Computrace: LoJack for laptops

NEW YORK (Fortune) -- When Starbucks announced late last week that two laptops - each containing personal data on thousands of employees - had gone missing from its Seattle headquarters, the latte purveyor joined a growing list of well-known organizations that have suffered an embarrassing, and potentially costly, computer security breach.

Starbucks (Charts) is not alone; In May, a Department of Veterans Affairs data analyst's laptop containing confidential info on 26.5 million veterans, military personnel and their spouses was swiped. Two months earlier, a laptop chock full of data on Fidelity Investments' clients was reported stolen. Ford, AIG and Ameriprise Financial have also suffered similar fates.

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With laptops now capable of storing massive amounts of data, it's no surprise that they're increasingly targeted. Over half a million laptops are stolen each year, and very few are ever recovered, according to the FBI. In fact, 47 percent of computer security professionals surveyed recently by the Computer Security Institute and the FBI reported a laptop theft over the past twelve months.

To ward off the threat, companies large and small are beefing up spending on a host of security systems. A survey of corporate CIOs from analysts at Gartner found that information security budgets are expected to grow 4.5 percent in 2006, and will continue to grow "aggressively" through 2008. And 52 percent of respondents to a 2005 survey from market researchers In-Stat plan to purchase "security appliances" to replace out-of-date equipment, up from 22 percent in 2004.

One security tool that's becoming as ubiquitous as bike locks on city streets is Computrace laptop recovery and tracking software, made by a company out of Vancouver called Absolute Software. Founded 12 years ago, Computrace today protects over 800,000 computers and has helped everyone from San Francisco high school students to global accounting firms to Canadian oilfield equipment suppliers retrieve stolen or waylaid PCs.

Here's how Computrace works: If a PC is stolen, clients dial an 800 number or report the theft to Absolute via the Internet. When the stolen computer connects to the Internet, the Computrace software provides its location to Absolute's 12-person recovery team, which then works with local law enforcement to recover the PC. Clients can also, if they choose, remotely delete data post-theft.

Absolute has taken off over the past two years thanks to deals it has cut with top PC makers like Dell (Charts), HP (Charts), Fujitsu, Lenovo and Gateway (Charts) to embed Computrace in the so-called BIOS on millions of computers. The BIOS (short for Basic Input/Output System) contains essential software code that allows computer components, like the keyboard and mouse, to function when first turned on, before the Windows operating system kicks in.

Being baked into the laptop makes Computrace almost impossible to remove, even if the hard drive gets wiped clean. (Previously, Absolute's software was offered as an add-on feature, requiring manual installation.)

The lion's share of Absolute's sales come via its PC partners, who pre-install Computrace and offer it to their corporate and educational sector clients. For example, Dell customer Quinnipiac University, just north of New Haven, Conn., has Computrace installed on all the Dell Latitude laptops that incoming freshmen are required to purchase.

"We needed to provide better asset management and theft deterrence," says Fred Tarca, the school's director of administration and operations. Tarca's office also uses Computrace to keep tabs on the 700 or so laptops utilized by faculty.

When a handful of faculty laptops were stolen from a locked room at Quinnipiac last year, Absolute's recovery team - headed by a former member of the Royal Canadian Mounted Police - identified the exact location of the machines and worked with local and campus police to retrieve them.

Sometimes, a stolen laptop can bust open a wider criminal ring, as was the case in North Carolina not too long ago, when a stolen Dell laptop was found, allegedly, alongside large amounts of cocaine and marijuana.

Drug busts make for great headlines, but much of Computrace's value comes from simply letting people like Tarca know where all his laptops are at any given time, and if they've recently caught a nasty virus or some spyware, for instance. (He only does this for university-owned machines, not the laptops bought by students.)

Computrace also battles so-called laptop "drift," which occurs when a laptop is lost but not reported stolen. For example, one of Quinnipiac's laptops mysteriously ended up in Israel.

A full 77 percent of Absolute's sales come from corporate and educational clients like accounting firm Grant Thornton, network equipment maker 3Com (Charts) and Quinnipiac, but Computrace is also making inroads with consumers, who can purchase a three-year service contract for $99 at stores like CompUSA, Fry's Electronics and Office Depot.

In a savvy marketing move, the company has even licensed the LoJack (Charts) brand name to enhance its mainstream appeal, and Wal-Mart recently offered a two-year subscription to "LoJack for Laptops" with the purchase of select Gateway eMachine notebooks. Sales to government agencies are meager right now, but NASA is a longtime client and the company is due to announce more deals in that arena soon.

While Absolute's revenues are climbing, up 54 percent in its most recent quarter, the company is still not profitable and has pushed back its timetable for getting out of the red. But that doesn't worry analysts like Spencer Churchill at Clarus Securities, who rates the stock, traded on the Toronto exchange, as a buy: "We would rather Absolute continue to aggressively grow the business and embed itself in the food chain as a standard part of PC security," he says. "Absolute is firing on all cylinders and is the clear leader in this niche of the PC market."

That market niche stands at about $1 billion today and is growing at between 25 and 30 percent annually, says Churchill, who adds that, if you include desktop computers - Gateway now embeds Computrace in its desktops - as well as PDAs and smart phones, the potential market expands even more significantly.

Absolute CEO John Livingston, a serial entrepreneur who ran a business fixing up and re-selling old cars out of his backyard while in high school, says he turned down a tenured position teaching at a Canadian business school in order to get Absolute off the ground in the mid-90s. As it turns out, the school's loss was the PC industry's gain.

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