June 22, 2006 8:07 PM PDT

Security soothsayers size up future tech, investments

EAST PALO ALTO, Calif.--Security services and IT security embedded in the network will likely be major components in the industry's future, but don't count on seeing a wave of security start-ups launching IPOs anytime soon, experts said Thursday.

Security soothsayers, speaking at the SDForum here, noted that while customers are calling for ways to secure data, Wall Street has yet to show the industry some love. Security services and IT security embedded in the network, meanwhile, are two technology trends investors may ultimately want to watch.

"Encryption is easy to do, but where the problem lies is in key management," Stuart McIrvine, a director of corporate security strategy at IBM and a panelist at the confab, said in reference to managing public key infrastructures. As a result, companies wanting to secure data will expand their reliance on services.

And IT security will increasingly become embedded in the infrastructure, from routers to storage to other forms of hardware, industry experts predict.

But the growing awareness among companies and consumers of the necessity of securing data that runs through corporate networks to home PCs hasn't lead to a boom in initial public offerings.

"It's a crowded space, and Wall Street has a difficult time differentiating between all the products," said Vispi Daver, a principal at Sierra Ventures.

Wall Street is also apparently snubbing security companies that are narrowly focused, preferring to bet on businesses that offer a soup-to-nuts security product line, said Deborah Magid, director of IBM's software strategy venture capital group.

Start-ups, as a result, are turning to potential buyers, rather than the IPO market. Big Blue, for one, looks to acquire companies with compatible technology and culture.

Compatible technology translates into an easy integration with IBM's existing products and the ability to market the acquired products quickly, Magid said.

"We...look at their technology to see how core it is to our core business," she said. "Are they in a market we need to be in? Are they offering a specific technology that we need? Or is their offering or approach to a market different than ours?"

Start-ups also need to take a particular approach when trying to woo a potential buyer, said Cecil Christie, director of Cisco Systems' security marketing.

Companies often approach the networking giant as though it's a potential customer, focusing on their products' attributes. But a more effective approach would entail explaining how their technology fits into Cisco's architecture and the company's future direction, Christie said.

Prospective buyout candidates will also frequently focus on their financial performance and related metrics, rather than how they're addressing customers' problems, Christie added.

Partnerships often provide a glimpse into the compatibility issues that concern a potential buyer, but that's not always a good thing for buyout candidates.

"With partnerships, you get to see the warts you might not otherwise see," Christie said.

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Security Services Outsourcing
One area overlooked in this article is the use of outsourcing (both onshore and offshore) for the provision of information security services. Reflecting the overall outsourcing trend, large companies like Symantec and Accenture are providing full service offsite operation and administration of information security services. More security-related blogs at <a class="jive-link-external" href="http://visibleEmployee.org" target="_newWindow">http://visibleEmployee.org</a>
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One area overlooked
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