Over thirty-six thousand cybersecurity professionals attended RSA in San Francisco last week, with a full roster of executive keynotes and four crowded expo floors. Although a few companies decided to not attend due to the coronavirus outbreak, such as IBM, AT&T and Verizon, there was certainly no shortage of vendors present.
In fact, the biggest challenge for any public investor in cybersecurity stocks is sorting through an industry that is at peak saturation. As of 2018, there were over 1,200 cybersecurity companieswith up to 200 vendors competing in each layer. This leaves customers, such as Chief Information Security Officers (CISOs), utilizing up to 80 security vendors.
The explosion in the cybersecurity industry seen at RSA is for good reason. In 2004, the global cybersecurity market was worth a mere $3.5 billion and grew nearly 35X to $120 billion by 2017. According to Cybersecurity Ventures, global spending on cybersecurity will exceed $1 trillion cumulatively over the five-year period of 2017 to 2021 (likely fueled by the bloat of 80+ vendors per CISO).
The excess supply is one reason companies such as Zscaler and Crowdstrike come flying out the gate in their initial public offerings, yet must continually prove they have what it takes to accelerate. It is not uncommon to see quarterly increases in revenue but at the cost of profits.
Consolidation in the cybersecurity space will make it more challenging for nimble security vendors to compete, especially because the consolidation is being driven by large cap companies with moats that can offer a more intrinsic approach to the problem.
Read more on how VMWare, Akamai and Splunk are leveraging their long-held moats to take on cybersecurity solutions and why a few newly public companies will struggle to compete.
Article originally published on MarketWatch on March 5th, 2020.
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