consolidation in computer and network

Consolidation in the Computer and Network Security Industry

There are four reasons someone might be concerned with consolidation

in the computer and network security industry:

1) For purchasers of security technology products and services: they

want to make sure their vendor will still be able to maintain the

product service after purchase

2) For security vendors VP Sales and CEOs: they are wondering how this

consolidation is going to affect their ability to sell their product

or service

3) For security vendor company Investors: they are concerned about how

this will affect their "exit strategy"

4) For clients and candidates: wondering about how tight the job

market is ("How hard will it be for me to find the right job?" or "How

hard will it be for me to find the right person for this position?")

Consolidation affecting the Purchasing of Security Products and

Services

At the end of 2002, Marcus Ranum wrote an article Dog Eat Dog talking

about how security consolidations are creating problems for entities

wanting to purchase the best security products (The full article can

be found here:

http://infosecuritymag.techtarget.com/2002/dec/logoff.shtml). "Best"

becomes the products produced maintained by companies that will

survive, not necessarily the best technically. How many security

companies have been purchased since that article was written? Off the

top of my head I can think of these:

Symantec Acquired Sygate

CheckPoint Acquired Sourcefire

Cisco Acquired IronPort

BT Aquired Counterpane

IBM Aquired Internet Security Systems

RSA Acquired Cyota

EMC Acquired RSA

McAfee Acquired Citadel Security Software

Juniper Acquired NetScreen

Am I forgetting any? In light of all this news, candidates and

companies ask me the question about "consolidation in the industry".

But they are asking for a different reason than a potential purchaser

of a security product or service.

Consolidation affecting Product Sales

Marcus writes: ...customers will have to learn that a vendor's size

doesn't mean that they'll survive the lean times. Savvy customers will

start to examine vendors' financial records and management histories

to try to avoid investing in futureless products. In some cases, this

means you'll have to reject a good product in favor of an average one

from a company that looks like it will survive. In the meantime,

customers will have to learn that a vendor's size doesn't mean that

they'll survive the lean times. Savvy customers will start to examine

vendors' financial records and management histories to try to avoid

investing in futureless products. In some cases, this means you'll

have to reject a good product in favor of an average one from a

company that looks like it will survive.

Of course, most people purchasing products aren't reading Marcus'

articles or blog entries. If they did, they would sadly go with a more

stable company over one that had better technology -- so they would

decrease the risk of the product becoming extinct. The real main

reasons are different, but related, in my mind. First, people want to

buy from brands (well known brands, from bigger companies). Second,

through packaging and embedding, the bigger branded companies are

making it easy for purchasers to make the purchase -- many times with

no discernable increase in price. If a small subset of the total

security solution (let's say for example, messaging security) is being

purchasing anyway, do you think you a purchaser will buy a technically

superior niche product on top of this huge security solution package

(which already includes an acceptable, but not perfect, messaging

solution)? You tell me!

Consolidation affecting Exit Strategy

"Exit" is now synonymous with a) acquisition and/or b) IPO -- with

acquisition being the strongly preferred way of exiting these days.

IPO is so pre-internet bubble burst. But there is a third "exit",

right -- building a profitable company the old fashioned way?

Back to Marcus: Investors never realize the kinds of profits they

expect by simply growing a profitable business and collecting

dividends; that's simply not done anymore, particularly in the

high-tech marketplace. And as consolidations happen, this route

appears more attractive to other smaller start up companies, with

millions in cash and prizes to the founders. So my guess is that

consolidation will feed more consolidation. It's not only perfectly

acceptable to be acquired; it's an honor -- and a mark of achievement.

Consolidation affecting the Job Market

The acquisitions in our industry for the most part do not end up

decreasing the people directly associated with the security practice.

Mostly, companies are acquiring companies that will continue to

function as business units. And because the acquired companies are

niche players, the acquiring companies realize they can't afford to

loose a single person with knowledge of that niche. This means Sales

folks, Engineers, Developers, Product Managers and Product Marketing

Managers are safe. Obviously positions that become redundant, are not

necessarily safe, such as HR, finance, administration are not. This is

generally speaking of course.

Consolidation's affect on the job market has to be considered in light

of the "worker shortage" trend. By most prognostications, this new

upcoming shortage will make previous shortages look pale by

comparison. Even if the possibility exists that consolidation will

somehow decrease the number of positions available, it will be more

than offset by the ever increasing shortage of qualified candidates.

Another way the consolidation is affecting the job market is the

changed perception on the part of a candidate towards any particular

niche after an acquisition. Many candidates will wonder after an

acquisition of a small niche player by a super-large branded company

whether there will be able to be any real competition in the niche --

and does that mean sales will be fall flat -- and thus the company

will day)? The positive side of that coin is that once a niche player

is acquired (or goes IPO for that matter), it becomes "hot", at least

for a little bit. And for many candidates, the prospect of joining a

company with stock options becomes much more attractive.

Those are my thoughs. Please share yours.