Are we Beta or VHS.
Aladdin Knowledge's Wishes All Deal With 'Token' Sales
BY DONNA HOWELL
INVESTOR'S BUSINESS DAILY
Who called open season on "open sesame?"
Since the 1980s, Aladdin Knowledge Systems (ALDN) and founder Yanki Margalit have worked primarily on one thing: how to lock and unlock access to things on computers.
The need for such wares has only lately shown a lot of gusto in the marketplace. Aladdin's shares have outperformed 98% of stocks over the last 52 weeks.
The sheer number of user accounts and intricacies of access control have spurred a $2.4 billion market for "identity management" products and services, researcher Yankee Group said Monday.
That's one of Aladdin's fields, along with other niches such as secure software licensing and content protection.
A deal extended this month with services provider VeriSign (VRSN) gives Israel-based Aladdin wider reach for its security tokens. These gizmos plug into a PC's USB port (and some display a one-time pass code) to help identify users in an age when passwords alone are passé, Margalit told IBD in a recent interview.
IBD: What's the idea behind this deal?
Margalit: The Internet will never be safe unless we, somewhere in the future, look into the Internet with our own identity. If you receive an e-mail from somebody you don't know, it may not be safe. If you effect a common transaction over the Internet, you need to know who you do it with. Just a credit card is not enough.
The whole idea is that we need strong identities. A user name and password are not enough. We will have to authenticate our identity. The same way that we have keys to our car or keys to our home, we will need keys to use in cyberspace — keys to use the Internet, or our networks, Web sites, whatever.
VeriSign is basing its whole strong authentication service on our token. The combination of your token, your identity, your private key, your password — altogether it creates a strong identity. VeriSign is offering this as a service to large organizations, to the enterprise market, to ISPs.
IBD: How long have you been collaborating?
Margalit: We've been cooperating with VeriSign for the last two years. VeriSign was using our products internally, implementing our tokens in several projects. Several months ago, together, we went to several large organizations — Fortune 500 companies — and went through a very thorough beta testing. That phase ended just recently. VeriSign is OEM-ing our products (selling Aladdin's products with VeriSign's branding). We have started real deployment, real sales, with real organizations.
IBD: How do your tokens differ from those of your larger rival, RSA Security? (RSAS)
Margalit: The RSA token is a very simple token. It provides you with authentication only. With a one-time password like the RSA one, what you can do is just prove that you have a token in your hand. Our token can contain a smart chip. It can do authentication. But it can also do encryption, secure storage, credential storage, signature of documents, identity keeping. So it's not just authentication. The basic functionality is much, much more developed.
According to VeriSign, authentication should be done in a service model. You don't need to implement servers and software and interfaces. And you don't need to go through very long procedures of implementation and adaptation. You sign onto their global service and you get authentication. Yes, they're going to use our tokens, but you don't even buy tokens. You subscribe to an annual service and you get whatever you need.
IBD: How significant is the VeriSign partnership to Aladdin's earnings?
Margalit: From our point of view it's a very significant partnership. We highly believe in the VeriSign vision. They have also said that they expect a notable part of revenue in the future to come from strong authentication.
If you look five, six, 10 years ahead, my vision is that we will all hold strong identities. We will all hold keys when we come to use the Internet. And we are on the way to implementing that.
IBD: Who are the early adopters?
Margalit: We are selling eTokens to the enterprise market. We have banking customers, financial institutions — a lot of institutions or organizations that deal with remote access. Large enterprises are right now the early adopters.
The other marketing strategy for Aladdin is to grow OEM (original equipment manufacturer) customers (which use Aladdin products in the brands they sell). VeriSign's a great example. We are expecting more OEM relationships like that in the future. We already have dozens of small players, security players, other players, who have integrated eToken in their product offerings. So today you can buy VPN security, PC security, encryption products, based on eToken.
Another important partner for us right now is Cisco (Systems). (CSCO) Cisco has just said, and made public, the fact that they have integrated eToken functionality to their next generation of their routers.
IBD: What are your views about Aladdin's financial health and stock performance?
Margalit: We're doing much better. To look at one parameter, we are more than tripling our EPS (earnings per share) compared to last year. We are growing the business at close to 30% now year over year. We are profitable. We generate cash. We accelerated cash generation and profitability. All this is part of an improvement; you see the reaction with the share price.
Unfortunately, I would say Aladdin is a very volatile stock. So you see the share price going up and going down, and going up and down. Just several months ago we reached $28 a share price and now it's about $24 (more than 26). So volatility is definitely an issue with our share price.
In general I would suggest that we deal with those segments of IT (information technology) security that the market is very positive for. Strong authentication, content security, software security are areas in which we see higher growth than the average.
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