By NICK WINGFIELD
THE WALL STREET JOURNAL INTERACTIVE EDITION
SAN FRANCISCO -- In the highly competitive Internet services sector,
VeriSign is a rarity: It's been virtually unchallenged by serious competitors
even though it occupies a hot niche, the market for issuing digital certificates, a
form of electronic identification card, to Web sites. Now that's changing.
On Wednesday, Entrust Technologies said it too
will begin selling digital certificates for Web sites
through a new service called Entrust.net, a move
analysts said represents the most serious
challenge yet to VeriSign's dominance, estimated
by some at 90% of the market.
Digital certificates are an invisible but vital
element of electronic commerce. Internet
retailers, financial institutions and other Web
businesses use them before setting up a secure communications link with a
user's Web browser for, say, a credit-card transaction. Digital certificates, in
effect, let Web proprietors flash their credentials to browsers so that
customers know they're sending sensitive data to the correct site.
Entrust, Plano, Texas, has steered clear of the market in the past, instead
focusing on what company executives said was a more lucrative business --
selling packaged software to corporations that allows them to issue their own
digital certificates. Entrust had another problem that prevented it from getting
into the Web market earlier: the leading browsers from Microsoft and
Netscape unit didn't contain a crucial bit of code, known as a root key, that
would let browsers communicate with Entrust digital certificates on Web sites.
Entrust said it has remedied the problem through an agreement to use the root
keys of Thawte, a firm whose code are already contained in browsers.
Although analysts believe Entrust's strength in the corporate digital certificate
market will help it court customers among Web businesses, they said the
market is growing fast enough to support at least two large players. "This is
not zero sum game where one will win and one will lose," said Matthew
Barzowskas, an analyst at First Albany Corp.
The new business may be an effort by Entrust to court Wall Street itself, not
just customers. With a first-quarter profit of $334,000 on $16.8 million in
revenue, Entrust is valued by the stock market at $940 million. VeriSign, in
contrast, lost $2 million on revenue of $15.6 million in the same period, yet it
has a market value nearly three times that of Entrust. That may partly be a
reflection of the fact that VeriSign's business is growing more quickly than
Entrust's, but some analysts said the company has done a better job of
spinning itself as an Internet company to investors.
"VeriSign is seen as being on the right side of the Web server and beyond, the
sort of sexy part of the business," said Gibbs Moody, an analyst at Warburg
Dillon Read. "Therefore VeriSign has gotten an Internet valuation."
But it's not just spin that's responsible for VeriSign's identification with the
Internet. The company, Mountain View, Calif., operates what is effectively an
online service for selling digital certificates to businesses, a model that puts it in
a camp with other service-oriented businesses that sell subscriptions to their
products. That approach also allows other companies to "outsource" the
issuing of digital certificates to VeriSign so they don't have to deal with hassles
of running complex software. Entrust, on the other hand, has traditionally sold
software to companies that want to issue digital certificates themselves, a less
fashionable business model, according to some analysts.
"The fact is that Entrust is using a shrink-wrapped model that is really a 70s
model," said Dawn Simon, an analyst at Brown Brothers Harriman.
On Wednesday, Ms. Simon raised her investment rating on VeriSign to a
near-term "buy" from "neutral." She said the change was prompted by a
recent decline in VeriSign's share price that made the stock attractive, as well
as indications by company executives at an investor meeting Tuesday that
VeriSign may soon add new services to its offerings.
With Entrust.net, though, the Nortel Networks spinoff hopes it too can
capture a share of the fast-growing service market. For starters, it plans to
undercut VeriSign on price: An Entrust digital certificate good for one year
will cost $299, compared with $349 for VeriSign. Entrust also went on the
offensive against VeriSign's products, saying that VeriSign root keys in older
versions of the Netscape browser will expire at the end of the year, an event
that will cause warning windows to pop up on a user's screen when they
attempt to exchange secure data with a Web site.
"People will think it's a problem with the Web site and not with their
browser," said Ian Curry, vice president of Entrust.net. "Merchants are
worried about losing business." Mr. Curry said the Thawte root keys Entrust
is using are good until the end of 2020.
VeriSign executives confirmed that root keys in versions 4.05 and lower of
Netscape Communicator will expire at the end of the year. Mahi Desilva, vice
president of engineering in VeriSign's Internet products group, estimated that
those versions account for less than 15% of Netscape's users and perhaps
6% of the overall browser market. Mr. Desilva said VeriSign would work to
encourage users to upgrade to newer versions of the browser that have
longer-lasting root keys in them. "We still have 6 months to get that down to
1%," said Mr. Desilva. |
