CAN VERISIGNSUCCEED WITHWALL STREET?

A Frost & Sullivan Whitepaper

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TABLE OF CONTENTS

Passing the Torch – The Maturation of a Digital Infrastructure Services Company

in Fast Forward 3

Who is VeriSign? 3

VeriSign’s Humble Beginnings and Evolution 4

Jamba! What Went Wrong, May Have Gone Right 5

Wall Street Faux Paus 5

VeriSign Faux Paus 6

Recommendations for New VeriSign Leadership 6

TABLE OF CONTENTS

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PASSING THE TORCH – THE MATURATION OF A DIGITALINFRASTRUCTURE SERVICES COMPANY IN FAST FORWARD

Earlier this week, the communications and new media industry witnessed somethingrarely seen. VeriSign, a dominant market participant - profitable and a true leader intechnical innovation and vision- took a deep breath, looked in the mirror, and decidedchange was needed. It’s long time, visionary leader, Stratton Sclavos, who’d been with thecompany since its infancy in 1995, resigned quietly with no real reason disclosed, trying tostep out of Wall Street’s sometimes blinding spotlight. His two day jobs, President/CEOand Chairman – the positions he’s held for several years have been divided up betweentwo “operational specialists”. William Roper Jr., a former executive vice president andchief financial officer at technology innovator SAIC (Science Applications InternationalCorporation), will take over as VeriSign's President and CEO, the company said in a pressrelease. Mr. Roper has served on VeriSign's board of directors since November 2003. Theboard also elected former Williams-Sonoma CEO Edward Mueller to the post ofchairman. Mr. Mueller has been on VeriSign's Board since March 2005.

Why did this happen and what does it mean for other visionary companies? First of all,let’s take a look at who VeriSign is today, where VeriSign began, and what VeriSign may nowbecome.

WHO IS VERISIGN?

Today’s tag line on the bottom of press releases from VeriSign is: “VeriSign operates digitalinfrastructure services that enable and protect billions of interactions every day acrossthe world’s voice and data networks.” What does the “digital infrastructure” or betteryet, intelligent infrastructure thing mean? It truly means that VeriSign offers the broadestarray of products and services to telecommunications firms, media companies,enterprises, and consumers that allow people to connect, communicate, interact, transact,locate, authenticate, and protect via the web and other networks. VeriSign has recentlymade substantial inroads into simplifying their message in terms of plans and execution.Prior to its restructuring plan of January 2007, which consolidates its business units andsales teams into one integrated company, VeriSign provided hundreds of permutations andcombinations of services under the following three broad categories:

• Communications Services, which enable the delivery of rich and seamless communications, commerce, and content interactions. VeriSign Communications Services include connectivity and interoperability services, intelligent database services, content and applications services, and billing and payment services.

• Information Services, which enable relevant, real-time information for intelligent network interactions. VeriSign Information Services include domain name registry services, intelligent supply chain services, digital brand management services, and real-time publisher services.

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• Security Services, which protect online interactions, enabling companies to manage reputational, operational, and compliance risks. VeriSign Security Services include Secure-Sockets-Layer (SSL)-Certificate solutions, managed public key infrastructure (PKI) services, managed security services, strong-authentication solutions, messaging security and compliance services, and global security consulting services.

According to VeriSign’s website, the company:

• Is part of the Standard & Poor’s 500 index

• Manages two of the world’s 13 Internet root servers

• Provides authoritative routing support for every Web address ending with .com or .net, as many as 31 billion domain name system (DNS) queries every day

• Has unmatched intelligence in IT security from managing thousands of enterprise perimeters

• Protects more than 750,000 Web servers with digital certificates, protecting the majority of secure Web sites on the Internet, including 93% of the Fortune 500 sites

• Operates the largest independently owned SS7 network in the world, routing billions of connections from carrier to carrier, across national boundaries, and between protocols

• Delivers over 200 million mobile-originated intercarrier SMS messages, and over 1 million multimedia messages every day

• Monitors 300 million retail transactions every day

• Delivers over 150 million headline links every day

VERISIGN’S HUMBLE BEGINNINGS AND EVOLUTION

That’s a long way from the humble beginnings as a certificate authority spun out of RSAin 1995, providing digital authentication services and products to protect web basedtransactions.

As the Internet evolved, so did VeriSign. As consumers and businesses communicationshabits changed, so did VeriSign. As Internet usage increased and Internet habits morphed,so did VeriSign. Like a top-ranked professional boxing match, VeriSign was not only ableto defend each punch, but also delivered stinging counter punches as the Net evolved. Asmany of the dot-com darlings of Wall Street struggled with their business models anddove for protection behind bankruptcy laws (or as oft was the case, simply shut theirdoors), VeriSign remained stalwart. Not only did VeriSign achieve profitability, hard to doin the communications world, but from 1995 through 2007, VeriSign emerged from thecertificate authority it once was into the company it now is, through innovation,acquisition of not fewer that 15 best of breed companies, and integration of a plethora of

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products and services. Sometimes, however, these acquisitions (and the vision supportingthem) have been difficult to communicate, especially to Wall Street, and lay men outsideof the world of communications and “new media.”

JAMBA! WHAT WENT WRONG, MAY HAVE GONE RIGHT

One of the best illustrated examples was the acquisition of the obscure German mobilecontent provider, Jamba! (branded as Jamster! in English speaking countries). In June 2004,VeriSign bought Jamba! for approximately $273 million. Jamba! was little known in theUnited States, but at the time created and distributed mobile applications, games,ringtones, and wallpaper for cell phones. VeriSign recognized, however that Jamba! wasavailable to millions of mobile subscribers worldwide. By recognizing that there are morethan two times as many mobile phones as computers, VeriSign effectively had created anew content distribution platform for itself. Combining Jamba! with other VeriSign assets,VeriSign could leverage the Internet and mobile SMS delivery as a secure and verifiabledelivery platform for content to the masses. VeriSign executives considered more than120 mobile content companies before opting for Jamba!. Mobile content revenues fromJamba! increased from around $80 million per year in 2003 to $175 million in the secondquarter of 2005 alone. Moreover, VeriSign’s mobile content division contributed greaterthan 20 percent of the company’s total yearly revenues in 2005.

In 2006, however, VeriSign’s content machine stopped printing money. In its secondquarter conference call in late July, VeriSign CFO Dana Evan reported a downturn inrevenue from the Jamba! unit, to $74 million for the quarter from $77 million theprevious quarter. Challenges occurred as VeriSign realized it is not an entertainmentcompany with its own content and needed help to continue the growth. Wall Street,however, only picked up on the fact that the content machine had slowed substantially asgrowth of ringtone downloads had steadied.

In mid to late 2006, after successfully growing Jamba! sales to compensate for thepurchase price and cost of operations, VeriSign decided to sell controlling stake in thecompany to content and media giant News Corporation for the tidy sum of $188 millionfor a 51% stake.

WALL STREET FAUX PAUS

Completely overlooked by the financial community were two facts. One, that in buyingand growing the Jamba! as we know it today, they were able to create a successfuldistribution channel and large customer for other VeriSign services. And two, by selling offcontrolling interest in Jamba! to a media giant, VeriSign had freed itself from the day today struggle of dealing with issues outside of its core expertise, while being paidhandsomely for the original investment.

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VERISIGN FAUX PAUS

I don’t want to leave readers thinking that all of what Sclavos touched turned to gold.Rather, had Wall Street jumped on board the VeriSign ship and understood his vision forthe company, he may well still be leading the organization. VeriSign shortcomings over thepast few years can be summed up in three key areas:

• Failure to clearly articulate the VeriSign message and value proposition to Wall Street.

• Turnover of key management personnel.

• Inability to raise the VeriSign share price as the intrinsic value of the company increased through acquisition.

RECOMMENDATIONS FOR NEW VERISIGN LEADERSHIP

VeriSign has tremendous brand equity built up from the certificate business. Peopleworldwide recognize the familiar black checkmark surrounded by a maroon circle. Eventhe layperson recognizes that VeriSign is the company that secures web transactions.People in the industry understand that VeriSign owns an incredibly strong piece of theweb browser, being a leading provider of extended validation certificates. VeriSign also hasan unbelievably large number of carrier relationships inherited through acquisitions ofIlluminet, H.O Systems, and inCode Wireless among others. Enterprises and GovernmentAgencies such as HSBC, the State of Pennsylvania, and the United States Air Force rely onVeriSign security services for their day to day operation. VeriSign senior managementcannot forget these things in creation of a new identity. Crafting a new identity may ormay not satisfy the Wall Street pundits and may not raise share prices satisfying edgyinstitutional investors. VeriSign must continue to invest in new growth markets thatleverage VeriSign's existing infrastructure and brand - such as content delivery andidentity management.

What the new VeriSign leadership must do immediately, in order to not lose themomentum gained the day after the transition are:

• Quickly outline and communicate your vision to employees, customers, the industry, and Wall Street.

• Quickly resolve any lingering accounting issues. Although findings of an independent investigation have revealed no internal intentional wrong doing, there is still a shadow blanketing the organization.

• Do not hold a fire sale and start “parting out” lines of business that have been acquired over time. Stay the course, continue the integration that has begun, and continue to evolve as an industry thought leader.

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• Do not let the pendulum swing too far from visionary to operations and marketing. In bringing in leadership from Williams-Sonoma, a specialty retailer of house wares, VeriSign’s board may have to fight the urge to simply operate instead of innovate.

VeriSign is one of those unique entities where the whole is exponentially greater than thesum of its parts. By committing to the evolution of the Web, VeriSign is putting itself in aGoogle-esque position for its piece of the Web market.

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Frost & Sullivan, a global growth consulting company, has been partnering with clients tosupport the development of innovative strategies for more than 40 years. The company'sindustry expertise integrates growth consulting, growth partnership services and corporatemanagement training to identify and develop opportunities. Frost & Sullivan serves an extensiveclientele that includes Global 1000 companies, emerging companies, and the investmentcommunity, by providing comprehensive industry coverage that reflects a unique globalperspective and combines ongoing analysis of markets, technologies, econometrics, anddemographics. For more information, visit http://www.frost.com.

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