Infosec: everything a reseller need know

WE'RE AT INFOSEC TODAY in London yesterday but our good friend George O'Connor, software and services analyst at Shore Capital Stockbrokers was there. He found market repositioning, possible channel conflict and some surprising attendees. Here he analyses the market and the players.

“We went to InfoSecurity 2005, Europe's largest security software tradeshow, yesterday. The jamboree illustrated that this market is still immature and that the demand environment is strong.

The latter point was also borne out by IDCs latest end user survey which concluded that after remote working technology, ‘data security' is the top IT priority for users.

With the exception of a few behemoths, like Computer Associates, HP and Microsoft, the show was dominated by ‘point' companies offering stand-alone products, software companies like SurfControl, Symmantec, and CipherTrust who have tapped into successive waves of threat, and distributor/resellers, such as Wick Hill, Unipalm (i.e. Fayrewood) and InTechnology who continue to ‘add value' by bundling ‘best of breed' products.

There was a paucity of consulting-based businesses suggesting a gap in the market, but also reflecting that there is limited ‘consulting drag' from software sales.

The key buying themes appear to be viruses, compliance, spyware and appliances as the format to deliver the solutions. Compliance is an interesting theme as the industry responds to increased compliance and regulation such as Sarbanes-Oxley, the Gramm-Leach-Bliley Act (GLBA) and the threats highlighted by the CAN-SPAM and Internet Spyware Prevention Acts. These are having major changes in the systems, processes and security inside companies. However, there is still evidence that Spam remains a key issue, indeed, we note a recent IBM report claiming that 70% of the worlds Internet traffic, 24.8bn emails, was unsolicited.

Investors are aware that similar to any early stage technology market and like the anti-virus market before it that ‘consolidation' should feature in the next stage in the evolution of this market, combined with a change in the pattern of usage which should move in favour of suites from ‘point' products.

Observations include: SurfControl unveils a new marketing message: Looking for the suite spot
SurfContol used the event to unveil new Enterprise Threat Sheld (the Aperio spyware blocker) and a new marketing theme around its suite of products, the Enterprise Protection Suite. SurfControl bills the Enterprise Protection Suite as a complete Internet security solution and that its new portfolio is necessary because companies face not only blended, but also multiple, methods of attack. The challenge, in our view, is that while the portfolio is likely to take less computing resources than existing point solutions and offer a granular approach, there is still little evidence that customers consider this a suite or ‘one stop shop' market. We noted that the SurfControl stand was popular with the attendees, and from our ‘guestimate' evidence of an increasing number of SurfControl resellers.

Detica/StreamShield: Early signs are positive
This was a show debut for Detica's product group, StreamShield. Our general impression is that this division is tracking in line with expectations - but we caution that expectations were set low. So far, we are interested primarily in progress with the product, referencability and early customer interest. While there are no performance statistics available, our impression is that it ‘does what it says on the tin'. From a customer perspective there has been good interest from both large UK fixed line and mobile operators and a number of ISPs are trailing the StreamShield Protector. While the sales cycles are still unknown, we believe that these messages will be greeted positively at forthcoming final results, 23rd May.

StreamShield has hired a new VP of Sales, thereby addressing our concern that as a consultancy Detica would not understand the dynamics of selling software product. A poor location at the show resulted in limited footfall, in our view, but balancing this StreamShield has been generating publicity around the product. This is critical to building mindshare at the introductory stage. While we do not expect revenue from SteamShield in FY2005F, we anticipate £1.2m revenue for FY2006F. We remain relaxed about these assumptions.

Computacenter: There in partnership
The surprise of the show was the appearance of Computacenter. Computacenter pitched up with partner, INSL, who has developed an email content management product, Spheriq. Computacenter offers this as part of its managed services portfolio. The deal with INSL is that they introduce each other to their accounts. We note that INSL counts Trinity Mirror Group (9,500 users), Ogilvy and Mather (10,000 users) and Walter Thomson (8,000 users) among the client base.

While Spheriq is targeted at high-end customers INSL appears to be working on an SME offering, we rate this positively. So far the message from Computacenter is that its SME initiative is geared to using capacity at its logistics and warehouse facilities, but we consider that SME services to be a logical extension to its portfolio and one that could prove a sizeable opportunity. Once again, Computacenters management has shown its ability to tap into a fresh revenue growth streams.

Morse: Not there
Although entitled to attend, due to the security practice in Diagonal, Morse was absent. Under the MacIntyre stewardship this division is being re-vamped and migrated from the business centred on selling hardware. There is still the nub of a security consultancy business in Diagonal and given the array of security products in the market, in time, this division could do well. Morse announced today (280405) that it was parting company with its financial director. Websense (Nasdaq: WBSN): Early signs of channel conflict? Websense is moving from URL blocking/filtering and similar to SurfControl, Websense also has its suite, the Websense Web Security Suite. This is designed to provide user protection against web-based threats such as spyware, mobile malicious code, and phishing attacks. Some channel companies highlighted that Websense has cut its UK distributors from three to two. We spotted a number of initiatives whereby Websense has positioned customer service to upsell user accounts - a move which may lead to some channel conflict.

Leaving the tradeshow to one side, Websense Q1 results, 26th April, were very strong and featured revenue $34.2m up 39% year-on-year and EPS at 35c, which was a notch ahead of expectations. The Q1 results showed strong growth in billings, up 34% year-on-year to $35.5m. Websense ended the quarter with $267.6m in cash and investments, a sequential increase of $23.8m.

SurfControl needs to emulate Websense financial results and operating ratios as Websense has taken a leaf out of SurfControls muti-layered approach to the market.µ

Complete INQUIRER channel coverage at TheChannelINQ.net