Microsoft Snaps Up PhoneFactor

Software giant Microsoft Corp. ( MSFT - Analyst Report ) recently announced that it has acquired PhoneFactor, a company that uses smartphones for security authentication. The financial terms of the deal were not disclosed.

Overland Park, KS-based PhoneFactor is a multifactor authentication (MFA) applications provider selling phone-based products for enterprise applications. Its technology is compatible with both Microsoft enterprise products and platforms from other vendors.

The MFA applications provider already works with many Microsoft products and services, including Outlook Web Access and Internet Information Services, and interoperates with Active Directory.

Management also stated that for now, PhoneFactor will continue to operate independently and sell its products as a stand-alone service with existing pricing and contracts. Upon the completion of the deal however, PhoneFactor's technology will be licensed under Microsoft’s volume licensing contracts.

The multi-factor authentication technology is designed to protect enterprise services and applications from data breaches if user passwords are unethically stolen by a hacker. A user needs more than just a password to log into websites that use PhoneFactor’s technology. A code is to be entered as an added level of identification. This code is sent to the user’s phone via text or an automated phone call.

This type of authentication is specially required in business and enterprise environments, where it is important to protect sensitive information. Hence, the acquisition will enable Microsoft to enhance the security of business mobile applications, its cloud services and other applications.

Microsoft remains one of the best positioned software vendors, given its wide range of products, emerging markets strength, continued technology deployment at data centers and growth in cloud computing. We believe that Microsoft’s current investments are supported by its strong balance sheet and expect these to drive the next growth phase, improving prospects of market share gains.

Microsoft Corp. has a Zacks #3 Rank, which implies a Hold rating in the short term (1-3 months).