On Tuesday, Internet security firm VeriSign ( VRSN) scored a major coup when Microsoft ( MFST) said it would use VeriSign's services to make its own ".Net" initiatives more secure. As one of the few Internet security firms that has not warned of sagging profits for the June quarter, Verisign has both business and stock momentum in challenging economic times. TheStreet.com caught up with Bob Korzeniewski, VeriSign's executive vice president of corporate development, to talk about the deal and his company's outlook.
TSC: You announced a deal this week with Microsoft where you'll help with their HailStorm and .Net initiatives. What is VeriSign doing for Microsoft, and what's the significance of it? Bob Korzeniewski: If you really look at it, it's a fairly broad-reaching technology partnership where we're going to try to augment their HailStorm technology, or their .Net platform, with VeriSign's digital certificates. Hopefully that's going to be the start of lots of opportunities for the companies to work together. We've actually been working together since 1996, whether it be around email or authentication in general. But we've really focused more time in the last four to six months on what we can do together than probably the last five years in total. So we'll start off in giving PassPort users the ability to choose VeriSign certificates for higher levels of authentication around some transactions, but hopefully it's going to reach out into the whole product suite of VeriSign infrastructure offerings, whether it be payment or identity or other services that VeriSign might be developing on the .Net platform, and allow us to have a pretty broad-based relationship over time. TSC: Of course, there's been a lot of talk about Microsoft having some challenges in that area because of perceived security problems in the past. What does VeriSign do that will help Microsoft basically gain confidence in the marketplace that their services are secure? Korzeniewski: I think VeriSign is the pre-eminent trust play around the Internet, through the certificate and PKI
public key infrastructure based businesses, and I think Microsoft's been very successful in working with a global-based partnership group. As we look at certificates, whether they're server-based certificates -- in effect, allowing secure transactions to happen from machine to machine -- or whether they're programs that we roll out for our enterprise clients -- where they use them on a private label basis to roll out secure services like many of our banking clients -- it's that higher level of trust and security that you are interacting with the machine that you intended to interact with, and that you are interacting with the person that you intended to interact with. Those are some of the services that VeriSign really was the pioneer in developing and rolling out and now taking a global leadership position around, and that's some of the important trust components that we can bring to our relationship with Microsoft. I don't think the issues around personal data are really ever going to go away. I think there will be some component of people that will always be concerned about that. I think what the industry needs to do is make sure that we do the best job we can in providing the highest level of trust and security to make the majority of people feel comfortable with the interactions on the Internet. TSC: As security has become more important, as privacy issues on the Internet have gotten more attention, it would seem like the products of security firms, such as VeriSign, but also those of your competitors, would be in higher demand. Yet, already during this pre-earnings season, we've seen warnings from Check Point Software and Internet Security Systems, two of your competitors. While analysts say VeriSign is a company they're comfortable with, why does it seem like security software, which many people thought was of the utmost importance, is becoming less so as far as corporations' purchasing goes? Korzeniewski: That's a good question, and I don't pretend to be able to speak for the market, but I certainly would give you my personal opinion. First of all, we're on the services side of it. I think on the services side of it, deployments are quicker, there's generally less upfront investment and because we kind of deal with the complexities on the back end, it's easier to roll out our services, take them in different-sized bites and then grow with them as the needs internally grow. So I think that model has proved to be more successful than the software model. And I think even some of the software players are looking to move toward the services model. But as you look at the software guys, I think there was a belief for most of the first half of this year that security was one of the spaces that was going to be more protected than some of the other guys who took their hits in Q4 and Q1. TSC: Yes. Security was going to be secure, right? Korzeniewski: And I think for the most part, it was. I think what you see as corporations continue to pull back and delay, and everyone is challenged to make their own internal numbers, my gut is what you really see is not that security is any less important, but probably the pressure is to shift buying patterns out later in the year as companies are trying to deal with their own issues. So I think the underlying economic conditions are probably tougher than maybe some of us might have believed in the early part of the year and that those conditions are forcing some of the bigger software purchases to be pushed out. My gut is that if you looked under the covers at ISS and some of the other players, that's probably some of the reasoning they're giving. They're probably feeling more weakness in Europe and some of the other markets than they anticipated they might feel, and it probably feels more like a shift out to the right than it does an absolute "No, we're not buying." And that shift's a little scary because you've got a feeling that it might land, but it could continue to push out to the right. TSC: That's a good point you make about concerns over privacy and concerns over security not going away. In fact, they've just gotten more and more attention the more widespread the Internet has become. Along those lines, can you tell us what happens when I enter my credit card information into a Web site? Say if I were at Expedia.com, which is a Microsoft-sponsored Web site, where does that information go, how is it used and where are the opportunities for vulnerability? Korzeniewski: Let me give you a layman's version of it. The underlying technology component is going from your server to my server and one of the things that VeriSign is able to do is encrypt that technology so that if someone else were to grab it in between, it wouldn't mean anything to them, without them being able to de-encrypt it. So we make it a much more difficult process in between. All the payment companies have some form of that, so you don't hear a lot about people and credit card information over the Internet. I think the bigger stories that have come out lately have just been general privacy concerns. TSC: Right, such as companies collecting information about us and our purchasing habits, or even more recently, a lot of concern over health care records on the Web. Korzeniewski: That's right. TSC: What is the risk of having that kind of information on the Internet, on companies' servers, and who could potentially get at it? Korzeniewski: Well, there's a lot of people who potentially could get at it. I think hacking on the Web has become a full-time hobby for a broader group of people on a global basis. But I think one of the things we offer -- VeriSign and now Microsoft and VeriSign together -- is the highest level of trust that you can get around that. There are not a lot of instances of people being able to get access to highly secure information. I certainly don't want to encourage more people to try that. TSC: How much has the acquisition of Network Solutions helped VeriSign make its way through these harder economic times? Korzeniewski: I think VeriSign has helped Network Solutions and that Network Solutions has helped VeriSign. I think it's been a good balance where we've not only maintained our No. 1 positions in both of our core spaces, but payment is a place we've now added on with the acquisitions of CyberCash on top of our acquisition of Signio. I think what we've seen is the broader platform and the clear No. 1 position across all of our business areas, gives us a real opportunity to stay at the table with the bigger players, talking about what other things we can get done, with Microsoft being an example of that. TSC: Can you explain what you mean by the "payment space"? Korzeniewski: We offer a payment platform for merchants looking to make Internet-based payments. And that was a place that Signio was the first acquisition VeriSign did, and then CyberCash, probably the pioneer of that space, we acquired two months ago. So now, rolling them up now together, it's the No. 1 payment platform used by merchants out there globally. TSC: As I mentioned before, competitors CheckPoint and ISS warned in the space, but there was no warning from VeriSign. Can investors read into that that things are on target at the company? Korzeniewski: Well, that's a great question, and one I certainly wouldn't touch. But I leave it to you to believe that certainly the VeriSign corporate people would deal with their communications with their investor base as appropriate. What we have in my part of the company is our heads down every day trying to drive real business and do great things to add shareholder value. So far we've been pretty successful at doing that, and we're pretty optimistic about the future.
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