CNI Cyber Security Market

Evolution of a Competitive Landscape

Published: 19 Nov 2015

Introduction

With real-world examples of cyber breaches occurring at an alarmingly regular rate and interest in cyber security continuing to grow exponentially, investments within the sector remain high. Be it in cities, mass transport, government services, or utilities—cyber security hardening is an issue that is permeating the Critical National Infrastructure (CNI) security market, leading to a radical shift in the prioritisation of security spending by end users.

The result of this has been a competitive shift within the market, with a growing number of firms competing for opportunities in a sector where product differentiation is increasingly becoming difficult to ascertain. Whilst the understanding and appreciation of cyber risks is increasing, a lack of technical knowledge from end users has decreased supplier opportunities in differentiating cutting-edge technologies from competitors. However, this competitive structure is gradually evolving, radically changing both the nature and supply of cyber products and services.

Growth of Cyber Threat and the Competitive Market

As increasing emphasis is placed on the leveraging of digital systems and services, protection of this infrastructure has become a key issue for end users. Improvements in connectivity infrastructure—both wired and wireless—has given infrastructure controllers greater flexibility in the way they connect with physical processes and customers. However, whilst the next evolution of this trend in the burgeoning Internet of Things (IoT) should be welcomed, the protection of digital systems is still a developing issue. Future demands will focus, to a large extent, on the creation of secure-by-design solutions that address cyber concerns at the hardware, software, and communication levels.

High-profile attacks at a governmental, infrastructure, and commercial level have increased the demand for cyber security-specific services from an increasingly broad range of users globally. Demand in nations with highly developed Information Technology (IT) infrastructure and digital processes has also created several demand hotspots across the world with varying threat perception levels.

The impact of this has been the creation of an increasingly complex and diverse competitive environment for cyber suppliers as cyber-specific firms have been joined by new market entrants from the defence and commercial IT sectors. In addition, the rapid growth of the competitive landscape continues to drive high levels of mergers, acquisitions, and partnership opportunities, especially as the market becomes increasingly congested. The recent acquisitions of EMC by IBM and Vormetric by Thales for a combined value of $67.4 billion highlight the thriving nature of the IT and cyber security markets.

Exhibit 1 provides the global cyber security demand hotspots.

Exhibit 1: Global Cyber Security Demand Hotspots

IT players will continue to invest both time and resources into understanding and competing in the market, to protect existing product lines and strategically place themselves to protect future IT infrastructure. Companies such as Microsoft, Cisco, IBM, and HP have continued to invest in cyber capabilities throughout 2015, placing themselves in strong market positions. The ability of these organisations to meet growing demand in both the infrastructure and commercial markets gives them a wide scope of influence with a broad product portfolio.

It will be this ability of firms to both develop cutting-edge systems and successfully educate end users or influencers that will define competitive hierarchy in the future.

Market Evolution and Restructuring

A growing appreciation of vulnerabilities, teamed with an enhanced threat proposed by actors using a range of attack methods, has led to a range of companies and providers looking to protect all facets of an organisation's cyber risk. However, with the specialisation of threat profiles has come that the need for cyber security programmes also to become specialised, with 'off-the-shelf' solutions increasingly unable to protect firms, over the medium-to-long term. Special, industry-specific threats, as seen with SCADA system vulnerabilities in the energy and utilities industry, has led to a growing number of firms becoming more selective in the customer base they are looking to appeal to, rather than becoming a provider for the industry at large.

It is essential that companies that are moving forward seek to educate both existing and potential customers, enabling them to make more informed decisions in an increasingly complex cyber environment. With greater end-user understanding and guidance from suppliers, systems have a greater opportunity to meet both the clients' cyber security needs and their expectations in terms of performance—an essential element in an increasingly competitive supplier market.

Exhibit 2 provides the cyber concept—customer engagement and education.

Exhibit 2: The Cyber Concept: Customer Engagement and Education

Acquisitions and Company Product Specialisation

The increasing adaptability and specialisation of cyber products to certain sectors has forced companies to become more strategic in terms of cyber firm acquisition. More specifically, companies that are looking to acquire cyber firms need to weigh up not only an organisation's product proposition and market share but also its product suitability to key target industries. Whilst there are similarities in terms of protection between commercial and industrial solutions, the ability of companies to manage complex deployments over dispersed infrastructure, along with delivering a product that remains agile to new threats, is essential for success in the infrastructure market.

Exhibit 3 provides cyber security market trends.

Exhibit 3: Cyber Security Market Trends

General Dynamic's divestment of its Fidelis cyber security unit in 2015 has been intrinsically linked not only to the increasing size of the group but also to its commercial-focussed business—a direction not shared with the wider General Dynamics brand. For companies that are looking to enter the cyber security market, ensuring that acquisitions will deliver customer-specific longevity will only increase in importance.

Acquisitions have remained high as wider market trends have dictated solutions demand in this evolving space. Continued growth in the importance of IoT, a need to protect cloud-based services, an appreciation of the role of advanced persistent threat, and the burgeoning managed cyber service industry have defined acquisition targets for many of the industry's already-established participants.

The market impact of increasing product specialisation is two-fold. Firstly, there is expected to be a greater propensity for market consolidation between top firms in the near future. This will be a result of an increasing desire by top firms to establish a market leader, combined with the acquisition of top firms by external IT companies looking to win market share in this dynamic space. The acquisition of firms supplying innovative technology and software solutions will also remain an essential element for larger firms hoping to create market separation from competitors.

Secondly, whilst market consolidation is expected, the broad nature of the cyber security industry and the constantly evolving threat means that market entrance is still possible for smaller participants. Firms that offer targeted expertise against a specific facet of the cyber security industry together with high-quality products have the opportunity to work alongside larger integrators and drive industry discussions around best practices. The fast-growing success of CyberArk, an Israeli firm which specialises in deploying privileged account management and monitoring solutions, is a testament to the market's open nature.

The structure, nature, and demands of the cyber security supplier market are likely to remain fluid as the threat itself is better understood and evolves over time. Success within this space is not necessitated by providing the broadest range of solutions but rather by supplying systems that have the potential to grow to meet changing customer needs. The ability of these elements to be dynamic and intelligent will enable customers to retain IT flexibility and strength against a range of attackers.

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