The Cybersecurity Peaches: How Innovation Is Affecting A Lemon Market

The Cybersecurity Peaches: How Innovation Is Affecting A Lemon Market
The Cybersecurity Peaches: How Innovation Is Affecting A Lemon Market

The last month has seen an enormous amount of activity among security vendors and investors. The list is big for such a short period of time: Elastic is acquiring Endgame, Insight Partners bought Recorded Future, FireEye bought Verodin, Imperva is buying Distil, SentinelOne announced $120 million in new funding, Palo Alto acquired Twistlock and CrowdStrike took aim at an IPO and then increases the value proposition around it.

It begs the question what is going on in cybersecurity?

Consolidation is the word in the air, but there’s more to it than that. For years, the cybersecurity industry has seen massive investment in products ranging from User and Entity Behavioral Analytics (UEBA), Network Traffic Analysis (NTA), Next-Generation Antivirus (NGAV), and Endpoint Detection and Response (EDR). One thing is for certain: Cybersecurity loves its acronyms. However, there’s a problem at the heart of this and it’s that the bad guys keep winning. Depending on which analyst firm you subscribe to, it is estimated that in 2019 global enterprises will spend between $80-$120 billion on security software and services. Over the last decade, we have spent more than $1 trillion on cybersecurity, yet the adversaries are winning and the defenders keep suffering.

In the past, the cybersecurity market has been inaccurately labeled a commoditized market because the quality of products is the same and is available from many vendors. Commodity markets should show price declines year-over-year, but the cybersecurity market continues to grow at a record clip. That’s not a commodity. Something else is happening.

Cybersecurity is in fact a lemon market, where poor quality commands an increasing amount of money from customers. The term lemon refers to poor cars, and the economics of lemon markets and access to information lead to strange market behaviors. Generally, good cars or peaches are chased out of lemon markets. However, a large influx of actual quality and value is destabilizing lemon markets; and that’s what’s happening now in cybersecurity.

Fears of an upcoming economic downturn are a factor in the wave of recent investments and consolidations in the cybersecurity industry, but there’s more to it than that. New technologies are emerging due to an unprecedented period of investment in cybersecurity innovation. We’ve had nearly a decade of cybersecurity innovation and adaptation in the market. Many companies will fail, but more are now succeeding than ever before. The amounts of money we are seeing in investment and acquisitions are getting bigger and more frequent, and this is because the incumbents are being disrupted. Larger companies aren’t innovating at as rapid a pace as smaller, rapidly growing companies are. And capital is available.

Fears about an eventual economic downturn are no doubt in the minds of investors. To some degree, cybersecurity has to look like a good investment because criminal resources and attacks often spike in tough economic times. Regardless of rosy or dark economic environments, the need for cybersecurity is a constant, and investors know this. In spite of that, there are peaches among the lemons and cybersecurity is going through a period of massive change with a lot of new options, new strategies and new hopes for practitioners to finally get ahead of the adversaries and to see new technologies in their security stacks.

If you get enough peaches in the market, eventually the lemon vendor sales dry up and consolidation starts to happen.

originally posted on by Sam Curry