On Monday, Network Associates sold its Pretty Good Privacy (PGP) encryption products to PGP Corp., a newly formed company.
The deal gives the new company a line of encryption products based on the PGP algorithm, including PGPmail, PGPfile, PGPwireless, PGPkeyserver, for the Windows and Macintosh operating systems. Network Associates will retain some products developed using the PGPsdk encryption software development kit, including McAfee E-Business Server and McAfee Desktop Firewall and VPN Client.
The financial terms of the agreement were not disclosed.
PGP Corp., formed in June, said Monday it has raised $14 million in funding from venture capital firms Doll Capital Management and Venrock Associates. The company said that funding would allow it to acquire and upgrade the product line and develop new technology "focused on improving PGP's ease of use."
The company said it has sufficient reserves to reach operating profitability without additional funding.
That forecast may prove overly optimistic, however. Although millions of consumers use the technology for encrypting e-mails, Network Associates found PGP products a tough sell because of an enduring perspective of it as freeware. Even after the company stopped offering it at no cost, the software spread across the Net at free download sites.
Network Associates started selling PGP products to corporations in 1997, but commercial demand was weak as companies worried that the added complexity would make the information they e-mailed inaccessible to some recipients. In March, Network Associatesmarketing PGP.
"You are faced with the situation where usability is traded off against security--the more usable something is, the less secure it is. That cuts to the core of why we acquired the assets," said Phil Dunkelberger, PGP's chief executive. "We talked to many senior people at large corporations who all said they would use the product if we could make it easier to use. So we're focusing on making a much easier-to-use product."
PGP Corp. hopes that a new line of products it announced on Monday might improve the demand. The company announced new products that will ship in November 2002, making it fully compatible with operating systems such as Windows XP and Mac OS X.
PGP 8.0 for Windows gains full Windows XP support as well as a server-side Lotus Notes plug-in. The new Mac version, the company said, has Mac OS X support and allows compatibility with PGP disks created on Windows.
"We are going to take our knowledge of both client and server-side software and in the future build on that to create a much easier-to-use secure messaging architecture. That's the business plan we took to the venture community," said Dunkelberger.
The technology's shift from Network Associates seems to be a step in the right direction, analysts said.
"They have a better chance of adding enterprise functionality than Network Associates had," said Ray Wagner, director of information security strategies at research firm Gartner. "PGP appears to be (PGP Corp.'s) only focus, whereas Network Associates acquired PGP mostly to use the base product in their server offerings."
There are increasing signs of a burgeoning market for e-mail encryption products. Analysts point to companies like ArticSoft which have sprung up in the past year.
"I don't think there is anything coming down the track that is going to push PGP out of the limelight as far as becoming obsolete," said Wagner. "It's certainly got a several-year window of opportunity."