January 8, 2007 12:01 PM PST
A shifting landscape for e-mail security
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Upon completion of the $830 million cash and stock deal, networking giant Cisco will join Symantec and Microsoft as a leader in the e-mail security arena. Those other companies entered the market via acquisitions and product development of their own.
"As a market matures, this is typically what happens--the major vendors want to have another arrow in their quiver to sell," said Peter Firstbrook, an analyst with Gartner.
More acquisitions are likely, with Cisco rival Juniper Networks and tech giant IBM possible suitors for the remaining independent e-mail security companies, Firstbrook said.
E-mail security used to be the terrain of specialized providers, selling to eager buyers who wanted to stop the influx of e-mail threats, particularly spam. Today, such technology has become more of a commodity, and the area has changed from a seller's market to a buyer's market catered to by the big guys, analysts said.
Industry consolidation has been ongoing, driven by the fact that e-mail security has become a necessity for businesses. Spam and other e-mail pests have kept on rising, despite Microsoft Chairman Bill Gates' promise to squelch them. More than 90 percent of e-mail is unsolicited, and 2006 was a record year for spam yet again, according to IronPort statistics.
Acquisitions in the space include Microsoft's takeovers of Sybari Software and FrontBridge Technologies, as well as Symantec's purchase of Brightmail and Secure Computing's buy of CipherTrust. As a result, the independent companies that remain face a tougher market.
"It is a brutal battle against intelligent and well-armed enemies," said Peter Christy, an analyst with the Internet Research Group in Los Altos, Calif. "This is a time where antispam companies will start to fall by the wayside. If you're not in the top four, there is a question of how you survive with a decent business if somebody doesn't buy you."
The number of companies active in the space has decreased from about 150 in 2003 to about 75 now, said Dean Drako, CEO of Mountain View, Calif.-based Barracuda Networks, a venture-backed maker of antispam appliances. Yet Drako believes the market won't consolidate at the pace that pundits have proclaimed.
"I would characterize the merger and acquisition activity in this market as overhyped beyond hope for the last four years," he said. "Will there be some more consolidation in this area? Probably. In the short term, the market is not going to change significantly from the way it is today. In the longer term, over many years, the number of suppliers will be fewer."
Drako would not be drawn on the question of whether Barracuda was up for sale or would launch as a public entity. The company, which markets primarily to small and midsize organizations, is well-positioned to remain an independent player, he said. "The customer cares that the vendor is large enough to survive to provide them what they need. We crossed that threshold a year or so ago," he said.
Cisco's entry augurs a tougher battle among the big guys. Symantec, in particular, faces a challenge, compared with the days when it competed mainly with smaller rivals: The Cupertino, Calif., company used to go head-to-head with David, now it's squaring off with Goliath. "The last thing Symantec had over IronPort was their big brand name," Firstbrook said.
On the rise
The e-mail security market is growing rapidly. In 2005, it hit $660 million in worldwide revenue and was growing at 44 percent per year, according to Gartner data. Symantec held 12 percent of that pie, and IronPort had 6.6 percent, the analyst firm said.
Cisco paid a premium for IronPort, which is known for its high-end e-mail security appliances. The $830 million deal is the second-biggest purchase of a privately held business by Cisco and the fifth-biggest takeover in the network specialist's history. By contrast, Secure Computing paid $273.6 million in July for IronPort rival CipherTrust.
An acquisition should be welcome news to customers of IronPort and other such companies that get bought, analysts said. The suitors typically have deeper pockets, which should translate into more stability. "A private company, consuming venture capital, is living in limbo," Christy said.
Also, customers will be able to buy multiple products from a single provider, instead of having to deal with several suppliers. "The more vendors you have, the higher the administration cost," Firstbrook said. In Cisco's case, buyers may even be able to get their Cisco discount applied to IronPort products, he said.
But not all IronPort customers are happy that the company will be part of Cisco. "There goes the neighborhood," CNET News.com reader Fred Dunn, who works at a large academic institution, wrote in response to the buyout news. "With Cisco's reputation, we can already see the annual maintenance fees going up."
Tom Gillis, senior vice president of marketing at IronPort, assured customers that nothing will change as the company operates as a subsidiary of Cisco. "It is business as usual--no changes to products, pricing or support," he said.