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Is the information security supplier market really consolidating?

Mergers and acquisitions continue at pace in the information security market, but these are not necessarily signs of consolidation, writes Martin Kuppinger

Looking at the recent acquisitions, mergers, spin-offs and investments by private equity companies, one could come to the conclusion that the information security supplier landscape is undergoing a process of consolidation.

This includes HP Enterprise’s spin-off of non-strategic assets into a deal with Micro Focus; a private equity firm acquiring Ping Identity and Ping then acquiring UnboundID; the sale of Dell Software to another private equity firm; and many more recent deals – but are these really signs of consolidation?

I have never counted the number of information security software suppliers and cloud service providers, but recently read that there are 1,200. I believe that this is far too low, when we also take into account all the regional suppliers.

Market consolidation is based on four factors: market maturity, limited innovation, economic pressure, and high entry barriers. None of these factors apply to the information security market.

There are more mature market segments, but there are also many innovative areas, such as real-time security intelligence, cognitive security or user behaviour analytics – all of which are somewhat related.

The innovation rate is high, particularly driven both by the ever-increasing number of cyber attacks and the ever-tightening regulations. There has always been some “economic pressure” on information security because budgets have always been restricted.

However, spending on information security has never been as high as it is today, which is down to the level of cyber attacks and the need for compliance.

Finally, the market entry barrier is still relatively low, as is usual in software business.

I’m fully convinced that the number of new suppliers entering the market will remain higher than the number of suppliers being acquired or just disappearing from the market.

The main reason for the many – sometimes significantly large – acquisitions these days is a different one. This reason is economic, with too much money and too few investment opportunities. Interest rates are low, even more so in Europe.

Read more about the information security sector

Information security is a hot topic, and so investors are looking at this segment more intensively than ever before. However, information security has become an area that shows strong growth, which makes it interesting to the large established IT suppliers (apart from Hewlett Packard Enterprise and, to some extent, Dell) to invest in this sector.

Information security promises – particularly due to the continual increase of security threats in a hyper-connected world – stable and strong growth for years to come (at least until the next global economic crisis). That is the simple reason for the number of deals we have observed during the past months.

However, that economic reason does not mean these deals don’t make sense. Most do, but not all, for sure. Some are very well thought out, but the reason is not market consolidation. The reason is that information security is among the IT sectors with the biggest promise for continuous growth.


Martin Kuppinger is founder and principal analyst at KuppingerCole.

Read more on Hackers and cybercrime prevention

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