Sunday, January 29, 2006

McAfee thinks out of the box

I have to applaud McAfee for thinking out of the box.

Prior to 2005, the major makers (Norton, McAfee, etc.) of virus protection software sold using the same model. People would buy the product with 1 year of subscription online or in stores for about $40.

Many of the store purchases would come with rebates for $20 if you are upgrading or switching from a competitor's product. If you consider the money that had to go to retailers, costs that go to those who did get the rebate, costs of printing books, disks, boxes, shipping to stores, etc., the company would likely take in less than $10.

They do have an online download option that would get around most of these costs to the manufacturer. They charged full cost for this. I think the buyer could get a rebate, but it sure wouldn't be as easy to do as through a retailer (who gives you specific receipts for this process). What it really did was make it very convenient for someone to renew a subscription, but many people I know didn't use this because they knew they could get a lower cost by buying a box from a store and getting the rebate.

This always confused me some as a business model for the anti-virus manufacturers, as they get less income selling through a channel that costs them more. In my mind, I thought they should be more competitive with the download option (unless, of course, they do get a high percentage of people who do pay the full price online - in this case the dual channel model makes sense).

Last year, McAfee changed the system by adding a channel. They partner with ISPs like AOL and provide the anti-virus software to all the ISP's users. This is a big change to the system from someone who thought outside of the box. There are many benefits to this that I can see:
  • they probably get something like $1 a month ($12 a year) per user for this, which compares favorably to their likely income from store sales.
  • product support is likely done by the ISP, so there is a cost savings to McAfee.
  • they also get money the entire time the user is signed up with the ISP (I often let my antivirus expire, as it still works but just doesn't have the newest virus definitions, and then renew it after up to a 6 months lapse - so instead of a net income of $10 for 12 months, it is for 18 months).
  • many of the ISP users, particularly AOL, are considered to be less computer literate, so a good portion likely did not have anti-virus software before. This means they have access to what could be a lot of new customers.
  • many of those ISP users who already had anti-virus were likely users of Norton or another competitor, so McAfee now is likely taking some business from them.

I applaud McAfee for this step. Seems like it could be very positive for them.

Disclaimer - I am just musing about something I see in the market, not something that affects me in any way personally. I am not connected to McAfee at all, and currently use Norton Anti-Virus.


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