firewall.

On Jan. 1, Network Associates reorganized into four divisions, allowing sales representatives to specialize. It also launched hosted services, for businesses and the now separate subsidiary for consumers. So far, the moves seem to have paid off, with Network Associates reporting a healthy first quarter and on track to beat 1999 revenue of $684 million by at least $200 million, according to analysts' estimates.

It is even possible that the four new divisions will file IPOs (see graphic), Peter Watkins, Network Associates' president and chief operating officer, told Network World last week.

"The ones that have a good year will go public," Watkins says. He also said technical and sales staff get stock benefits aimed at curbing the temptation to go to dot-com start-ups, which surround Network Associates in Silicon Valley.

Watkins says the reorganization has created a more technically knowledgeable sales staff that can explain the company's wares to IT specialists who have a say in corporate purchasing decisions.

"We're not trying to jam everything through one sales channel, because at that point, competitors start to pick us off," Watkins says. "Thank God it's not like last year."

The reorganization has been so drastic that division sales representatives no longer have "Network Associates" printed on their business cards, he points out. That's because in its soul-searching at the end of 1999, the company discovered its name carried little brand recognition with customers.

It's the biggest products, such as McAfee, Sniffer and Magic, that people recognize, he says.

For the first time, Network Associates is now candidly discussing how much specific products contribute in revenue.

McAfee antivirus software accounts for 45% of all Network Associates revenue, Sniffer about 30% to 35% (depending on the quarter), and Magic Solutions help desk about 15%, according to the company.

All the security products now grouped into the PGP division - the Gauntlet firewall and appliances, CyberCop intrusion-detection and Pretty Good Privacy encryption software - account for only 10% to 15% of sales.

Although Network Associates has spent hundreds of millions of dollars on Trusted Information Systems, PGP and Secure Networks in an attempt to buy its way into this line of security products, the payoff has not yet been evident.

Competitors Check Point Software and Cisco maintain a stronger grip on the firewall market, while Axent Technologies and Internet Security Systems are the main contenders so far in the intrusion-detection arena.

PGP continues to be popular for securing Internet mail between savvy individuals. "But it never really got any traction in the corporate marketplace," says Phil Schacter, an analyst with The Burton Group consultancy in Midvale, Utah.

Customer reaction

So how do customers feel about the new sales approach? After all, the plan is risky because multiple sales representatives will be calling each client.

"The transition from our perspective has been less than stellar," complains one senior technical specialist at a Midwest corporation that uses most of Network Associates' products. "It's taken them a while to get their act together."

Speaking on condition of anonymity, he says his company hasn't yet heard from all the divisional sales representatives. The ones he has talked with don't seem to know the others on the account.

This source says technical support for McAfee antivirus software has been good, but support for the Gauntlet firewall is another matter. When problems have occurred, it has taken days to hear back from Network Associates technical staff. In one case, they couldn't prescribe a cure when the Gauntlet screen went white. Instead, corporate staff had to get advice from other firewall users having the same problem on a public Web discussion list.

Despite such complaints, most customers seem to think the transition is rolling in the right direction.

"It's been a positive change in terms of the organization at Network Associates," says Monte Hendrickson, director of IT operations at GTSI in Chantilly, Virginia, which uses the Gauntlet firewall and McAfee antivirus software. "In the past, we had difficulty dealing with Gauntlet and Network Associates in terms of sales and service, but things have really improved."

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