Last week, IBM announced a deal to acquire Trusteer, an Israeli company focused on advance endpoint malware detection. The price tag was reported to be $800MM – $1B, so it was a pretty healthy 7-8x multiple of rumored 2013 bookings. Trusteer’s technology fills a huge gap in IBM’s advanced malware story. They do some stuff on their network (IPS) box, but without a real presence on the endpoint, their solution is limited. And for company pushing a total security solution story like IBM, you can’t really have holes. Not obvious one’s anyway.

IBM has been selling Trend Micro’s endpoint security suite for years, but it hasn’t been a focus of their story and since the new security regime came in with the acquisition of Q1 Labs, any mention of endpoint security has largely been muted. Obviously that will change now that they have Trusteer (and their emerging enterprise capabilities) in their bag.

To be clear, Trusteer didn’t get a huge valuation based on their story of disrupting the anti-virus market. They had built a signifiant market licensing their anti-malware toolbar for distribution through financial institutions. Basically, a bank provides Trusteer’s toolbar to their customers for free and a percentage of customers would use it, resulting in dramatically lower fraud rates for those protected customers. Of course, a bank can’t mandate the use of any technology to their customers, but the reduction in fraud for even the minority of protected devices was significant enough it became a no-brainer for the banks to write a very large check to Trusteer to cover their entire customer base. If anything after the deal closes, IBM’s global channels and presence selling technology to other financial institutions should provide a boost to Trusteer’s existing FI business as well. That’s how you justify writing that kind of check.

This was a new path to market for security technology, and that provides a bulk of Trusteer’s existing revenue. But they had bigger designs to target the broader enterprise anti-malware market with a still raw, but interesting set of technologies for advanced malware protection. It’s early, but there is a clear opportunity for someone to totally disrupt the endpoint protection racket. Similar to what Palo Alto did to the perimeter firewall.

IBM is betting on being able to spur that disruption. By combining Trusteer’s advanced endpoint protection capabilities with the BigFix endpoint management suite, they have pretty much everything the existing EPP vendors provide with better advanced malware protection. So getting rid of the incumbent is much more achievable, rather than asking a Fortune-class enterprise to trust a start-up.

But IBM still has work to complete their endpoint security offerings. As described in our recent Endpoint Security Buyer’s Guide series, IBM now has better heuristics and some lockdown technologies. Though we expect endpoint activity monitoring to become a significant requirement over the coming few years, so that remains a gap in their offering.

IBM also has to ensure they keep a good portion of the Trusteer expertise and DNA after the acquisition. They’ve been able to do so with the Q1 Labs acquisition, and as with most big M&A this is a critical success factor to get the value out of the deal. The fact that IBM has already made it clear that Trusteer’s Israeli-based research team will become a key part of a new IBM cybersecurity lab should help keep those folks for a little while.

So is the beginning of the end for EPP? If you take a step back, EPP has been on a path to irrelevance for years. More than a few large enterprises have commented on how they are using the absolute cheapest means possible of checking the compliance box requiring AV and deploying these advanced products on critical endpoints. Providing years of suspect value will get customers to think like that.

The good news for the existing EPP vendors is that their existing suites integrate some (but not all) of the advanced technologies needed to really address advanced malware. They’ve just done a very poor job at describing how their products have evolved, and that’s resulted in a clear negative market perception of the technology. We’ll be doing a more in-depth analysis of advanced endpoint protection starting next month, but suffice it say all the EPP guys don’t necessarily have to die during the transition. Yet the fact remains, they need to kill their golden goose if they are going to get there.

If Big AV continues to position these new technologies as a minor upgrade with just a few added features to their existing offering (not to antagonize their installed base), they won’t create enough urgency to upgrade to the current version of the EPP suite. As we saw with the NYT breach (missing 44 out of 45 attacks) earlier this year, deprecated EPP is not much of a defense against modern, advanced attacks. These vendors basically need to make it very clear that the old stuff doesn’t work and make it very attractive to upgrade to the new stuff. This probably requires pulling support from the old suites despite the clear risk of customers picking a different solution when facing the upgrade. But we believe it’s a bigger risk to let 80% of their installed base use obsolete technology.

We also should mention other huge winners as a result of this deal are the folks that do advanced endpoint protection, like Bit9, Bromium and Invincea. And Cisco gets some of these capabilities via the Sourcefire acquisition (who has bought Immunet a few years back). These emerging vendors have different approaches to solve the advanced malware problem, but with the valuation Trusteer was able to get they should feel pretty good about having a high value comp when they inevitably shop their companies.

Photo credit: “Scrooge McDuck’s money bin for DuckTales Remastered at iam8bit gallery” originally uploaded by insidethemagic