Rich and I got into a conversation Friday about database security, and the fate of vendors in this subsegment, in light of recent financial developments. Is it possible that this entire database security sub-market could vanish? Somewhat startled by the thought, we started going down the list of names, guessing who would be acquired, who was profitable, and who will probably not make it through the current economic downturn without additional investment- it seems plausible that the majority of today’s companies may disappear.
It’s not just that the companies’ revenue numbers are slowing with orders being pushed out, but the safety blanket of ready capital is gone, and the vendors must survive a profitability ‘sanity check’ for the duration of the capital market slowdown. And that becomes even harder with other factors at play, specifically:
Trust. The days of established companies trusting the viability of small security startups are gone. Most enterprises are asking startups for audited financials to demonstrate their viability, because they want to know their vendors will be around for a year or two. Most start-ups’ quarterly numbers hinge on landing enterprise clients, with focused sale and development efforts to land larger clients. Startup firms don’t keep 24 months of cash lying around as it is considered wasteful in the eyes of the venture firms that back them, and they need to use their money to execute on the business plan. As most startups have financials that make public company CFOs gasp for breath, this is not a happy development for their sales teams or their VCs alike.
Breadth of function. Enterprises are looking to solve business problems, and those business problems are not defined as database security issues. Enterprises customers have trended towards purchase of suites that provide breadth of functions, which can be mixed and matched as needed for security and compliance. The individual functions may not be best of breed, but the customer tends to get pieces that are good enough, and at a better price. Database security offers a lot of value, but if the market driver is compliance, most of vendors offer too small a piece to assure compliance themselves.
Too many choices. I do this every day, and have been for almost 5 years. It is difficult to keep up with all the vendors- much less the changes to their offerings and how they work- and get an idea of how customers perceive these products. Someone who is looking at securing their databases, or seeking alternative IT controls, will be bombarded with claims and offerings from a myriad of vendors offering slightly different ways of solving the same security problems. For example, since 2004 (or their more recent inception) I have been tracking these companies on a regular basis:
Application Security Inc. Lumigent Imperva Guardium Tizor Secu o Sentrigo NGS Embarcadero (Ambeo) Symantec Quest IPLocks
And to a much lesser extent:
Phulaxis Idera DBi (Database Brothers) Nitro Security (RippleTech) SoftTree Technologies Chakra (Korea) Performance Insight (Japan)
For DB security product vendors, there are just too many for a $70-80M market subsegment, with too large a percentage of the revenue siphoned off by ancillary technologies.
Granted, this is just my list, which I used to track for new development; and granted, some of these firms do not make the majority of their revenue through sales of database security products. But keep in mind there are a dozen or so IDS/SIM vendors that have dabbled in database security, as well as the database vendors’ log analysis products such as Oracle’s Audit Vault and IBM’s AME, further diluting the pool. There have been services companies and policy management companies who all have claimed to secure the database to one extent or another. Log file analytics, activity monitoring, assessment, penetration tests, transactional monitoring, encryption, access control, and various other nifty offerings are popping up all the time. In fact we have seen dozens of companies who jump into the space as an opportunistic sortie, and leave quickly once they realize revenue and growth are short of expectations. But when you boil it down, there are too many vendors with too little differentiation, lacking implicit recognition by customers that they solve compliance issues.
Database security has never been its own market. On the positive side it has been a growing segment since 2002, and has kept pace almost dollar for dollar with the DLP market, just lagging about a year behind. But the evolutionary cycle coincides with a very nasty economic downturn , which will be long enough that venture investment will probably not be available to bail out those who cannot maintain profitability. Those who earn most of their revenue from other products or services may be immune, but DB security vendors who are not yet profitable are candidates for acquisition under semi-controlled circumstances, fire sales, or bankruptcy, depending upon how and when they act.
Rich will give his take tomorrow, but although both of us believe strongly in the value of these products, we are concerned that the combination of market forces and economic conditions will really hurt the entire segment.