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Sunday, April 10, 2011

Startup Skills: Why did McAfee buy Singapore’s Tencube?

Here’s the next installment of my series looking at startup acquisitions. You may have read my post about being acquired by a Valley giant, or my analysis of the Maktoob-Yahoo deal, previously.

Today, I’m looking at Tencube, makers of the mobile phone security product WaveSecure, which was acquired by McAfee* in July 2009. This deal is also relatively simple to understand, although understanding it is easier if you understand a bit about the computer security market.

Cybercrime or viruses/spyware/hackers target volume platforms to get the best return on their efforts – this is why most viruses today target Windows as it has the highest OS volume share. Mobile phones use different OS with different kernels and software, and as such have different vulnerabilities than PCs; and therefore require different, custom security products as compared to PCs.

Historically, the mobile OS market was relatively fragmented with few transactions and so they received little attention from virus writers. Android and iOS has changed this as there are now fewer platforms and Android is predicted to have the largest unit share globally. As an open platform with multiple vendors customizing it, is also likely to have more vulnerabilities and given that mobile commerce appears to have finally arrived, through apps, malware writers now have an incentive to write viruses. It is an environment where each of the major vendors needs an Android product.

McAfee may not have had a product in development or decided to get a jump on the competition and buy an established product with existing distribution, customers and a proven technology that they could plug into their global sales force. It is most likely a combination of the two factors, but let’s analyze the transaction using the framework:

  1. Core business: Both Tencube and McAfee are in the business of developing and selling end point (PCs, phones, other devices) security software to consumers. McAfee understands the product issues, security threats and consumers and their needs. The business processes and functions are similar, however as WaveSecure is sold through an app stores and is for mobile, the product, marketing and sales solution are different.
  2. Market gap: The gap here is a little different and it goes back to the essence of the weakness of large valley companies, it is hard to innovate when you are so big. But, you still need new products to grow sales and meet new market needs. For McAfee the gap was likely a strong mobile security offering.  Tencube, on the other hand, had a good product (I assume) and was early to market but lacked the distribution relationships and marketing budgets to really grow sales, which McAfee had.
  3. Post-acquisition ease of integration: From the outside this would also appear to be relatively straightforward. McAfee likely did not have a large mobile product, engineering or marketing team and simply plugged Tencube into their organization to fill that gap. Tencube likely had a small sales and marketing team which could be easily absorbed by McAfee. The product technology would need to remain separate, with technical integration likely to focus on reporting, data/status exchange and potentially licensing APIs between the desktop and mobile phone products (to allow your desktop license to provide you with a free mobile phone security product).
  4. Good code and minimal skeletons: Given that this is a security product in what is an engineering driven industry – and the brand damage that could be done through a poor product, a proper code review would have been done and assumedly passed. Likewise for skeletons.

My next post will look at the deals that you don’t hear about – the ones that fell through. Why do they fail?

Also see Startup Skills: Analyzing a Yahoo acquisition and 5 steps for Southeast Asian startups to get aYahoo acquisition

* Disclaimer: Although I worked at Yahoo! when Yahoo! acquired Maktoob, I was not involved on the acquisition or integration team and do not have any inside information; my assessment is purely based on what I know from public resources. Likewise, for Wavesecure the acquisition sponsor at McAfee was my boss at Symantec, but I do not have any inside information on the acquisition, only public information

Patrick Williamson currently works as an independent consultant in the consumer Internet and in his spare time he advises startups. Previously he had built many partnerships working in business development at Yahoo! Southeast Asia in Singapore and as a global product manager for the Symantec consumer business unit in California. You can find additional information on this subject at more at his blog at his blog at PatrickSEA.com.


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