Incorporated: 1992 as McAfee Associates Inc.
NAIC: 511210 Software Publishers
SIC: 7372 Prepackaged Software
Billing itself as the world's largest dedicated security firm, McAfee Inc. is a leading provider of Internet security software, including antivirus applications. With headquarters in Santa Clara, California, the company's reach spans the globe, with offices in 38 countries, including burgeoning markets like China and India.
McAfee's security products are organized under the umbrellas of threat prevention, compliance, online safety, and professional services and support. The company serves businesses through its Foundstone Professional Services & Education division, and provides around-the-clock support through its McAfee Customer Service and Technical Support arm. Since 1992, McAfee has been granted more than 250 patents. The company furthers innovation through McAfee Avert Labs, which employs approximately 100 research professionals on five continents.
From Start-Up to NASDAQ
McAfee's history dates back to 1989, when the company was established by John McAfee, a former engineer who wrestled with some of the earliest computer viruses while working for Lockheed. McAfee's experience led him to post a virus program on an online bulletin board, which he asked people to pay for if they thought it was of value. The shareware approach and electronic delivery model became McAfee's differential during the company's early years.
Relying on the honor system for sales, McAfee asked users who downloaded the company's products from electronic bulletin boards to send in payments of $25 to $35. By 1990 McAfee's sales totaled $1.6 million, of which $1.2 million was net income. The following year, sales climbed to $6.9 million, with net income of $4.5 million. During the company's first two years, John McAfee was the sole management executive for the business.
By mid-1992 McAfee employed a staff of 26. On August 14 of that year, McAfee incorporated his enterprise in Delaware, forming McAfee Associates Inc. By this time McAfee had some 10,000 licenses for its product in place at various corporations.
Although some criticized McAfee for focusing more on the promotion of virus scares and the availability of its products than on software functionality, the company continued to grow and prosper. Among its early offerings were resident file infection and activity checking programs named VShield and Sentry, a file- and memory-scanning program named Scan, a disinfection program called Clean, and various software utilities.
McAfee went public on October 6, 1992, selling 2.6 million shares at $16 each. The company's stock began trading on the NASDAQ under the ticker symbol MCAF. That year, McAfee gained notoriety by warning the public of the Michelangelo virus.
Acquisitions and New Product Development
It was around this time that McAfee began to branch out into other areas of computer software. Bill Larson was named McAfee's CEO on September 7, 1993. Formerly the vice-president of sales and marketing for SunSoft Inc., Larson had played a role in writing the business plan for Apple Computer Inc.'s Claris Corp., and was known for turning the Solaris 32-bit operating system into a viable competitor of Microsoft Windows NT. John McAfee retained his role as company chairman, and also became chief technical officer in order to focus more on new product acquisition and development.
According to an article in the August 14, 1997, issue of the San Francisco Chronicle, when Larson took the reins McAfee had no sales force to speak of. The company had 40 fax machines to accept incoming orders, and a ragtag 40-member workforce that included computer hackers, one of whom insisted on being paid in cash. Larson began to institute a number of changes, including the addition of a real sales force.
By the late 1990s more than ten million licensed copies of the company's software were in use, seven million of which were registered copies. A 100-machine license for an organization cost approximately $3,000.
Growth occurred via several acquisitions during the mid-1990s. In March 1994, Brightwork Development Inc. was acquired in a cash deal worth approximately $10.25 million. In August of the following year, the company acquired Dallas, Texas-based computer network design firm Saber Software Corp. in a $40.6 million stock deal. This was followed by the acquisition of College Park, Maryland-based Vycor Corporation in March 1996 for $9 million in cash.
After abandoning a $1 billion attempt to acquire Cheyenne Software Inc. in May, McAfee formed a partnership with Seagate Software in September. The two companies began working to offer McAfee's antivirus applications along with Seagate's backup products. That year, net income grew to $39 million on revenues of $181.1 million.
Early Dot-Com Growth
By 1997 McAfee was benefiting from the exploding popularity of the Internet and e-mail, which had become key channels for rapidly propagating computer viruses. By this time some 200 salespeople were selling the company's wares to those seeking protection.
McAfee's market value had grown to $2.3 billion. Growth was furthered via alliances with such companies as Security Dynamics and RSA Data Security, giving the company an edge as it competed head-to-head with rival Symantec Corporation. The competition turned ugly when Symantec sued McAfee for alleged patent infringement in April 1997. This was followed by a $1 billion defamation lawsuit in August from McAfee, claiming that false statements in a Symantec press release had caused McAfee's stock price to fall.
The company's legal wrangling with Symantec came at a time when its products were becoming more complex. More than an antivirus software developer, by the late 1990s McAfee had evolved into a provider of network management tools, firewalls, and a variety of other security software.
International growth occurred in April 1997 when McAfee shelled out $2.6 million in cash for a controlling stake in Brazil-based Compusul-Consultores de Informatica Ltd., a former distributor. In all, the deal had a total potential value of $3.6 million.
An important development unfolded in December 1997 when McAfee merged with Network General Corporation. The deal resulted in the company changing its name to Networks Associates, at which time its stock started trading under the ticker symbol NETA. The company's former name lived on in the company's McAfee Software division. It also was in December 1997 that Network Associates made a major acquisition by paying $35 million in cash for cryptographic solutions developer Good Privacy Inc.
Internet Security Protection Becomes Focus
In 1998 Network Associates established a new consumer-focused subsidiary named McAfee.com, which offered PC security and management products and services online. The company kicked acquisition activity into high gear that year, snapping up Anyware Seguridad Informatica S.A.; CSB Consulenza Software di Base S.r.l.; Nordic Lantools OY and AB; Syscon (Proprietary) Ltd.; Magic Solutions International Inc.; Trusted Information Systems; Secure Networks Inc.; Dr. Solomon's Group PLC; and QA Information Security Holding AB. Network Solutions also obtained a controlling stake in Cybermedia Inc. for approximately $130 million.
By mid-1998 Bill Larson had been named chairman and CEO of Network Associates. After the McAfee Software division established an Internet venture capital fund named Vulcan in January 1999, the company capped off the decade with an initial public offering for McAfee.com, which went public in December. Network Associates retained about 75 percent of McAfee.com's stock. The McAfee.com spinoff reflected the company's growing focus on network security and the business market.
With the new millennium came new product introductions. In order to provide added protection for individual users--especially those with continuous broadband connections--McAfee.com introduced a personal firewall utility. Released early in the year, the utility was added to the company's suite of diagnostic and antivirus software. In September 2000, Network Associates introduced software to identify and remove cookies from computers. Cookies are files containing personal information, which have the potential to compromise security.
Changing Leadership
In early 2001 an important leadership change occurred when George Samenuk was named as Network Associates' chairman and CEO. Another change occurred in December, when the company named Gene Hodges as president. Anticipating consumer market changes, Mcfee.com introduced a product called VirusScan Wireless 2.0 that provided protection for the growing number of handheld computer users.
As part of the Network Associates' focus on network security, the company began to streamline nonrelated operations. This involved the sale of its PGP and Gauntlet businesses. In addition, Network Associates devoted $19.1 million in cash to acquire Traxess, BySupport, BySecure, and Deersoft.
After making several offers to fully reacquire McAfee.com over the course of about six months, in September 2002 Network Associates sealed the deal and reclaimed the shares it did not already own. This was a sign of the company's renewed interest in the consumer Internet security sector.
The April 2003 acquisition of Entercept Security Technologies for $125.8 million in cash, followed by the acquisition of IntruVert Networks in May for $103.3 million, bolstered Network Solutions' Intrusion Prevention Solutions product line.
Change continued at Network Associates in 2004. Early in the year, BMC Software acquired the company's Magic Solutions product line in a $47.1 million cash deal. Then, on July 1, the company changed its name to McAfee Inc. as a reflection of its commitment to offering protection for the full spectrum of customers, from individuals to small and large businesses. That same month, McAfee sold its Sniffer Technologies arm to Network General Corp. in a $235 million deal. The company rounded out the year by acquiring Foundstone Inc. in October, in a cash deal worth $86 million.
The fabric of McAfee's business continued to change in the middle years of the first decade of the 2000s. In April 2005 SPARTA Inc. acquired McAfee Research in a $1.5 million cash deal. Midway through the year McAfee acquired Wireless Security Corporation for $20.3 million.
Turmoil amid Continued Growth
McAfee had a busy year in 2006. In January the company paid a $40 million fine to the Securities and Exchange Commission in order to settle charges of securities fraud that dated back to 2000. In April, McAfee acquired SiteAdvisor Inc. for $61 million in cash. A $4.8 million deal followed two months later, which resulted in the company acquiring the security risk management and security compliance reporting software firm Preventsys Inc.
A negative development occurred in 2006 when an internal investigation revealed the need to restate financial results due to improperly dated stock options, resulting in non-cash charges of $100 million to $150 million. The scandal led to the "retirement" of CEO George Samenuk and the termination of President Kevin Weiss in October. Following this setback, board member Charles Robel was named nonexecutive chairman. Board member Dale Fuller, who had previously served as the head of Borland Software, was named interim CEO.
At the same time that McAfee made significant leadership changes, the company continued to on the acquisition path. The data loss protection solutions firm Onigma Ltd. was acquired in October for $19.1 million, and McAfee ended the year by paying $60 million in cash for Citadel Security Software Inc. in December.
In early 2007, the firm Frost & Sullivan recognized McAfee with an award for its innovative efforts in the growing area of mobile security. New leadership was finally established in April of that year, when former EMC executive David DeWalt was named president and CEO. Growth continued in November when McAfee acquired enterprise security software vendor SafeBoot B.V. for $350 million in cash.
The acquisition of SafeBoot gave McAfee a leadership position in the data protection market, and was but one example of how much the company had grown since John McAfee posted a shareware antivirus utility on an electronic bulletin board almost 20 years before.
Principal Subsidiaries
CoreKT Security Systems Inc.; Entercept Security Technologies Europe Ltd.; Inversiones NAI Guatemala S.A.; McAfee A.G.; McAfee Consolidated Inc.; McAfee.com Limited; MyCIO.com Inc.; McAfee GmbH; McAfee (Hong Kong) Ltd.; McAfee Security LLC; McAfee Software de Mexico S.A. de C.V.; McAfee S.r.l.; NA NetTools Holding Co.; NAI International Holdings Corp.; Network Associates Holding Company Inc.; Preventsys Inc.; SA Internet Services Inc.; Wireless Security Corp.
Principal Competitors
CA Inc.; Microsoft Corporation; Symantec Corporation.
Further Reading
Angwin, Julia, "McAfee Sweeps Away Viruses. Software Maker Riding the Internet Boom," San Francisco Chronicle, August 14, 1997.
Daly, James, "McAfee to Go Public," Computerworld, September 28, 1992.
Howell, Donna, "McAfee Execs Latest Options Casualties; CEO Resigns; President Fired; Stock Options Backdating Scandals Continue to Spark Changes in Tech Landscape," Investor's Business Daily, October 12, 2006.
------, "Network Associates Goes Forward with Offer to Buy McAfee.Com. McAfee Says Offer Is Too Low. Network Associates Now Holds 75% of the Firm, but Wants to Own Whole Thing," Investor's Business Daily, March 26, 2002.
Kirby, Carrie, "McAfee.com Board OKs Sale of Firm," San Francisco Chronicle, August 24, 2002.
— Paul R. Greenland
