Software IPOs possible

Two of the world's leading anti-virus software companies, Avast Software and AVG, are giving away their product for free, a business model that may seem unprofitable but is nevertheless attracting investment and proving a success.

Both companies are based in the Czech Republic, and Avast announced Aug. 23 a $100 million investment from equity investment firm Summit Partners, which has had a track record of investing in IT software firms like McAfee and Postini. Avast is a unique pick for Summit in that it uses the "freemium" model, which pairs a free basic version of its anti-virus software with the option to upgrade to a paid model with additional features.

AVG is a close competitor to Avast, itself using the freemium model. In October 2009, private equity firm TA Associates bought a minority 25 percent stake in the company for $200 million. That investment is meant to fund global expansion and acquisitions. Since the investment, AVG acquired Walling Data, a North Carolina-based security software distribution company, in June, for an undisclosed sum, and announced Aug. 20 it had entered into a partnership with MokaFive, a desktop virtualization company.

In an Aug. 23 phone conference, Avast CEO Vince Steckler said the company would not go into details about what the $100 million will be used for specifically, but said the company is looking to open offices abroad. Avast does not intend to acquire companies or software but would rather develop technology in-house for a lower cost.

"It's always a trade-off. We have to look at what the cost is for us to develop it ourselves versus what an acquisition would cost," Steckler said. "We obviously get pitched all the time, and I expect today we'll get a number of pitches after from companies who think we have a lot of money to spend. But we'll be very selective about technology we couldn't reasonably develop ourselves."

Steckler stressed that additional offices will only be in support of the main headquarters in Prague, which will remain the largest office for the company. The Prague office employs a staff of 140, half of whom work in the research and development department. The Czech Republic remains a market with "cost-competitive" professionals, he added.

"We are a Czech company," Steckler told The Prague Post. "There are certainly many other countries that also possess high-quality technology staff - China, Russia, Poland, the Baltics and India. Most of these countries also have much larger populations, and thus may have a larger base of talented staff. But while other companies may have moved staff to these countries, we are not planning on doing so."

The two freemium Czech companies are neck-and-neck, depending on what numbers you look at. As of Aug. 23, Avast said the free version of its anti-virus software had more than 100 million registered users. AVG boasts an overall a user base of 110 million, according to its website.

Both are private companies, but may not be for long. AVG has stated on the record that the company has an eye on an initial public offering (IPO), and Steckler hinted at the possibility of one during the Aug. 23 phone conference.

"Beyond the monetary side [of the Summit investment], what's actually most important for us is being able to look at where we want to be two, three, four years from now and whether we want to be public," he said.

In July 2009, AVG announced it was looking for a new CEO with experience in taking a company public, but it has yet to make a hire.

"We are looking for an additional executive leader with public company experience and a proven record in taking a company of our size through the next phases of growth," Dale Fuller, chairman of the AVG board, said in a statement issued July 2009.

But J.R. Smith continues in his role as CEO at AVG, and would only tell The Prague Post that "AVG and its board consider all options available to the company," in regard to the possibility of an IPO. The company remains committed to the freemium model, he added, an assertion Steckler also made Aug. 23.

"We believe the freemium model is the next-generation business model in the security space," Smith said, "and one we not only follow, but pioneered before Avast did."

Claire Compton can be reached at
ccompton@praguepost.com