VeriSign, Inc.

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VeriSign, Inc.

487 East Middlefield Road
Mountain View, California 94043
U.S.A.
Telephone: (650) 961-7500
Fax: (650) 961-7300
Web site: http://www.verisign.com

Public Company
Incorporated: 1995
Employees: 3,400
Sales: $983.6 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: VRSN
NAIC: 511210 Software Publishers; 541519 Other Computer Related Services

VeriSign, Inc. has grown and expanded into new markets through acquisitions since it was spun off from RSA Data Security Inc. in 1995. The company is known principally for its domain registration business, which was the result of acquiring Network Solutions, Inc. in 2000. However, VeriSign also offers a wide range of services through its Enterprise and Service Provider Division and its Mass Market Division. In addition to registry services, VeriSign offers managed security and network services to enterprises and service providers that facilitate secure transactions and communications in corporate infranets and virtual private networks as well as in Internet-based services. With the acquisition of Illuminet Holdings Inc. and H.O. Systems in 2001 and 2002, VeriSign now offers a wide range of specialized services to telecommunications providers. The company’s Mass Markets Division provides three general types of services: Web Presence Services, including domain name registration services and related value-added services; Web Trust Services, including web site digital certificates; and Payment Services, which enable online merchants to process a range of payment types.

Birth Via Spinoff: 1995

VeriSign, Inc. was spun off from RSA Data Security Inc., a leader in encryption technology, in April 1995 and began developing Digital ID’s for corporations and individuals in June 1995. Digital ID’s utilized public- and private-key cryptography to authenticate a data sender’s identity. Also known as certificates, the digital ID’s ensured privacy and authenticated the content of electronic transmissions on public and private networks. The company recruited Stratton Sclavos, a Silicon Valley veteran, as president in August 1995.

The separation of the two companies allowed RSA to focus on encryption technology, while VeriSign focused on providing products and services that utilized encryption technology to ensure secure online transactions. VeriSign received financial backing from a group of companies and investors interested in addressing the problem of adequate security on the Internet, the lack of which was hindering the development of electronic commerce. In addition to RSA, companies providing financial backing for VeriSign included Visa International, Ameritech Corp., Bessemer Venture Partners, Fischer International Systems, Mitsubishi Corporation, and Security Dynamics Technologies Inc.

Widespread Support for Its Technology: 1996

After testing its digital ID system, VeriSign publicly demonstrated the first online digital certificate issuing system at the RSA Data Security Conference in San Francisco in January 1996. Since the system utilized proprietary technology from VeriSign, it was necessary that browsers and servers be equipped with that technology. By January 1996, VeriSign had signed up a dozen hardware makers, including Netscape Communications, IBM, Cybercash Inc., CompuServe Inc., and OpenMarket Inc.

Authentication was regarded as the missing technology link in secure electronic transactions, and VeriSign received widespread support throughout the computer industry for its technology. During 1996, several major computer companies entered into licensing agreements with VeriSign to incorporate its technology in their products and services. VeriSign announced it was working with Microsoft to develop an industry standard for secure transactions and a version of its digital identification systems for Microsoft Internet servers. Dun & Bradstreet Software Services signed a partnership agreement with VeriSign to e-mail systems. The new product was the first in VeriSign’s Go Secure family of implementation aids for enterprises. In other developments, VeriSign reported its first quarterly profit, both in terms of operating income and net income. Later in the year, the company entered into an alliance with Eccelerate.com, an online spinoff from Dun & Bradstreet, to provide transaction services for electronic commerce. Under the alliance, the two companies would prequalify the more than 57 million public and private companies in Dun & Bradstreet’s database for digital certificates. VeriSign also reported that its technology was being used in more than 40 federal government pilot programs, including those of the Federal Bureau of Investigation (FBI) and the Internal Revenue Service (1RS).

VeriSign announced two major acquisitions in the last month of 1999. The company paid between $700 and $800 million to acquire privately held Signio Inc. by issuing 5.6 million common shares of stock. Signio specialized in online payment services, which it offered to a wide range of online merchants, business-to-business exchanges, payment processors, and financial institutions. The second acquisition involved Thawte Consulting of South Africa. Thawte was also a payment service provider with an established customer base. VeriSign acquired the company for $575 million in stock.

Acquisition of Network Solutions: 2000

With its stock price rising in value more than 1,000 percent in 1999, VeriSign announced in March 2000 that it would acquire the leading domain registration firm Network Solutions, Inc. for $21 billion in stock. The combined companies would have one of the largest subscriber bases on the Internet. As reported by United Press International, VeriSign President and CEO Stratton Sclavos stated, “With Network Solutions as the gateway to establishing online identity and Web presence, and VeriSign as the provider of Internet authentication, validation and payment services, our combined company will serve as the trust utility that will power the Internet economy.”

Network Solutions was originally established in 1979 by black entrepreneur Emmitt McHenry and three partners as a network integration firm that developed and managed voice, data, and video communications networks. The company became involved in Internet domain registration in 1993, when it began assigning domain names under contract from the National Science Foundation (NSF). The NSF was a federal agency charged with handling the administration of the Internet since 1991. Network Solutions was responsible for assigning top-level domain names ending in .com, .edu, .net, .org, and .gov. Registering a domain name was free until 1995, when Network Solutions began charging a $50 annual registration fee to cover its expenses. At the time, some 110,000 top-level Internet domain names were registered. In 1995, Network Solutions was acquired by Science Applications International Corp. (SAIC) for $4.8 million. Network Solutions had a successful IPO in 1997.

Network Solutions had a monopoly on domain name registration until 1999, when it was placed under the oversight of the semi-public Internet Corporation for Assigned Names and Numbers (ICANN) and opened up to competition. At the time it was acquired by VeriSign, Network Solutions had a 40 percent market share of the domain registration business. It had a database of 8.1 million domain registrations and 240 partners worldwide.

VeriSign paid a 40 percent premium for Network Solutions, based on the company’s stock price, largely because of the opportunities available to the combined company. It could capture small and medium-size businesses when they registered their domain names, then offer them a suite of higher-priced trust services such as authentication and payment services. In addition to domain name registration, VeriSign planned to offer companies e-mail, web site creation, e-commerce capabilities, secure extranet services, virtual private networks (VPNs), and global trading.

When the transaction was completed in mid-2000, the acquisition of Network Solutions was valued at $15.5 billion, according to Business Week. SAIC, which had owned 23 percent of Network Solutions, gained a 9 percent interest in VeriSign. Network Solutions became a subsidiary of VeriSign and operated under its own name until it was integrated into VeriSign’s domain registration. Later in 2000, VeriSign acquired a competing domain registration firm, GreatDomains.com, for $20 million in cash and 300,000 shares of stock in a deal valued at $100 million.

Preparing for increased acceptance of public key infrastructure (PKI)—a set of standards, technologies, and procedures for user authentication and the secure transfer of data—VeriSign released its new Trust Services platform suite in mid-2000. It was designed to let enterprises and their trading partners incorporate authentication, payment, and validation for high-volume transactions conducted over the Internet, extranets, and business-to-business exchanges.

Another new service introduced by VeriSign in mid-2000 was a fraud-screening service. The company’s Payflow Fraud Screen was offered as an enhancement to its Payflow Pro program, which cost merchants $59.95 a month for up to 5,000 transactions a month. Payflow Fraud Screen cost an additional $39.95 a month for the same level of transactions.

Key Dates:

1995:: VeriSign, Inc. is spun off as a separate private company from RSA Data Security, Inc.
1998:: VeriSign becomes a public company.
1999:: VeriSign acquires Signio Inc. for $800 million and Thawte Consulting of South Africa for $575 million.
2000:: VeriSign acquires Network Solutions, Inc. for $21 billion.
2001:: VeriSign acquires Illuminet Holdings, Inc. for $1.2 billion.
2002:: The company’s acquisitions include The .tv Corporation International for $45 million and H.O. Systems, Inc. for $350 million.

It was around this time that the Electronic Signatures in Global and National Commerce Act (E-Sign) was signed into law by President Bill Clinton. The E-Sign law replaced a develop an Internet-based electronic data interchange (EDI) for business-to-business transactions. Netscape Communications licensed the technology for use in the new version of its browser, Navigator 3.0.

In mid-1996, VeriSign and Visa International announced they would offer digital certification of credit cards to allow consumers to purchase products over the Internet without giving out their credit card numbers. VeriSign also announced a private label initiative to enable Visa’s member banks to issue digital equivalents of plastic credit cards to their customers.

In another major deal, VeriSign and America Online reached an agreement for VeriSign to provide digital IDs to merchants on AOL’s Primehost Storefront. The Merchant ID verified a business’s authenticity to customers, hopefully making them more comfortable about making online purchases. At the time, personal digital IDs were available as options on both Netscape’s and Microsoft’s Internet browsers.

By the end of 1996, VeriSign had secured the backing of a broad cross-section of companies that hoped digital authentication would become more widely adopted. Additional companies supporting VeriSign included Cisco Systems, AT&T, and Merrill Lynch. Cisco planned to integrate VeriSign’s technology into a total solution for enterprises working over the Internet. AT&T planned to use VeriSign technology with its Easy Commerce systems for deploying enterprise-scale electronic commerce initiatives. Merrill Lynch and Intuit Inc. were exploring the use of digital certificate systems with their online financial systems. These and other companies provided support for VeriSign by investing $30 million in the firm at the end of the year.

New Security Products: 1997

At the beginning of 1997, VeriSign was the dominant certificate authority and was hoping to make its authentication technology the industry standard. The company had issued 12,000 server ID’s at $295 each as well as half a million user IDs that needed to be renewed for a low annual fee.

In January 1997, VeriSign rolled out its private label service for OEMs (original equipment manufacturers). In March the company introduced a major enhancement that increased the amount of personal information its digital certificates could carry. VeriSign’s new certificates, called Universal ID Cards, were able to contain demographic information, including gender, age, address, ZIP code, and other personal data. Its Private Label Digital ID Service allowed corporations to add customized data for specific users. These features would help companies automate their web-based interactions with customers or clients.

VeriSign also signed an agreement with Network Solutions, Inc. of Herndon, Virginia, to provide one-stop registration for Internet domains. New domain registrants would have the option of signing up for VeriSign’s digital identification when they registered their domain name with Network Solutions. Network Solutions was the leading provider of registration services for domain names. VeriSign’s digital identification served to authenticate companies doing business online to their potential customers.

Raising Cash for Acquisitions Through an IPO: 1998–99

When VeriSign went public on January 30, 1998, its filing with the Securities and Exchange Commission (SEC) indicated it had issued more than two million digital certificates. On the first day of trading, the company’s stock rose 82 percent, from an initial price of $14 to close at $25.50. Intel, Microsoft, and Visa International each owned about 5 percent of VeriSign’s equity, while RSA Data Security held about 25 percent.

Following its strategy of forming partnerships and alliances, VeriSign entered into a preferred provider agreement with Verifone, Inc., a subsidiary of Hewlett Packard Co. The non-exclusive partnership combined Verifone’s expertise in online payments with VeriSign’s authentication technology. Both companies agreed to bundle Verifone’s vWallet, vGate, and vPOS virtual payment products with VeriSign’s digital certificate technology. VeriSign characterized the deal as “the first end-to-end solution that we have done with a market leader.”

VeriSign made its first acquisition in July 1998 when it bought privately held SecurelT, an Atlanta-based Internet security company, for $69.1 million in stock. The acquisition would help VeriSign compete in the enterprise market. Later in the year VeriSign redesigned its web site to reflect a growing emphasis on marketing to enterprises rather than to consumers. In October, the company released version 4.0 of OnSite, its suite of software and services for corporations that was first introduced in January 1998. OnSite was VeriSign’s public key infrastructure (PKI) software that allowed corporations to control their digital certificates. New services offered in version 4.0 included centralized key management and distributed key recovery as well as back-end processing and verification services that VeriSign would handle for its customers.

During the first quarter of 1999, VeriSign entered into an extensive agreement with Netscape Communications to deliver digital certificate services through Netscape’s Netcenter portal. Under the agreement Netscape granted “premier provider” status to VeriSign, which would develop a Security Center within Netcenter to provide information, products, and services relating to electronic authentication technology.

Company Perspectives:

VeriSign, Inc. is a leading provider of digital trust services that enable Web site owners, enterprises, communications service providers, electronic commerce (“e-commerce”), service providers, and individuals to engage in secure digital commerce and communications. Our digital trust services include three core offerings: managed security and network services, registry and telecommunications services, and Web presence and trust services. We market our products and services through our direct sales force, telesales operations, member organizations in our global affiliate network, value added resellers, service providers, and our Web sites.

In mid-1999, VeriSign introduced OnSite for Microsoft Exchange, a PKI service that simplified the management of secure patchwork of state laws and went into effect in October 2000. It made signatures, contracts, and other records in electronic formats legally valid and binding. The law was expected to increase the market for digital certificates.

New Domain Registration Agreement: 2001

In the first half of 2001, VeriSign negotiated a new agreement with ICANN covering domain name registrations. The agreement was opposed by some in the Internet community as unfair, but it was reviewed and approved by the U.S. Department of Commerce in May 2001. The agreement with ICANN specified how much control VeriSign would have over the registration of top-level domain names. Under the agreement VeriSign retained control of the .com registry until November 2007, with the option to renew for an additional four years. VeriSign was given another year to operate the .org registry, but was required to turn it over to a nonprofit body in 2002. Its right to operate the .net registry would expire at the end of June 2005, when registration of .net domains would be opened to competitive bidding. Meanwhile, other registrars could register those top-level domain names, but VeriSign would collect $6 for each top-level domain name registered by another registrar. VeriSign was also required to invest $200 million in registration infrastructure research and development and contribute $5 million for operating expenses to the nonprofit organization that would oversee .org registration. At the time of the agreement with ICANN there were 21 million registered .com names, four million .net names, and three million .org names.

VeriSign also expanded its domain name registration to encompass more international languages. The company began offering multilingual domain names in November 2000. The first four languages offered were Japanese, Korean, traditional Chinese, and a simpler version of Chinese. The company soon added Western European languages, and by April 2001 VeriSign had added support for more than 350 languages. Through an agreement with Los Angeles-based .tv Corporation International, VeriSign began registering .tv domain names in January 2001.

In April 2001, VeriSign was part of a group that successfully bid for the operating assets of online payment services firm Cybercash Inc., which had declared bankruptcy. Although payment services represented a small portion of Verisign’s revenue compared to domain name registration, the company planned to invest more to support its payment services business. At the time VeriSign provided payment services to about 15,100 merchants and processed $1.3 billion worth of electronic commerce settlements in 2000. In 2001, that figure rose to $6 billion worth of e-commerce transactions.

VeriSign continued to expand through acquisitions in the second half of 2001. After acquiring Internet Domain Registrars from Network Commerce, VeriSign announced it would acquire Illuminet Holdings Inc. for $1.2 billion in stock. Illuminet was a provider of infrastructure services to telephone networks, including services that facilitated caller ID, cell phone roaming, and portable phone numbers. The acquisition strengthened VeriSign’s ability to provide trust services in anticipation of the convergence of voice and data networks. Toward the end of 2001, VeriSign acquired two smaller domain name registration companies, lGlobalPlace Inc., which specialized in foreign domain names, and NameEngine, Inc., which managed intellectual property rights and corporate brands for its clients.

In early 2002 VeriSign acquired The .tv Corporation International, the exclusive registrar for .tv domain names, for $45 million. The company also announced it would acquire H.O. Systems Inc., a company that provided billing and customer care solutions to wireless carriers, for $340 million in cash and stock. Among the new initiatives VeriSign announced for 2002 was a Digital Trust Services framework that would take an open standards approach to automating business processes in a secure way across distributed applications. An interface for VeriSign’s Digital Trust Services would be embedded in major platforms from OEMs such as BEA Systems, Hewlett-Packard, IBM, Microsoft, Oracle, and Sun Microsystems. Meanwhile, VeriSign would devote much of 2002 to integrating the acquisitions it made in 2001.

Principal Divisions

Enterprise and Service Provider Division; Mass Market Division.

Principal Competitors

Baltimore Technologies plc; Certicom Corp.; Digital Signature Trust Co.; Entrust Technologies Inc.; GeoTrust, Inc.; International Business Machines Corporation; Register.com; Tucows.com, Inc.