by Tom Foremski for SiliconValleyWatcher.com

The New York Times announced a scoop late Monday evening, claiming Symantec will soon announce an agreement to acquire Veritas Software in a deal valued at more than $13bn.

I have to say that this one does not make any sense to me.

These companies are two of Silicon Valley's up and comers. IBM veteran John Thompson is a rock solid CEO at Symantec. He's built Symantec into a computer security powerhouse through disciplined focus on corporate and consumer markets, a steady diet of half-a-dozen small acquisitions per year, and excellent execution quarter to quarter. When I met with Mr Thompson last year (his office is filled with Tiger Woods memorabilia), he dismissed any notion of acquiring a large public company and he was confident that Symantec was too large to become an acquisition target for anybody else.

Symantec anti-virus software: Veritas take-over soon?

Veritas CEO Gary Bloom is also one of Silicon Valley's top managers. The former number two at Oracle, he took over data storage software leader Veritas during boom times only to run headlong into the lengthy and continuing IT spending drought. He's had to remake the company and stay ahead of a voracious pack of competitors including IBM, Sun, and of course, EMC.

The deal doesn't make sense because it will distract the two companies during a critical time in the industry, and a critical time for IT users.

Symantec is the leader in computer security software; but the battle isn't yet half won, and it is way behind in fighting a far more insidious threat: spyware, sometimes known as malware or adware.

Spyware is far more of a threat to computer systems than computer viruses. While the media was focusing its attentions on the rapid spread of fairly harmless computer viruses --spyware authors were able to create incredibly complex and insidious software programs that hide themselves deep within the confines of a PC and then phone home. They gather information and send it back out to someone.

Some of this spyware is in a murky legal zone, connected with accepted technologies such as cookies for tracking online users and advertising. And some of this spyware is so complex that computer experts say they don't know what it does.

Yes, there are many spyware cleanup applications but none of them can get ALL of the spyware. Plus, you have to know about the spyware in order to find and root it out of a PC. Computer viruses make themselves known because you can see the spikes from data traffic and many other tell-tale signs. Spyware doesn't send out such easy to find signals.

Spyware is already a serious problem and Symantec should be dealing with that issue, and may other computer security and spam issues rather than acquiring Veritas. As far as I know, Veritas has nothing to offer in that department. Veritas, with its storage systems software, shunts data around the enterprise, backing up data centers and storing data. There's lots of data and much more coming, as we've all heard for years. But the challenge facing Veritas is the battle for assembling the components to make an "operating system" for a very large IT data center. This would manage the shunting of data around the enterprise, to storage systems, to databases, etc. It would also shunt computing loads across systems, manage thermal cooling systems, and be able to create a single, virtual computer system from many thousands of servers, or a million virtual servers running 10m applications. It could shift resources to manage changing IT loads, install applications on the fly, and a thousand other things. Complex stuff, but Veritas is familiar with this type of complex stuff.

That's the long-term battle; but currently the battle lines for Veritas are much closer to home. It is in the form of EMC Software, the Silicon Valley based spearhead of a much revitalized EMC. I didn't think a hardware company could do it; but EMC has masterfully assembled an incredibly potent $1.5bn plus revenue software group, right under the very nose of Veritas.

It wasn't that long ago that EMC was trying to regain momentum and recover the generous margins it once enjoyed on storage hardware. This meant a big reorganization and focus on building up its software revenues. This was done mostly through acquisitions, some very savvy acquisitions.

Documentum for $1.7bn was the first of these strategic moves. I remember a dinner interview with Gary Bloom last year, where we were scratching our heads over where EMC was going with that acquisition. Gary was quite cheerful, convinced EMC would soon be bogged down in the quagmire of enterprise applications markets. It would be a big distraction for EMC, he said.

But it wasn't a distraction; and EMC's next acquisition, $1.3bn for Legato Systems (a smaller version of Veritas), was a logical move. The next acquisition was a brilliant move: VMware for $635m. VMware, run by Diane Greene, is a very impressive company with a very critical and important software component for the upcoming data center OS battles. It has the ability to create virtual application servers, which dramatically improves the efficiency of corporate IT systems. (VMware is not part of EMC Software group ---at least not yet.)

I bet Diane Greene is kicking herself that she didn't wait and push for an IPO. VMware sold out in the very same month that RightNow Technologies considered scrapping its IPO in order to accept a generous all stock offer from Siebel (see Silicon Valley Watcher story, Was Siebel the mystery bidder for RightNow Technologies, one of the hottest IPOs of 2004?

The VMware IPO would have done as well as the Salesforce or RightNow Technologies IPOs, which have returned large fortunes to their staff and investors. At least VMware took cash money, not stock.

Interestingly, VMware was self-funded and under no pressure from VCs for a liquidity event. I remember Diane telling me in the summer of 2003: "The main reason we would seek an IPO is that it helps to provide us with validity amongst our corporate customers by becoming a public company." Being acquired by a large IT vendor provides that customer validity too ---but not the rapid growth in share value that an IPO provides.

Getting back to Symantec and Veritas, these two companies risk falling behind in their core markets, or at the very least, leaving customers high and dry while they figure out the acquisition.

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