The Cybersecurity Market is Changing! A Move to Platformization
The Great Firewall War!
Remember the days when you bought a firewall from one provider (eg Cisco), a virtualisation infrastructure from another (eg VMWare), and a data analysis facility from another (eg Splunk)? Well, those days could be receding as customers look for a single platform. Basically, we could see companies pick one company for all their cybersecurity elements and ask them to provide everything that they need. This, too, is being accelerated through the rise of AI and automation.
Palo Alto Networks glitch
Last week, NVIDIA raised its capitalization by more than the whole value of companies such as the Bank of America and Coca-Cola. But, Palo Alto Networks saw a massive fall in its stock price [here]:
Since, 2020, it has seen its stock price rise by around x4, but this week saw a shock, with a 25% fall in its capitalisation. It seems that AI is the darling of the stock exchange at the current time and that cybersecurity may face challenging times. Overall, Palo Alto Networks is doing very well, and with a 19% yearly increase in revenue.
Platformization
But, while the stock price and revenues have been rising, the company warned that there will generally be a rise in platformization. This is where the company will aim to bring together its separate products and services into a single platform. Overall, it is one of the market leaders in smart firewalls (NGFW — next-generation firewall), along with developing well in zero trust, edge computing and cloud security markets. This, the stock market thinks, will reduce overall revenue, as customers just get a single provision rather than paying for individual elements. For the company, they know that there will be a short-term gitch in revenues, but where it will gain in the longer term.
For firewalls, while Palo Alto Networks is a leader, there are many others competing for the market, including Check Point Software, Fortinet, Cisco, and Juniper Networks. The move, though is towards their major competitors toward developing a single platform for all their services, such as for software-defined networks, zero trust infrastructures, and so on. With the acquisition of Splunk, it is Cisco which seems to be succeeding best in bringing all its provisions into a single platform, and this obviously is a risk to Palo Alto Networks. Saying this, though, Palo Alto Networks has grown its revenue faster than Cisco, but perhaps this growth could flip as customers move to platformization.
And, the move away from hardware towards the cloud, will significantly reduce the need for the hardware firewalls that Palo Alto and Fortinet provide. But the greatest change is that the cloud can overcome much of the need for a firewall, and where we can use software-defined networks and control to manage our network architectures. And, so, generally the sales of firewalls have been reducing for the past few years.
Another driving force is that customers are possibly looking to save money by dropping the wide range of vendor products that the pay for. This can be likened to Microsoft, at one time, selling Word, Excel, and PowerPoint as stand-alone packages, but this became complex and expensive to licence for many companies. Microsoft thus packaged these into a bundle, and drove the market to adopt all there software packages and drive out any competition in Word processing Spreadsheets and Presentation software. This, too, simplified their sale approach, and where they could just licence all the products across a whole company. The days of different software licences for spreadsheets vanished.
Adobe, too, did this with their products, and where they moved from product sales to annual subscriptions. At the time of the change (2012), Adobe’s share price fell sharply, but has recovered well:
The stock price of Adobe has increased 5 fold since then.
The focus for Palo Alto will be to turn new customers to their platform, and not just a single product or service. This will include in the core markets of cloud security, SDN (Software Defined Networks) firewall provision, and zero-trust architectures:
Conclusions
And, so, will small companies get squeezed? Yes, and that is not good for innovation. The only thing to do is to work with the large vendors, and integrate with their platforms, and hope that the platform adopt the approaches. Otherwise, it’s going to be a long sell to ask customers to pay for licences for different product provisions.
As with Cloud and virtualisation, VMWare has been squeezed our of the market, and where we end up with a virtual monopoly of two main providers: AWS and Microsoft. Like it or not, the squeeze is on! We will move toward just a few core platforms in cybersecurity.
