Security budgets soared in 2003

No Catch 22 for pure play vendors

The combined revenues of 22 of the largest publicly listed pure-play IT security vendors grew 14 per cent last year.

The heavy hitters of the security market posted combined revenues of $5.33bn last year compared to $4.67bn in 2002, according to a study by analysts Datamonitor published today.

"A steady rise in security revenues in 2003 indicates that corporate budgets are becoming less constrained and that security remains top of CIOs' agenda. This indicates strong growth in the overall security market. As viruses and worms continue their rampage, more weight is added to the arguments for vulnerability management and more proactive security solutions," said Ian Williams, managing analyst of Datamonitor's enterprise security program.

Q4 2003 revenues for security bigwigs were 22 per cent up on Q4 2002, compared to an industry average of 6 per cent. Q4 2003 sales were 15 per cent up on Q3

Winners and... bigger winners

Q4 turned out to be a good quarter for most vendors with none of them recording revenues lower than Q3 2003 (although Trend Micro's revenues were flat). Overall, revenues were 15 per cent higher than in Q3 2003.

Whilst the biggest deal of the quarter was NetScreen's acquisition by Juniper, Datamonitor says the ISS/Cobion, HP/TruLogica and SafeNet/Rainbow deals are also highly significant. Datamonitor predicts further acquisitions ahead.

SafeNet ou- performed the overall market with 2003 revenues an amazing 134 per cent higher than 2002 (although growing from a small base). NetScreen also continued to grow at an impressive rate, recording 71 per cent growth in 2003. Both companies were the subject of M&A activity in recent months with Juniper Networks announcing the acquisition of NetScreen in February and the merger between SafeNet and Rainbow being completed in March.

AV market benefits from viral epidemics

The anti-virus (AV) market continued to benefit from the latest worms and viruses; with revenues of the three leading AV vendors rising by an average of 13 per cent in 2003.

Another area of sustained growth was in the firewall and virtual private network (VPN) market, which continued to defy predictions that it has reached saturation. Revenues of the seven largest stand-alone vendors in this market grew by 20 per cent in 2003 and Q4 revenues were 22 per cent higher than in Q4 2002.

Authentication market heats up

The security authentication space has heated up as other vendors look to take RSA's "token crown". Struggling rival ActivCard Corp puts RSA's market share outside of financial services at about 80 per cent.

VeriSign, however, aims to erode this share by introducing the Open Authentication Reference Architecture (OATH), and by selling authentication tokens later this year to drive adoption of the architecture. ActivCard is also looking to break RSA's stranglehold on the market with dramatic price reductions. ActivCard tokens will retail at $15 per token compared to the $85 charged by RSA.

Meanwhile, RSA looks to break into the enterprise access market in a tie up with Microsoft, allowing SecurID token users to replace the PC Windows login with SecurID logins, further reducing the need for passwords.

Datamonitor comments that the Microsoft deal will "almost certainly gives RSA an edge over the competition" but that this advantage will be eroded if competitors also do deals with Microsoft and if price competition heats up.

The revenues of seven of the leading pure play identity management vendors grew by 12 per cent in 2003, with Q4 revenues 33 per cent higher than the same period in 2002.

Williams concludes: "While 2003 was better for technology vendors compared to previous years, the spending habits of CIOs have permanently changed. Organisations now require a much clearer explanation of the benefits a solution can bring to their productivity and cost-base than ever before. The relatively strong growth in the security space shows that many vendors have been successful in this regard and that security remains a priority for many organizations." ®

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