Cybermedia, Inc.

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Cybermedia, Inc.

Suite 2001
3000 Ocean Park Boulevard
Santa Monica, California 90405
U.S.A.
(310) 664-5000
Fax: (310) 664-4720
(800) 721-7824
Web site: http://www.cybermedia.com

Public Company
Incorporated: 1996
Employees: 285
Sales: $78.6 million (1997)
Stock Exchanges: NASDAQ
Ticker Symbol: CYBR
SICs: 7372 Prepackaged Software

Cybermedia, Inc. is a developer of computer software products that work with each other to automatically diagnose, fix, update, clean and protect personal computers from a wide array of potential problems. Using Cybermedia’s ActiveHelp technology—a large database of problem-solving information—the programs access solutions through the internet with solutions and/or updates automatically delivered to the computer. Cybermedia’s products are distributed through more than 10,000 retail stores in the United States, as well as internationally in Canada, Australia, and most of Western Europe. The products are also available on the internet at the company’s web site.

Cybermedia’s Beginnings: The Early 1990s

The idea for Cybermedia was developed in 1991 by a multicultural group of software engineers. The founders, Unni Warner and Srikanth Chari from India, Anne Lam and Jonathan Tran from Vietnam, Chi Chi Chang from Taiwan, and Art Puryear from the United States, joined together to produce software that worked to provide support and service for users of the Microsoft Windows operating system. The six founders all met through connections at computer companies in California. Lam and Warrier first met at a company called Systems Development Corp. From there, they went on to start their own company, NetLabs, which is where they were introduced to the four other eventual founders of Cybermedia.

The funding for Cybermedia’s start-up costs came from the six founders themselves. Initially, they scraped together just enough money to get by, but soon found outside sources that helped get the company off the ground. For their first influx of outside funds, they took advantage of a United States foreign aid program which financed Indian companies in joint venture with U.S. companies. Partnered with Cybermedia, an Indian firm received a $318,000 grant from the U.S. government, and then invested those funds in Cybermedia. That money helped the founders work on the development of the company’s first product and was added to in 1993, when the group received another $250,000 from a few venture capitalists. The company was further bolstered by the additional help of Unni Warrier’s countryman Suhas Patil, a founder of Cirrus Logic, and of Kanwal Rekhi of Novell, both of whom helped give Cybermedia its first big break.

In 1993, the team spent $40,000 for a booth at Comdex, a big computer industry expo in Las Vegas. At the expo, the founders gave away dozens of free copies of their product, which at that time was named Win Win. Many of the free copies were sent back to Cybermedia after the expo because people did not like the way that the program functioned, but the concept was a hit and the founders went back to the drawing boards to redesign and fix the program.

In 1994, the company re-released the program as “First Aid.” The company shipped 300,000 copies of First Aid that year as the program gradually began to develop sales. While this was happening, Cybermedia began working on a new version of the program to be used with Microsoft’s new “Windows 95.”

Mid-1990s Expansion: New Products and New Status

With the success of First Aid spreading and the release of Windows 95 on the horizon, Cybermedia went to work to develop not only a new version of First Aid, but also a new product called Oil Change. While First Aid helped to detect and resolve software and configuration errors, the purpose of Oil Change was to automatically detect and download updates of Cybermedia’s programs over the internet. With the rapidly changing environment in the computer industry and the number of software conflicts that were caused by Windows 95, the two programs quickly became valuable resource for personal computer owners. Cybermedia’s role became to clean up the problems that were caused by all of the new software that was being released. And clean up they did. First Aid sold 1.5 million copies in its first year of release and accounted for 90 percent of Cybermedia’s revenues during that time period.

Buoyed by the success of its First Aid products and the emergence of Oil Change, Cybermedia entered the public arena with an initial public offering of 2,500,000 shares of Common Stock in October of 1996. As the leading producer of software providing automatic service and support to owners of personal computers, Cybermedia fed off of the energy of the IPO to release a new version of First Aid. First Aid 97 for Windows 95 was released in November 1996. The new version worked with Windows 95 and was designed for the scheduled, but never released, Windows 97. Some changes that went into the new version ranged from more customer friendly toolbars and functions to other added capabilities. With the new version, the software not only resolved problems when they occurred, it was also able to help prevent them from ever becoming a problem in the first place. Customers loved this preventative, rather than reactive, approach to personal computer management, and the product was a big hit.

Cybermedia also introduced the Tech Support Yellow Pages in June of 1996. The Yellow Pages consisted of a 300-page book and a CD-ROM, both containing listings for over 2,000 technical support resources. It included the phone numbers and web addresses for manufacturers of a wide variety of computer software, devices, and systems, as well as tips on troubleshooting and a glossary of computer terms. Now, if Cybermedia software could not fix your problem, they offered help finding someone who could.

With the IPO complete and the release of First Aid 97 under its belt, Cybermedia posted third quarter revenue growth of 734 percent over the third quarter of 1995. Cybermedia’s products comprised 11.2 percent of the top 25 business titles sold in 1996, with the company’s three software titles all ranking in the top fifteen business software titles. Not satisfied with their position, despite all of the success, the founders continued to work on updating the current products and on developing new software.

Continued Growth in 1997

As a major factor in the business software industry, Cybermedia began looking for ways to improve its already award-winning product line. First the company released its first improved version of Oil Change in mid-1997. By increasing its knowledge base, allowing for the scheduling of automatic updates, and gaining technology to notify users when updates were available, Oil Change became even more of a valuable resource for personal computer owners. Cybermedia also continued to add partners to its Oil Change product. Companies like Broderbund Software and Hewlett-Packard signed agreements with Cybermedia to use the Oil Change program as a way for their own customers to get updates easier and more effectively.

Another development for Cybermedia was a partnership with ServiceWare, Inc., a leading provider of knowledge management products for customer support and help desk operations. This helped build Cybermedia’s problem-solving knowledge base, which in turn made its products, when combined with Cybermedia’s already existing ActiveHelp technology, even more effective.

To further help users of personal computers, Cybermedia soon developed Guard Dog, a software product designed to provide personal internet security. Initially named “Cyberwall” during its development, the Guard Dog program blocked harmful viruses and internet programs from damaging the users’ hard drives by monitoring the users’ systems and automatically removing harmful properties from downloaded files and e-mail attachments. Using technology the company received through the acquisition of Walk Softly, Inc., a leading internet privacy and security company, the program was also designed to defend against ActiveX and Java intruders from the web.

Also in 1997, Cybermedia acquired the worldwide distribution rights to Microhelp Uninstaller from Luckman Interactive. Safely and easily removing applications from personal computers to avoid costly system problems, the program fit very nicely into Cybermedia’s line of fix-it products. The company repackaged and renamed the program as Cybermedia Uninstaller and released it into its own product line in mid-1997.

While the company was working on improving their offerings for PC owners, they also began a major project to design products for the networked business environment. While crashes and delays could cause problems for an individual user, they could mean disaster for a business connected to a company network. To help with this, Cybermedia released CSS Repair Station for Workgroups, the first product of the new Cybermedia Support Services (CSS) line.

Cybermedia ended 1997 as strong as ever. Revenues for the year increased 104 percent to $78.6 million in 1997. With the release of First Aid 98 and Guard Dog, the start of CSS, and the combined success of older versions of First Aid and Oil Change, Cybermedia remained strong heading into the new year.

Company Perspectives:

Cybermedia ’s mission is to help computer users, anytime, anywhere with a complete set of products and services that provide the highest quality of immediate help to computer users at home and work, all over the world.

The Future of Cybermedia

The company had continued to prosper since the release of its first version of First Aid back in 1994, but things started to change at Cybermedia in the start of 1998. As Cybermedia continued to roll out new and improved products, such as Repair Engine for Small Business, the second product of the CSS line, the company was going through a shift in management and structure. Revenues for the first quarter of 1998 were $4.7 million, down from $16.8 million during the same period the previous year. At the same time, the company issued a statement that fourth quarter 1997 revenues would have to be adjusted to show a $6-8 million increase in return reserves. This prompted several fraud lawsuits by investors claiming that Cybermedia had issued false statements of earnings.

In management changes, Jeffrey Beaumont resigned as chief financial officer and was replaced by Kanwal Rekhi, a Cybermedia director and investor in the early development of the company. One of the founders, President and Chief Executive Officer Unni Warrier, also resigned. Rekhi was named as a temporary replacement for Warrier before being hired as CEO in May, with James R. Tolonen becoming president and chief operating officer.

With a new management structure now in place, the focus turned to getting the company back to the top of its industry. The Cybermedia products remained solid, with First Aid 98 and Uninstaller winning PC Magazine’s Best Buy Awards. The company also announced partnerships with Gateway and Microsoft, helping to demonstrate the respect that the young company had earned in the computer software market.

The strength of Cybermedia in the marketplace was further increased with its merger agreement with Network Associates. With the completion of the merger in July 1998, Cybermedia became part of the McAfee Software Division of Network Associates. Combined with the help of Network Associates’ tremendous marketing and sales services, the products offered by Cybermedia would have greater access to the computer software marketplace. With strong leadership reestablished, its product line continuing to win awards, and improved marketing and sales capabilities, Cybermedia had the potential to continue growing as a subsidiary of Network Associates.