From RB
The article that PQ cited (available at investmentexecutive.com)
Jaws bites into e-security
Calgary company now taking aim at financial services sector BY George Koch
The number of e-mails coursing through North America is now measured in the trillions. So is the amount of money being exchanged over wires of one form or another. E-banking and phone banking are being pushed by margin-obsessed banks. The Achilles heel of all this, as well as its potential saviour, is electronic security.
In the thick of that emerging industry lies Jaws Technologies Inc. Calgary-based, publicly traded Jaws is in the midst of a technology- and acquisition-based expansion aimed at grabbing a slice of the information security pie, currently a $250-million-a-year industry worldwide that?s growing at about 55% annually and is projected to hit $4.2 billion by 2004.
Jaws provides information se-curity audits, consulting, planning and software. It has about 90 employees in Calgary and Toronto, and a market cap, just months after going public on NASDAQ?s over-the-counter market, of about $80 million. It?s now targeting the financial services industry.
Last month, Jaws purchased PACE Systems Group Inc., a Toronto-based consultancy whose clients include the Toronto Stock Exchange, Interac, Sun Life Trust and ING. The final price, consisting of Jaws stock, will be performance-based up to $4 million, says Kerk Hilton, Jaws? director of investor relations and communications.
Jaws? own claim to fame is rather impressive: the world?s most sophisticated commercially available encryption algorithm. Encryption centres on the number of possible combinations that must be tried to gain the "key" to an encrypted message, Hilton explains. That number is measured in bits. Each bit represents a power of two, so eight-bit encryption means two-to-the-eighth power, or 256 possible combinations. Until just months ago, 512-bit technology was considered unbreakable. This year, a group broke a 512-bit message in a matter of hours.
Jaws was founded after some Calgary-based high-tech researchers developed a mind-boggling 4,096-bit algorithm. They enlisted Robert Kubbernus, a local venture capitalist, to turn their formula into a marketable product and a functioning company. Kubbernus is now Jaws? chairman and CEO.
Last spring, Jaws announced it would pay $5 million to anyone who could decrypt one of its messages. No one, including U.S. intelligence services and Israel?s Mossad, could do it. "One day, it will be broken, but not now," says Hilton. "As computing power increases, algorithms will have to keep getting more complicated."
This year, Jaws launched its first two products: L5 Data Encryption, a program for computers, palmtops, networks and wireless; and XMail, encryption for e-mail. With one mouse click, XMail can encrypt a one-megabyte file in about a second.
XMail is currently available free on the Internet. "The view that e-mail is secure is starting to change. People are getting more concerned about privacy," Hilton says. Already, almost 600,000 users have grabbed it. Once that figure reaches the one-million mark, says Hilton, the company will start charging for the encryption key. The other half of the equation, the decryption software, will continue to be available for free as an inducement to gain market share.
Information security is about far more than software products, however, says Hilton. "We?re not merely an encryption products company, but a company offering a suite of goods and services for companies? information security needs," he says.
"That?s because a lot of security problems have to do with procedures and protocols." A hacker recently broke into some of the Ontario government?s most sensitive files, not through mathematical genius, but simply by repeatedly requesting the password over the phone until some government worker told him.
"A lot of so-called ?hacking? and info espionage is not done on the computer," says Hilton. "A lot of it is what we call ?social engineering? more than electronic hacking." To Jaws, issues such as whether people are allowed to place sticky notes with their passwords beneath their computer screens, or whether strangers can talk their way past the receptionist, or whether simple errors can result in information loss, are potentially as important security issues as encryption.
Jaws applied similar principles in a recent challenge by a reporter from The Calgary Herald. After securing the agreement of the reporter, the newspaper and its parent company, Jaws? hackers went to work. Using a mix of electronic and social hacking, it took only four hours to find out the reporter?s address, driver?s licence number, social insurance number, salary and benefits, and, worst of all, banking information, says Hilton. The bank, which managed to keep its name out of the reporter?s resulting story, quickly retained Jaws to work on its security, adding to the company?s roster of about 100 clients.
Hilton believes Jaws will find similar opportunities in Toronto?s financial services sector, one of several "business verticals" the company is targeting for growth. Newly acquired PACE will function as a business unit to focus on that industry.
Most players in the financial services sector "don?t even want to be perceived as thinking they might have a problem," says Hilton. For one thing, publicized break-ins spawn an avalanche of imitators. But more importantl of course, customers get the jitters.
Hilton sees two main areas of vulnerability. First, the growing area of telephone and electronic banking, investing and trading. In fact, anywhere a large institution deals with effectively anonymous clients is a "key area of concern," Hilton says.
A few companies have made security a priority, says Hilton. Jaws did an audit for a major Calgary company that showed it to be "impenetrable." But in many cases, the only security consists of the customer?s account number and password. Get that, and you?re in. "We believe 98% of the systems in the world can be infiltrated," says Hilton.
Small brokerages may be relatively invulnerable on that level ? since investment advisors know their clients personally, and would not take instructions from a stranger. But the second big area of vulnerability Jaws sees is in the intercorporate sector, when small brokerages, for example, exchange electronic information, including funds and securities, with their back-office subcontractors. In an age when many investors never see their actual shares, and have only a monthly statement as evidence they even have a portfolio, such companies are potentially vulnerable to theft or sabotage.
For that reason, Jaws is developing a related product called a "financial vault," in which institutions can store all kinds of information subject to hacking, theft or simple misadventures such as fires. That same principle could soon be made available to individuals, who could store investment information or documents such as property titles and even wills in electronic form.
L5 costs US$49.95 for the desktop version, plus US$19.95 to encrypt a Palm Pilot. The price for XMail is not set yet, but Hilton promises it "will be affordable." An average professional services audit for a small to medium-sized firm, which includes a recommended security program, costs between $7,500 and $20,000.
Like many companies that have anything to do with the Internet, Jaws is long on ideas, promise, people, products and market cap, but short on revenue ? although less so than many new economy players. For 1999, Hilton says the company is projecting revenue of about $450,000 and a loss of $2 million.
Next year, Hilton promises, revenue will shoot up to about $12 million and the company will earn as much as $1.5 million after tax. It also hopes to graduate to the senior NASDAQ market. Right now, Hilton says, a lot of companies? information technology people are obsessed with the Y2K issue. Next year, he believes, the big IT issue will be security.
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