Editor’s note: ‘Atlanta Beat’ is a regular feature on Fridays. The two-page spread in a major business publication reflects the aggressive image of Internet Security Systems is these days of heightened concern about network security and terrorism.

A man dressed in sports jacket warns: “My goal is to get you back for firing me. My goal is to exploit your overtaxed IT department. My goal is to take you down.”

On the facing page is the proverbial hacker: young man, sloppily dressed with uncombed hair. Says he: “Today my worm will destroy: 18 days of revenue. 1.7 million dollars of profit. 4,000 lifetimes of greed.”

It is in this kind of threatening IT place that ISS is carving its niche.

Bouncing back

Like much of the stock market, the stock of ISS took a nosedive after Sept. 11. The terrorist attacks on New York and northern Virginia prompted many companies to rethink spending dollars, and technology companies were among those expected to be hit the hardest.

But ISS, given the firm’s focus on security and increased concern about terrorism and hacking, was among the quickest to rebound, its stock climbing from a low of just under $9 to more than $20 by late October. The stock has since held at least that value, trading between $20 and $40.

ISS (Nasdaq: ISSX) has a market capitalization north of $943 million and saw a 15 percent rise in income to $223.6 million for 2001. And its first quarter earnings of $58 million were a one percent increase over the final quarter of 2001. Revenues were down five percent from the same period a year earlier.

Still, the numbers aren’t bad for a company started by a college student. Christopher Klaus started ISS in 1994, before Internet e-mail was function of daily life and words like firewall had entered the vernacular.

Inspired by ‘Neuromancer’

Klaus was inspired as a high school freshman by reading Neuromancer, a story by William Gibson about thieves who break into cyberspace to steal data. In 1990, as one of 50 high school students to win internships at California’s Lawrence Livermore National Laboratories, Klaus developed hacker counterattack software. His idea was to identify the vulnerabilities in a computer network, then stage a test break-in. Then he would tell the victim how to plug the holes.

Klaus dropped out of Georgia Tech in his junior year after writing 50,000 lines of code for a software package called Internet Scanner, which scanned a computer system for holes in its defense. Six months later, in 1994, he incorporated his business.

Today the company does provides a more complex version of the same service — stopping hackers and would-be thieves by researching computer vulnerabilities and threats and offering solutions for an ever-changing range of threats. ISS does this for more than 9,000 customers, including major banks and government entities.

The company has since grown to employ 1,205 people, as of Dec. 31, with offices in Sweden, Italy, Belgium, England, France, Germany, Japan and Latin America. ISS monitors computer systems and networks from operations centers in the United States, Japan, South America, and Europe and its Global Threat Operations Center in Atlanta.

Last fall, ISS founder Klaus recently spoke before a U.S. House subcommittee on the issue of cyber security in light of the terrorist attacks. And the company’s X-Force, a specialized team of security experts, gives quarterly Internet Risk Impact Summary Reports, which contain data and trend analysis from more than 350 network and server-based intrusion detection sensors on four continents.

The most recent report found that hybrid threats still pose the most significant online risk. In the first quarter, ISS monitored 7.7 million such related attacks. Hybrid threats include the kind of viruses used in last year’s Nimda, Code Red, and Code Blue attacks.

Beefing up marketing exposure

To combat the increased complexity of Internet-based attacks on corporate networks, ISS is preparing its first major marketing push. The first round of the television spots and print ads appear in June, the second follows in the fall, said Tim McCormick, ISS vice president of marketing.

ISS has marketed to its core audience before — security and network administrators. But the new push is an attempt to raise awareness with senior executives and branch information technology managers.

“Our company has grown up in security-sophisticated markets – banking, insurance, financial services, government, military – where security is pretty top of mind,” McCormick said. “As the market continues to mature, the decisions are being made more and more by senior executives and branch IT managers.”
McCormick said the company’s research shows that when most people in the broader market think of Internet security, they think of anti-virus software and firewalls.
“And we produce neither,” he said. “And we know better. Anti-virus software and firewalls are not enough. We’re trying to get our name out there and also educated people that you need more than anti-virus software and firewalls. You need to educate the market about the constantly changing threat.”
To help make the push, ISS doubled last year’s marketing budget to some 8 percent of revenue, projected to be between $260 million and $270 million, which would be more than $21 million. The new ad campaign is the largest item on this year’s marketing budget, McCormick said.

Mixed views

Analysts are mixed about the outlook for ISS market this year.

“It is tough to find a peer company that has executed as well as ISS,” Sean Jackson, an analyst with Avondale Partners, LLC, wrote in a January research note. Jackson has a long term rating of “buy.”

Other have been less optimistic about the company’s share price.

Kaufman Brothers initiated coverage earlier this month with a hold rating, noting that a survey of value added resellers suggests there might be channel problems.

Two recent new senior management hires should address those concerns. ISS announced this week the hiring of Steve Cooker, as vice president and general manager of public sector operations; and Steve Laubenstein as vice president of channels and small-to-medium businesses.

Cooker will lead ISS’s public sector efforts at the state, local and federal level. He held a similar position at Nortel Networks. Laubenstein held a similar position with Symantec
SunTrust Robinson Humphrey’s Chris Hovis likes the moves. In an April 10 research note, he wrote that the new hires “should help with ISS’s efforts in two key market segments, government and small-to-medium businesses, which are projected or strong growth.”

ISS web site: www.iss.net