Valuation volley: This is a story of two companies. Both provide network security software. One is bigger, profitable, and offers a broader range of products. But it went public several years ago before the Internet was a big deal and therefore doesn't have "Internet" in its name. The other went public a year ago, isn't yet profitable, has limited products, but used the name of a subsidiary that has "Internet" in its name in the headline of its last earnings press release.

Which has the higher valuation? C'mon, you think I was born yesterday? (Don't answer that!) The one perceived as the Internet company, of course.

ISS Group


, with $32 million in revs last year, currently has a market cap of $1.5 billion. Yesterday alone, on no news (other than it was a good day for Internet stocks) the parent of Internet Security Systems ballooned another 8 7/16, or 11%, to close at 84. Its rival,

Axent Technologies


, meanwhile, barely budged yesterday and is stuck with a market cap of $764 million despite having posted sales last year of $101 million.

Is the smaller, unprofitable company really worth that much more than the larger, profitable one? That's been the argument with Internet stocks. But these are two companies in the same biz -- security software. One just appears to have been in the right place at the right time with the right underwriters. And that secondary offering, in which insiders sold 1 million shares, certainly didn't hurt. Remember, the more deals a company does, the more it secures positive analyst recommendations, especially when it has four co-underwriters, which was the case with ISS.

There's nothing wrong with ISS, mind you. Short-sellers don't talk about it the same way they do

Network Associates


, which also makes a competing product but is riddled with accounting controversies. So why tackle a company with a high valuation when betting against valuation stories has proven to be a sure way to the poorhouse, particularly when the bet is against an Internet valuation story?

For several reasons. According to one short-seller who is short ISS, the narrowness of ISS's product line makes it vulnerable to competition. ISS is almost exclusively in the biz of selling so-called intrusion software, which blocks unauthorized entry into a network. Intrusion is just one of Axent's products (when it comes to security software they've just about got the whole shebang). And competing products from


(CSCO) - Get Report

and even Network Associates are gaining market acceptance. Cisco is believed to be beefing up its sales force for security products, with prices geared at making market-share gains.

There are also concerns that security software companies will suffer the same slowdown as enterprise and other software makers have as their customers divert their budgets to address the Y2K problem.


analyst Nicole Schmidt said as much in a report on Axent, warning that "budget freeze" is likely to occur on security spending, and that the industry will be poised to take off 12 months "after full Y2K remediation has taken place."

Finally, the low-margin consulting part of ISS's business is growing at a faster pace than its software business. Based on analyst estimates, consulting was around 15% of revenues last year, roughly double from a year earlier.

A spokesman, however, says the growth in consulting only looks large because it's coming off a small base. (Axent also does consulting.)

As for competition from Cisco, he says: "We have a lot of respect for Cisco, but we don't fear them. We are one focused company ... we end up becoming our customers' trusted adviser."

Similarly, he downplays the Y2K issue. He says the company has already acknowledged that some of its customers will defer purchases, but he doesn't believe most will because most of ISS's software (unlike Axent's) goes on the entire network, not every computer. As a result, he says, the reliability is not affected by Y2K-related issues.

Perhaps not, but according to our short-selling source, even a little Y2K slowdown added to the other issues could make investors wonder whether one is too cheap or one is too expensive.

eFax update: Got my free eFax phone number a week ago, after I had mentioned here that it took a week to get the number. Didn't get around to trying it until earlier this week. It doesn't work! Got one of those "the number you are trying to reach is out of service" messages. I sent an email to eFax, but I'm on day three of waiting for a reply.

Herb Greenberg writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at Greenberg writes a monthly column for Fortune and provides daily commentary for CNBC.