Deep inside the San Diego headquarters of Websense, an operator adds to a growing database by searching the Internet for references to pornography, racial bias, and hate speech.

According to the company's performance in its first day of trading, investors liked the idea of a software maker that can monitor and report employee Internet usage, block access to certain content, and set time periods for when access is available.

Chase H&Q along with comanagers SG Cowen and Wit Soundview unwrapped 4 million shares of Websense common stock at $18 per share -- $2 above the already adjusted price range of between $14 and $16 per share.

The offering raised $72 million for the Websense coffers. That's 28.6 percent more than if the shares had been priced at the top of the originally filed price range of between $12 and $14 per share. Websense stock settled at $47.75 per share, up 165 percent at the close of trading, on volume of 9.6 million -- but earlier in the day, investors, putting their money where their sensitivities are, had pushed the stock as high as $49.13.

Not only is the first-day performance good news for individual investors who got in at around $20 per share, but earlier institutional investors also fared well. Morgan Stanley Dean Witter owns about 19.4 percent of the company after the offering, Crosspoint Venture Partners owns a post-IPO stake of 11.8 percent, Edelson Technology Partners owns 5.4 percent, and Nippon Investment & Finance comes away with just over 4 percent.

CYBER COP OUT

With companies demanding that employees spend more and more hours on company business, whether at their desks or on the road, playing cyber cop to workers is developing into big business.

International Data Corporation conservatively estimates that revenue by vendors in this sector will grow to between $500 million and $600 million by 2004, up from $35 million generated in 1998.

"We have raised our projections for 2004 to between $250 million and $260 million, and we still think that those numbers are conservative," says Chris Christiansen, program director of Internet security at IDC.

Mr. Christiansen explains that IDC completed two studies measuring employer concerns on Internet activity by their employees: "In 1998, sex, race, and hate topped the list, followed by productivity and bandwidth abuse. In 1999 productivity was No. 1, followed by sex, race, and hate, but interestingly bandwidth abuse, while still No. 3, had moved to a closer 3rd than in the year before."

On its Web site, Websense quotes an IDC white paper that postulates that 40 percent of workplace Internet surfing isn't business-related, and that 70 percent of all Internet pornography traffic occurs during the 9-to-5 workday.

WORK?

Over at Craig-Hallum Capital Group, analyst Nate Swanson says, "Fortune 500 companies are realizing that just because people are sitting at their desks doesn't mean that they are doing work."

"There is a rising awareness among the senior managers of companies that people pursuing sex, race, and hate-type sites leave the company open to legal liabilities of harassment, because the modern court has determined that if the company gives you access to it then it is condoning it," says Mr. Christiansen.

Locking out liabilities associated with sexual harassment or racial discrimination are painfully important to such Websense customers as American Express, and Merrill Lynch.

"On the other hand, if you are a young entrepreneurial company trying to stake out your share of the market, you don't want people spending all day playing rotisserie sports either," Mr. Christiansen says.

Taking an active stance against employee slackers are Websense customers Compaq, Conoco, J.C. Penney, and Morgan Stanley Dean Witter.

Those customers helped Websense generate $8.6 million in revenues last year, an increase from $6.9 million the previous year. A respectable 21 percent of sales for 1999 came from customers abroad. The company posted a widening loss of $9 million for the year, however, compared with $5.6 million a year earlier. As of December 31, Websense had an accumulated deficit of $14.9 million.

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