CASE ANALYSIS: KASPERSKY LAB: FROM RUSSIA WITH ANTI-VIRUS Marketing Management

Company Profile Kaspersky Lab (KL) is the largest antivirus company in Europe. It provides some of the world’s most immediate protection against IT security threats, including viruses, spyware, hackers, phishing, and spam. The Company is ranked among the world’s top four vendors of security solutions for endpoint users. KL products provide superior detection rates and one of the industry’s fastest outbreak response times for home users, large enterprises and the mobile computing environment. KL continues to further improve its market position, demonstrating significant growth in all regions. According to the company’s 2011 financial results, KL’s global revenue grew by 14% compared to the previous year and exceeded US $600 million. KL is an international group that operates in more than 100 countries worldwide. The company’s headquarters are located in Moscow, Russia, from which it oversees global operations and business development. KL currently (when?) employs over 2,400 highly qualified specialists. The company has its own territory offices in 29 countries and its products and technologies provide protection for over 300 million users worldwide.

Analysis of the Company growth The most profitable area for KL in 2010 has been the IT security software and the enterprise endpoint protection which continues to play a growing role in the achievement of strong performances. The fast growth in countries like Russia, China and USA make us think that the product-market strategy has been conducted very efficiency, selling directly to the Asian market and through OEM in USA. Also KL has explored successfully mobile security market becoming the first anti-virus company which detects a malicious program classified as Trojan-SMS for smartphones running on Google’s Android operating system, in 2005. KL is considered the world’s third largest anti-virus software company after its competitors McAfee and Symantec. The competition among the major players of this industry continues to be tough in spite of there is a big gap in annual sales between the second (McAfee) and KL. To maintain or improve its current market position, KL must identify growth opportunities and respond to the rapid changes in consumer behavior and technological developments of the industry. For instance, KL obtained 7.5% of endpoint security market share in 2010, 5.8% in 2009 and the 4.2% in 2008. In addition to global endpoint security market share growth, KL in 2010 also saw its revenue increased in 28% to $538 million and sales bookings of $604 million, up 19%. In 2011 KL revenue increased in 14% to $626 million. A key to growth for KL has been the companies increasing brand awareness and recognition. In 2010, Kaspersky global brand awareness grew to 58% in the consumer space and to 61% in the corporate world.

Another factor fueling KL and the vendor's partner growth in 2011 has been the recent investment from private investment firm General Atlantic, which bought enough Kaspersky shares to become the No. 2 shareholder behind CEO and founder Eugene Kaspersky. Business Portfolio We identify three Strategic Business Units (SBU’s) objectives to be achieved or improved in the upcoming years: (1) Grow and development of consumer products and services (2) Grow and development of corporate solutions (3) Grow and development of technology licensing to other vendors. These three objectives will be achieved by targeting different market segment. The major target market are consumers who are willing to pay extra for a high-quality security programs, those users interested in results instead of low price or loyalty to other brands. KL has also online presence with a webpage designed as e-business portal in order to promote and sell products and services. With the same purpose KL has established partnerships with other marketing companies. Besides being the world’s third largest anti-virus software company, the other long run aim was to become a public company (IPO plan), but recent interviews to CEO Eugene Kaspersky demonstrate that this idea has been discarded: “It is flexible. It is very, very innovative. I like it. I don't want to change”.

Internal Environment Competitive Advantages.- KL offers a number of distinctive benefits to consumers as well as competitive advantages over other related companies in the market, those being: • • • • • • • Its highly recognizable brand. Wide range of products and services that are provided to consumers. Geographical positioning specially in Russia and Europe. US market presence. OEM distribution channels ensuring ease access by consumers. Online presence, e-commerce strategy, e-business portal. Co-branding relationship with well-established brands and partnership with marketing companies. Financial stability flows to fund its own Research & Development projects. Private investment firm General Atlantic.

External Environment Technological Factors and Industry Environment.- In the past few years, the technological advances combined with the growth of IT security industry associated with the rapid rise in the cybercrime industry has promoted the development of business models based on open innovation and open sources. Technological innovations continue to change the speed, capabilities, functionalities and availability of products for end-users and market players of this industry. Hence, the barriers of entry into this industry is substantial, and the threat of new entrants for existing major players, like KL, are therefore low due to the

high investment and operating costs required. However, estimations and forecasting says that profits will go down, but not because of publicity, there are other factors: competition (many free, cheap anti-virus programs), Software Markets and web applications that limit installs of non-safe software, more secure OS'es and browsers. Malware and Viruses will not go away, but Antivirus market will change. Competitive Environment.- There are four main competitors within Anti-virus world market namely, Symantec, McAfee, Trend Micro and Kaspersky Lab. Symantec and McAfee are, by far, a dominant force: “an elephant to Kaspersky’s mouse”. Combined, they had a 30% share of the world’s software security market, down from 31% in 2009 and down again from the 32% of the market in 2008. KL’s market share went from just 2% in 2008 to 3.2% in 2010. KL’s share of the consumer software security market rose 7% since 2008. KL’s revenues rose to $537.9 million in 2010 compared with $391.6 million in 2009 and $274 million in 2008. By comparison, KL still looks tiny. Symantec’s 2010 revenues were $3.1 billion last year, but are relatively flat from 2009 and 2008 levels. McAfee had 2010 revenues of $1.85 billion, up from $1.59 billion in 2009 and $1.4 billion in 2008.

SWOT Analysis Strengths • • • • Multiple correlation across various products (consumer & corporate). Reputation. Dominance of anti-virus industry in Russia and Europe. 14% revenue growth in 2011 year. Anti-virus products efficient to detect new and unknown virus and threats, very high success rate in detecting threats, simple to use and with features for advanced user looking for intensive control and automatically protects system without monitoring by the user. 3.5% market share (please explain how this is a strength) Relatively high brand awareness. Alliances with well-established brands for co-branding and partnership for marketing. General Atlantic (GA) is the second largest shareholder.

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Weakness • • • Negative Country of Origen (COO) image, since it is a Russian company. (is this a threat?) Some anti-virus programs need updating on database regularly in order to have a complete security against new and latest viruses Failure in IPO plan. KL won’t become a public company in the short period of time.

Opportunities • • • Continued growth in US and Asian market. Recent strategic partnership with marketing companies and co-branding relationship with wellestablished brands. Service: education of users about threats of viruses, integration with internet service providers or software companies.

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Anti-virus market in constant growing.

Threats • • Competition (many free, cheap anti-virus programs), Software Markets and web applications that limit installs of non-safe software, more secure OS'es and browsers. Unknown threats which can be disguised as safe content, product development in current competitors in the market, newly emerging competition.

Action Plan and Potential Outcomes • Differentiation from competitors in the existing anti-virus market, by offering extra value-added products and services. For example, bundling KL products when consumers acquire supported products and/or services (continue with incentives such free trials, virus scans and virus removal tools). This plan will be implemented developing Progress Reports which will help to increase communication across the company and measure services and strategies performance. If the market does not respond positively to the new products and services, free trial product/service packages could be provided to selected customers to stimulate brand and product awareness, and ultimately increase sales demand through word-of-mouth promotion. This will also allow selected customers to experience the benefits of the product, without the costs and risks associated with an actual purchase.

The pro of this plan is that KL, as “small” company, can move faster than the big ones, therefore it can dedicate specific attention to its customers, implement these changes really quick and create other attractive offers. The negative side of this plan would be that competitors (big companies) can use their existing networking to do exactly the same, maybe not with the same quality, but in quantity. • Maintain current price policy, but increasing customers’ perception value of the products, offering additional value added services such as free trial subscription. Keep OEM distribution in certain markets, giving retailers attractive profit margins compare to KL’s competitors (distribution centers like Office Depot, Best Buy, Staples, CompUSA, etc.) and working with special promotions, discounts or sales. KL needs carefully monitor major competitor’s pricing and promotional activities and entry into the market, and prepare recommendations and potential adjustments to this action plan to ensure its market position and to maintain sales in the long-run. The cons for this plan would be the fact that the other two competitors are monsters compared with KL. They can invest large amounts of capital in the same policy and even be in the market and work temporarily without profit. KL might not have enough flexibility to affront an inevitably price war. Communicate News using Social Media channels like e-mails, Twitter, Facebook to existing and potential customers. This would be relatively low-cost advertised activity to constantly promote new products and services offered by KL, as well as establish stronger brand awareness of KL in the market segment. Information such as new market trends will also attract to the target consumers while making the KL brand seem more customer service oriented. The News should include special promotional offers for existing customers that are redeemable only on a visit and purchase from distribution centers (for example, coupon of $XX off next purchase), hence promoting customer traffic. It will also include incentive offers to promote customer loyalty, as well as reward customers for any recommendations and acquisition of KL products and services to a friend. The negative side of this plan is that competitors could copy the idea really fast and implement the same benefits to their customers.

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Recommendations • As part of marketing and promotional plan we propose to organize bi-monthly meetings of the KL Marketing Communications Department, using teleconferences, to talk, discuss, define and execute topics like internet construction, advertising, promotion and public relations activities in each different world target market. Constant updating, creativeness and innovation are the key factors in the execution of this plan. Nice. More details would help! As part of the differentiation plan we recommend to improve the Customer Service Department to handle consumer inquiries or complaints received via KL’s 1-800 customer service number, using KL technicians and not third parties companies. People in general like to talk with a real person, not with answer machines. Desk helpers need to be properly trained not just to solve the problem or request, but to treat kindly the callers and make them feel as the most important customer. As part of de Price plan we suggest to focus on giving better deals to better customers. The goal is to price relative to the value of the customer to the firm, while building loyalty and stimulating repeat buying. Also to use flexible pricing strategies, customers may pay different prices depending on the quantity they buy.

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References:

Kshetri, Nir (2011), “ Kaspersky Lab: from Russia with anti-virus” kaspersky.com (2011a), “Kaspersky Lab Teams Up with McCann London to Enhance its Branding Strategy” available at http://www.kaspersky.com/about/news/business/2012/Kaspersky_Lab_Teams_Up_with_McCann_Londo n_to_Enhance_its_Branding_Strategy kaspersky.com (2011b), About Kaspersky Lab, available at: http://me.kaspersky.com/en/about kaspersky.com (2011c), “Kaspersky Lab Targets Top Three Position in Global Endpoint Security Market in 2011” available at: http://www.kaspersky.com/about/news/business/2011/Kaspersky_Lab_Targets_Top_Three_Position_in_ Global_Endpoint_Security_Market_in_2011 kaspersky.com (2011), “Kaspersky Lab holds Technology Partner Session at RSA Conference 2008 in San Francisco” available at: http://www.kaspersky.com/news?id=207575635 crn.com (Feb 4, 2011), “Kaspersky Wants No. 3 Spot In Endpoint Security Market In 2011”, by Andrew R Hickey. Available at: http://www.crn.com/news/security/229201189/kaspersky-wants-no-3-spot-inendpoint-security-market-in-2011.htm;jsessionid=3BU76u51g0gMhqEnr224dg**.ecappj02 news.techworld.com (Feb 6, 2012), “Kaspersky Lab CEO backs out of IPO plans”, by John E Dunn. Available at: http://news.techworld.com/security/3335337/kaspersky-lab-ceo-backs-out-of-ipo-plans/ forbes.com (April 13, 2011), “Kaspersky's Market Share Rises as Symantec & McAfee's Falls”, by Kenneth Rapoza. Available at: http://www.forbes.com/sites/kenrapoza/2011/04/13/kasperskys-marketshare-rises-as-symantec-mcafees-falls/