In the first nine months of

1997, Security First Network Bank-counterintuitively, the holding company for Security First Technologies-lost $18.2 million. That's $7.3 million more than it lost for the same period in 1996. So why at a time when banks are investing in Internet software at break-neck pace, is the industry forerunner bleeding capital?

It's all according to plan, says Security First CEO, Michael McChesney, who sites the data center as the company's chief capital hog. "The data center is a huge cash user because of the very nature of the business. If you sign up the biggest bank in America on that data center, you're still going to lose cash flow on them for the first year because you have to spend money bringing them up," he says. Security First (S1) makes its money once the bank's Net service is up and running. It gets paid a monthly fee on each Net customer account. "It's a business where you have to expect to lose money. The more business you get, the more you lose." So judging by S1's doubled losses, business is booming.

But there is method to this madness: as customer account volume picks up, so does S1's revenue. And according to the McChesney plan, S1 has two to three more years of wildly successful hemorrhaging before revenue soars.

Albion Fitzgerald is not happy. The CEO of Novadigm, Inc., contends that push technology darling Marimba is climbing its way to the top on the back of his company's patented "fractional differencing" technology.

Novadigm, which has an almost non-existent industry profile, provides distributed software management solutions to banks, applying its patented fractional differencing technology to ensure that only necessary applications are sent to or reside on company servers and desktops.

Marimba has also developed solutions to overcome distributed software management challenges. And it too is using fractional differencing technology to push software apps and upgrades to desktops via the Internet. Backed by heavy hitters like Sun Microsystems and headed by the team that brought Java to the fore, Marimba's marketing momentum has steamrolled right over Novadigm and Fitzgerald's claims that the company may be infringing on the Novadigm patent.

But what really has Fitzgerald hot is that Marimba submitted its fractional differencing protocol to the World Wide Web Consortium as an industry standard. If accepted, Novadigm's patent would be effectively nullified, he says. Thus, Novadigm is suing Marimba.

By going after Marimba, analysts suggest that Novadigm is making as strong a publicity play as a defense of its patent. Marimba, at this point, does not directly compete with Novadigm and is far less mature, says one analyst. "The suit has everything to do with publicity and marketing moves."

Rumor has it that 1998 will see a major technology-driven product offering by BankAmerica and D.E. Shaw as part of an expansion of the joint venture between the two companies. Though details are sketchy, Smith Barney vp Chip Dickson says BofA is shrewd for pursuing Shaw and its wealth of products that would have been extremely risky and expensive for the bank to develop on its own.


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