REINVENTING IS A DISTRESSING EXPERIENCE for many entrepreneurs, who at times are so deeply mired in building their product or technology that they easily ignore the fact that the market demands a vastly different set of tools, or that the market has simply moved on.

Bala Vishwanath was one another ambitious engineer, who thought there was a good opportunity in cranking up tools for the credit card payment security markets. “The flaw in that platform is that there is no liability on the user-side in the transaction. We explored the platform of security in bank-based transactions, where the buyer and seller trade from either sides of a bank intermediary, and yet retain their identities and security. The banks were very interested but weren’t willing to pay to set up authentication tools like either smart cards or biometrics,” recalls Vishwanath.

From the simple password-based authentication, Vishwanath ventured into second layer security. “Passwords are something that you know—something that others could also get to know. We could build a security tool with something that you have— that cannot be as easily hacked,” says Vishwanath. While the transaction medium—in most cases a PC or a laptop—was a very viable option, portability cropped up as an issue. “We experimented with CDs—portable, small, and the security could be embedded into the medium itself.”

Around mid-1999 Vishwanath left the Valley and moved to Austin to start his company, Smarte Solutions. “Copy protecting and fingerprinting the media was a rich evolution of our R&D process,” recalls the founder and CEO, who is also the chairman of the board. Smarte now delivers solutions to a gamut of enterprise and media related piracy management problems. “While we remained true to the security interest of our startup plan, we began looking at the problem from the end-user side,” says Vishwanath.

While piracy is a pervasive issue throughout the software and information industry, the issue is not merely how to prevent revenue losses caused by product piracy, but also includes the element of how to effectively capitalize on real demand for product. IDC estimates that the annual spend on piracy prevention will reach $11.2b in the next few years, at a CAGR of 162 percent. According to the BSA, digital piracy poses one of the single greatest threats to the success of the information economy. It undermines the confidence that creators and consumers place in their commercial interactions over networks.

The real issue, contends Vishwanath, lies in managing piracy. Piracy prevention is a fairly clean experience, says the Texas entrepreneur. “If it is a software or a game on a CD, you can either allow a duplication or you don’t. And then it is upto the user to spend time in cracking your preventive codes.” This could be a direct influence in revenues, as perceived demand in the product is restrained by protection issues. Managing piracy, says Vishwanath, needs a different mindset. “The fact that the user wants to get your product is a clear presence of demand. We could leverage this demand by being a bit creative.”

With one of Smarte’s solutions, for example, the software supplier could embed a bunch of codes that actually allow duplication and use. “In the case of a game, we allow the users to play with the pirated copy, upto say level 3 or 4. And once they, we encourage them to buy the original copy to allow them to proceed to the next level,” Vishwanath explains. Piracy management in this case, says the Smarte CEO, plays on the addiction of the gamer and could convert this user pysche into a potential revenue for the company. Piracy protection, on the other hand, would have simply put the user off.

Vishwanath has been a very prudent entrepreneur. While funds-flush startups in the Valley rented out spectacular offices and hired more staff than was needed, Vishwanath moved off to Austin. “The talent resources here will surprise anybody,” says the founder. Keeping a tight trim on his team size here, Vishwanath used an offshore Indian software company—of which he is a director—to do most of his development work. “You simply can’t ignore quality work being offered to you at $7 an hour, 24x7,” observes the quiet-spoken Vishwanath. Beginning small with angel investments, Vishwanath nurtured Smarte carefully through its evolution phases, not losing focus on the key platform of security. A graduate from the University of Hawai’i, Vishwanath put in stints at Synopsys and Cirrus Logic, before giving in to the entreprenuerial urge.

“Today, protection and security are key issues in various platforms—enterprise software, gaming, broadband, digital asset management, 3G products and so on,” observes an IDC industry analyst. “The piracy world is in fact preventing many U.S. companies to explore new markets, say Asia, where piracy is rampant.” Vishwanath is building the Smarte suite to deliver solutions to these areas too. “In Asia, 3G is a big market. If you can download a game or movie on your mobile phone and want to reuse it on your laptop, Smarte has products for the content and application protection,” says Vishwanath. Even at the application level, Smarte has done some ground breaking work. “We can embed code in an application, say Word, so that the receiver is not able to manipulate a native file beyond what the sender allows him to,” claims Vishwanath.

The challenge, says Vishwanath, has been to take a business view to the piracy problem. “Many customers are worried that short sighted protection products may turn off the real users. We have had to show clients that our suite can work in the background and actually encourage genuine use,” comments Vishwanath. He has found some good traction in various industries—Microsoft, Disney, FedEx, TI, and ARM among others. Piracy rates are again on the upswing, though, with increased global Internet access, internal networks, affordability and penetration of media burners, economic growth, pirate-led online auction sites (approximately 840,000 today) and popularity of online peer-to-peer networks. “Our key to success has been the flexibility in our solutions,” says Vishwanath. “One solution doesn’t fit all and neither are clients interested in adapting their products to some inflexible protection product. We understand each media, the intricacies in softwares and the market forces, and the final end-user who will influence the product proliferation.”

With judicious privacy management, companies can recover some portion of revenue written off as lost. “Piracy is a consumer mindset issue, and understanding these mindsets has helped us in our success,” observes Vishwanath. Smart!