Anti-spam startup Blue Security endured whiplash, backlash, and every lash in between earlier this month when a spammer allegedly retaliated against the company’s spam-fighting software—threatening its users, attacking its web site, and crashing its servers.

Called Blue Frog, the software sits on desktops, gathers spam email flowing into inboxes, and then sends opt-out requests to the spammers. The tool, in effect, enforces U.S. anti-spam legislation, which requires all marketing emails to provide recipients with opt-out requests. Blue Security started in 2004 with about $3 million in seed funding from Benchmark Capital. So far, about half a million users have downloaded its software.

But on May 3, the Blue Frog program, named after a poisonous species of frog inhabiting the South American rainforest, met its match in a spammer with the online code name of “PharmaMaster.”

Users of Blue Security’s software received email threats from the alleged spammer telling them to uninstall the program or face even more spam in their mailboxes. Soon after, a large-scale attack crashed the company’s servers. “The spammers unleashed a doomsday device on us,” says co-founder Eran Reshef. “They sent denial-of-service attacks, burned through our servers, and turned it into one of the major attacks launched on any company so far on the Internet.”

Blue Security tried to deflect the attack by propping up an old blog in place of the company’s web site. But that just brought down Typepad and LiveJournal, the two services that host the blog.

The company has its detractors. Some anti-spam experts say Blue Security’s spam-fighting methods are questionable.

“Fighting fire with fire when it comes to spammers may not be such a good idea,” says Alex Eckleberry, CEO of Clearwater, Florida-based Sunbelt Software. “The current-generation spam filters are more than enough so why get users involved and risk collateral damage?”

Despite the incident, Blue Security says there’s no reason to run scared of spammers. “We are just asking for people’s right to be left alone and that cannot be taken away because some spammers will want to get back [at us],” says Mr. Reshef.

Ultimately, the spammers were victorious. Last week, Blue Security announced it had closed down the arm of its business devoted to fighting junk mail. The company said it will continue to work on other non-spam-related ideas (see Spammers Shut Antispam Firm).

Born Again

Symantec may be down but it’s not out. On May 9, it posted quarterly results that helped to allay at least some fears that Microsoft’s coming entry in the security software market could hurt its mainstay business. Symantec also bounced back from earlier losses after making strong gains in the business security software segment, a development that could hurt some startups.

Results were encouraging but hardly earthshaking. For the fourth quarter of 2006, Symantec reported per share earnings of $0.26, a penny better than analyst expectations. Revenue rose 1 percent, to $1.29 billion, though profits slipped to $119 million, from $120 million a year ago (see Symantec Bounces Back).

It’s a comeback for the company that posted $251 million in losses in its second quarter and also warned it would miss Street expectations for the third. Symantec’s problems have largely been due to its $10.25-billion buyout of storage giant Veritas last year. Since then, the company has been struggling to integrate Veritas while staving off competition from Microsoft and a host of startups that are nibbling away at its business.

“The last 10 months have not been the easiest in our history,” says CEO John Thompson. “As we merged our teams [with Veritas], some people opted to leave, but we persevered and focused on making the company better.”

Investors seem pleased with Symantec’s results and are hopeful about the company’s strategy to outwit Microsoft, widely regarded as Symantec’s biggest threat.

Symantec says it will release two products later this year—Transaction Security, which aims to protect users from malicious software online, and Genesis, its answer to Microsoft’s Windows OneCare anti-spam and antivirus product.

Symantec also says it will increase its marketing budget to reach out to consumers. Analysts, UBS Securities’ Heather Bellini among them, seem to like the plans. “It is positioning itself well for aggressive competition by Microsoft, McAfee, and Trend Micro and is likely to continue growing its business in the segment,” she wrote in a research report.

A resurgent Symantec could hurt startups most of all. Its 9 percent year-on-year gain in the business security segment—bringing in sales of $287 million for the quarter—could hit startups selling specialized products, Ms. Bellini noted in the report. Sustained growth there could conceivably spark a wave of consolidation, ensuring businesses buy from a single large vendor instead of a number of smaller companies, she wrote.

Adam Holt, an analyst with JP Morgan Securities, thinks Symantec has gone some way to restore the faith of some investors—at least for now. That should hold at least until Microsoft makes it next move

Tough Times Ahead

Symantec still faces some tough challenges. Here are some of the bigger ones, and what it plans to do about them.

Lab Watch: Busy Work

Who says Microsoft isn’t innovative? Well, to prove you and other skeptics wrong, the Redmond giant held an open house at its Mountain View, California, research lab May 2 to show off various things its geeks are working on. Though most of its researchers work out of Microsoft’s headquarters in Seattle’s famous suburb, the division has offshore offices in Bangalore, Beijing, and Cambridge. It also lets its creative sparks fly at the company’s Silicon Valley operation in Mountain View. Examples: