The SA IT security market, 2003-2008

February 2005 Cyber Security

The issue of corporate IT security has become a boardroom discussion. Due in part to regulatory and statutory requirements and policy frameworks, and also caused by the high profile security breaches which we have seen in 2003 and 2004, there is a far greater awareness of the real need for IT security in the organisation.

The issue of security coupled with business continuity relates to the overarching corporate risk-mitigation strategy. This top-down approach will help permeate security awareness into all corners of the organisation. The growing complexity of IT systems continues to produce confusion and the current `world-under-attack' backdrop generates corporate concern. Both issues have created an active market for information security products and services.

Overall, the South African IT security grew by approximately 16% in 2003, from 2002, and is worth R1,082 million. This level of growth is expected to continue throughout the forecast period. All segments, hardware, software, and services, will lead growth uniformly as enterprises seek to improve their infrastructures to manage organisational risk more effectively.

Security software accounts for the largest portion of the total IT security market, while security hardware/appliances bring in the smallest revenue amount at nearly 17%. Security services are expected to grow over the forecast period, increasing the revenue percentage contribution to the market as a whole. Software revenues will also continue to grow, but at a lesser rate than previously. Hardware is widely expected to be the favoured delivery method delivering security solutions. Take-up in South Africa will be dependent largely on how these appliances are priced.

Service providers remain highly fragmented: despite market consolidation and attrition among the boutique players, smaller information security companies continue to emerge. Future consolidation among the large service providers is expected to continue: the overall IT services market will experience further merger and acquisition in this highly competitive environment.

The following drivers and trends have contributed to this continued growth in the market:

* Increased e-commerce and Internet use: increased Internet use is changing the character and source of security issues that organisations face. Internal threats are growing in significance, and external attacks are becoming more sophisticated, malevolent and are attracting media coverage.

* Increasing Internet fraud: even in countries where Internet and security infrastructure are considered more robust, they will still not be spared from cyber terrorism. 'Phishing' has become a major threat to anyone who has used the Internet to conduct any financial transactions.

* Previous malicious attacks: companies tend to invest in security once they have experienced a security breach.

* Mobile computing and wireless trends: mobile computing drives the demand for security services. With a growing number of devices being connected in the mobile environment, traditional perimeters such as gateway firewalls and typical protection zones are lowered or removed, increasing the likelihood of security breaches.

* Regulations and legislation: as the influence of initiatives such as the King II report on corporate governance, the Electronic Commerce and Transaction Act and Basel II grow, the legal requirements surrounding information security and privacy will be an important decision criterion for South African organisations. Overall, BMI-T believes that the effect on spending will be positive, and initially, services players that offer audit, assessment and compliance related services will benefit. Consequences of non-compliance can have a major effect on company brand image, and on individuals within the management structure. Compliance becomes a clear reason to spend. It is likely that a considerable proportion of the spend on compliance related issues will be internally focused on training and education, but compliance testing, audit, risk assessment will also be important.

* Speed. The speed at which threats spread and propagate is rapidly increasing, reducing the amount of time organisations have in order to respond.

* There is a clear trend for more integrated products in the security market and vendors will need to consider partnerships and alliances or even mergers and acquisitions to be able to cope with the increased complexity.

* Security appliances are expected to continue to be a popular means of delivering security software. The market for security appliances will remain strong because of the wide coverage of the products. In this way, a single appliance can solve multiple enterprise security needs.

* Demand for security services will continue to grow. Companies will continue to need help developing an enterprisewide risk management strategy to mitigate any potential liabilities and to provide a trusted environment for stakeholders, including customers, employees, partners, and suppliers.

Factors inhibiting the market include:

* Justification of ROI.

* Lack of market understanding: the extensive diversity of security technologies.

* The lengthening of the sales cycle and the increasing complexity of the buying decision are moderately slowing spending: vendors are likely to encounter lengthy sales cycles, as enterprise security is 'owned' at increasingly higher levels within an organisation.

* Fear: the secondary organisational barrier concerns fear of the 'new'. There is a tendency for organisations to 'make do' with existing security arrangements.

For more information contact Iain Machanick, BMI-TechKnowledge, 011 540 8000, 011 540 8001, iain@bmi-t.co.za





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