IBM just announced they were buying ISS, the Intrusion Prevention company in Atlanta. There are two hundred hits on Google news this morning for the deal. And over 200 hits that include the word consolidation. Has there ever been an acquisition that the press did not say was a "sign of further consolidation"? This is a strategic move. If IBM bought EDS, that would be consolidation.
Let me explain what is going on. Put simply, the security industry has grown to the point where their markets are attractive to very large corporations that are looking for new opportunities. IBM has diligently looked at the managed security space for over five years. They did not buy Riptech or Gaurdent, which went to Symantec and Verisign respectively because the industry was to small. Now, as managed services becomes a big business, fueled by increased interest in regulatory compliance, it is worth jumping in. At $50 million plus in services revenue ISS was the next logical acquisition.
But how do you justify the $1.3 Billion price tag? That is a tougher question. ISS has been remarkably, even perplexingly, successful at selling the revamped Proventia (Intrusion Prevention) line of appliances into their installed base of IDS (intrusion detection) customers. With 11,000 customers ISS has established a staying power that is the envy of all their smaller competitors trying to oust them. IBM can use that and the revenue stream justifies the purchase price.
This is all about services. IBM is already an ISS partner for managed services so I expect a fast ramp up in product offerings and it won't be long after the deal closes that you will be able to buy firewall and IDS managed services from IBM.
Who should be worried about this acquisition? Not the IPS vendors with competitive products to Proventia. That race is still running and the winner will be judged on their products' effectiveness and speed. 3com, Mcafee, Reflex Security, and Force10 are all competing against ISS effectively today. The sector that has to worry is the managed services business: Symantec, ATT, LURHQ, and Verisign.
Consolidation? Not even close. There are over 867 vendors in the IT-Harvest knowledge base this morning. When that number falls month to month we can start talking about consolidation.