E-Security Grows Despite Recession

I-Street

February 2002

By Jeff Meredith

In an economy producing its fair share of disgruntled employees - and former employees - e-security has become a recession proof industry. And as 2002 gets underway, the importance of e-security issues is resonating with CFOs who had in the past failed to see the need for strong investment.

"It is more preventative with Code Red and some of the other viruses that have plagued the IT business in the last year," said Heath Pow, an account executive responsible for network security at Subject, Wills & Company, an Oak Brook-based e-security company. "Some of the things that happened with 9/11 have played on the psyche of business."

A 20-year old company with roots in application development and system engineering, Subject, Wills & Co. started to diversify over the last few years, spinning off a security practice with a service called NetSecure. Vulnerability assessments are done for clients so that they can create a holistic security policy; Subjects, Wills & Co. then monitors how they're holding up. 

Pow anticipates a 200 percent growth rate this year, saying they've spent the last two or three years evangelizing the need for security and now companies are seeing the logic of it.

Peter Tapling, CEO of Authentify, a Chicago-based provider of online authentication tools, expects all areas of IT spending to improve in 2002, not just security. He believes 2001 carried a spending hangover from earlier years of buildup. "People had purchased so much technology that they weren't using," said Tapling, adding that things are now changing.

Tapling said internal sabotage is the biggest threat to companies' e-security. "Insider fraud is always worse in a down economy. There are layoffs, the opportunity for an employee to become disgruntled is that much greater. All organizations need to put in place internal security mechanisms so access to certain computers requires two people. Passwords need to be regularly reset."

Brandon Friedman, a director for the risk consulting company Kroll, has experience with computer forensics and notes that investigators should have their hands full when employees leave the company. 

"As those employees leave, companies are concerned their intellectual property and trade secrets become compromised," said Friedman. "A company may be filing for bankruptcy and employees recognize the company is going under. There may be a fear from the corporate perspective of the company being looted for its sales lists - former employees then go off and start a competing [venture]."

It's not just discarded employees that companies should be concerned with. Friedman says inactive computer hardware could become an issue as well. The use of data recovered from old computers lying around the office can be costly for an organization.

"There's all sorts of valuable data on those machines. And if they're not treated properly - no policy or procedure for getting rid of those machines - what you see happen is the data pops up somewhere in a really unfriendly environment and can be used against whoever owned it or didn't recycle it," said Friedman.

While there is no dearth of problems for e-security professionals to address, the industry has been characterized by a wave of consolidation. In December, California's VeriSign Inc. (NASDAQ: VRSN) swooped in and bought technology assets of local Internet infrastructure service provider Telenisus. Last August, Solutionary, Inc. of Omaha, a private e-security company, acquired S3 networks, LLC of Chicago, a provider of security assessment services. Tapling says consolidation isn't relegated just to this sector, but admits that the acquisition and merger activity has been humming. 

"Security is a very viable ongoing business, but in an economy that's reducing its size, market forces will decide who gets to live as an independent entity and who doesn't," said Tapling. "There's a newsletter I get on mergers and there are at least two or three each month. There's enough demand for security products and services that all companies that are being successful in the market have the opportunity to pick up on the assets of under-performing companies."