Hey guys,
Stop counting your money and take a look at this report... :)
eoffering.com
(contents below, long) This report sounds very positive for CUST, on the strength of David Cook's reputation and came from an analyst with an impressive-sounding credentials. Anybody familiar with Mr. Gary Craft ? He makes a lot of wild assertions, comparing CUST to the like of Yahoo, and Coke, while take no notice of CUST's competitors.
I'm thinking I should be covering my shorts now simply by the fact that in this down market, CUST is still pretty resilient, on a upturn in a couple of weeks, it'd probable head north again, give me more chance to short it again. What do you guys think ?
cheers,
tt
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"August 2, 1999 (CUST $39)
Update: CustomTracks May Be the Voice Internet
Security Needs
CUSTOMTRACKS CORP.
Gary R. Craft, CFA research@eoffering.com
The Internet security industry may need to use subliminal advertising of the sort that made Coca-Cola so successful—repeat the same message over and over again in every way (overt and covert) possible and keep the message to five words or less. Otherwise, the complicated world of
encryption and authentication will lay buried like the books developing cobwebs in our basements.
The problem, as we see it, is that security folks with an axe to grind (instead of marketing or business people) are the ones telling the message, at least until now. “Security is needed and we have the best security in the world!” Who could argue with this message? Of course, no one understands it, barring the cryptography experts who live and breathe this stuff. As an example, one of the most important Internet concepts was dreamed up by a bunch of techies who laid out an elegant blueprint that would maintain security over our financial system, or
payments. The problem was that these techies forgot to ask the business and marketing people if the idea would work. Can we get paid in a way to justify the concept? Can we control the destiny
of this monster? Are there few enough players involved to make a concerted push? So Secure Electronic Transactions, or SET, never did work. But the basic concept can be implemented through the system of CustomTracks.
When we first met David Cook of CustomTracks, we thought we had met another techie. He certainly does understand not only the rudiments of Internet security, but also probably most of the advanced techniques. (Given his background in founding and building Blockbuster Entertainment as well as Amtech, the electronic toll-tagging company, he is more of a builder than cryptographist.) But spend a little more time with him, and it's easy to see how his business sense has guided him down a path that no other Internet security player has gone—integrating security into a marketing and business strategy that appears to be working.
There are two key points to CustomTracks' strategy that help it stand above the crowd. First, it is nearly giving away what others charge handsomely for, namely, those keys and digital signatures
that are either outpriced by other vendors or simply not available because of the cost. (The keys and signatures help keep everything safe from eavesdroppers and also ensure they came from you.)
Second, it can spit these keys and signatures out quicker than anyone else can. In its public disclosures, CustomTracks stated it can store and distribute public keys for the entire planet. They apparently can be created within sixty seconds. In our view, this appears to be much like the equivalent of a mass bottling plant—built for the masses.
The stated pricing model is $1 per month for your digital signature, which is formed from your privately assigned key that attaches to Internet transactions/communications, stating you are who you are. To P.T. Barnum, this pricing strategy would appear as peanuts although he certainly could see where low pricing could get you— namely, lots of registered users, digital signatures, and Internet consumers whose identity can be certified.
In CustomTrack's public disclosure of its ZixCharge service, it talks about closed loops, making the consumer anonymous to the Internet merchant, reformatting messages at its own server for transmission to payments processors, giving the service away for free to Internet consumers and most importantly, working with card issuers
who can provide both an address (email) and identification (you are who you say you are and can talk about where you shop, your Mom's maiden name, and so forth) in conjunction with card issuers. This sounds to us like SET resurrected, brought to us by the same guy who created Blockbuster Entertainment.
Moreover, we see this as a business strategy built around technology with loss leadership elements to it. As a result, it may not be adding any extra charges to the already egregious cost structure of transacting over the Internet (this part of the strategy is called ZixMall). If a service provider can bring you customers who are authenticated and identified and it doesn't cost you anything, the question really should be: What's the catch? Well, there really isn't
one.
Again, technology in and of itself is great, but making money from it is the real issue. By getting card issuers involved, CustomTracks could have a great deal to offer Internet merchants—authenticated consumers with credit, debit, and checking account information, i.e., consumers with money to burn. It seems to us that the security is a
platform, and the service could become a reverse portal on a scale of Yahoo! (YHOO – BUY) or certainly some specialized portal, i.e., I bring the customers to you Mr. Merchant, using the digital signature and identification of the consumer as my leverage. Wow!—that's powerful! In most Internet models, you pay the portal that brings you
a customer, or provides some of the upside to the physical world landlord whose facility helps you make money. This is what its ZixMall concept appears to be—a portal that generates leads. There are few things about its technology that appear to be competitive advantages—but then again, we are Coke drinkers and care little about the ingredients, we only know it tastes pretty darn good.
Easy access to all those keys and signatures that keep things safe and secure on the Internet
Certified time stamps that accompany these verifications of identity—this could be very important for future applications
Relays that can deal with any email system to allow inter-operability across any e-mail system
Fast speed (Instantly accessible digital signatures)
Extreme security capabilities that the U.S. Department of Commerce has approved
This company has undergone a significant transformation over the past six to twelve months. It would be premature for us to talk about the relative merits of its shares for investment purposes. However, based on the relatively few disclosures about its platform, David Cook's successful track record, and the current void in the marketplace for a SET-type payment configuration, we think the security industry should be mindful of its loss leadership pricing. Let's not forget that Yahoo!'s entire valuation is built around a similar notion of leads
(authenticated consumers) seeking more information about your product (and probably prepared to buy and we have her payment data in hand). The consumer's identity will be kept from the merchant because again, this is a security platform, so maintaining anonymity and confidentiality are a lay-up to CustomTracks.
Just a few other considerations. Current Internet payment providers like CyberCash must be aware that CustomTracks could be a large customer lead referral source to their current flock of Internet merchants. We expect that CustomTracks will peacefully co-exist with current Internet payment providers. This may not be the case for
many portals that rely on lead referrals. CustomTracks will bring not only a lead, but also a party that can pay. It will virtually eliminate consumer fraud because of the identification and authentication that begins with physical world parties that really know their customers—consumer banks. It will also stand in while the payment authorization is occurring and can allow other payment options to be selected, thereby taking a serious bite out of Internet customer drop-off rates. Moreover, under the traditional SET model, the consumer's identity and payment information was protected from the merchant, with the aim of eliminating misuse of this information, either accidental or by design. Given the security nature of the platform, this is precisely what ZixCharge will do.
How valuable is a service that can protect customer information, serve them up to merchants, and help them not only get paid, but also actually ensure the absence of customer fraud? Well, Wall Street today does not know how to value such a franchise because none exists. Our suggestion to investors is—keep your eye on this one.
Gary R. Craft, CFA
Managing Director, Investment Research
E-FINANCIAL SERVICES
Gary is managing director of investment research specializing in the electronic financial services segment of electronic commerce. He joined E*OFFERING in April 1999. Prior to that he started BancBoston Robertson Stephens' electronic commerce research practice. Gary is a regular speaker at BAI, IQPC, American Banker and American Bankers Association, as well as at financial technology user conferences. He is also a consultant to the American Wholesale Financial Services Advisory Group. Gary has nearly 10 years of experience in investment
research, and holds graduate degrees in economics from Trinity College and in business from the University of California, Berkeley."
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