The coronavirus crisis is forcing the entire cybersecurity industry to change just to keep up, and experts warn not every startup will make it

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The coronavirus crisis is forcing the entire cybersecurity industry to change just to keep up, and experts warn not every startup will make it
MatthewPrinceCloudflare

Noam Galai/Getty

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Cofounder and CEO of Cloudflare Matthew Prince speaks in Berlin on December 12, 2019.

  • The spike in remote work and an impending recession have accelerated the industry's transition to cloud-based cybersecurity serving remote workers' needs.
  • New data out Thursday shows investment in small security firms is down this year, and investors say startups will need new focus.
  • A market analyst says little security companies are about to be gobbled up as companies that provide a suite of services get bigger.
  • The startup Attila Security, FireEye, Crowdstrike, Zscaler, Cisco, and Palo Alto Networks will all benefit by changes, analysts say.
  • Cloudflare CEO Matthew Prince says the virus may be a seminal event in how companies work and protect their work: "I don't know if this has accelerated things one year or by five years, but things are different."
  • Visit Business Insider's homepage for more stories.

The boom in remote working and the impending recession are morphing the global workforce and its security needs before our eyes - and accelerating a corresponding reinvention of the cybersecurity industry itself, experts say.

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Traditional, office-based network security is out, cloud-based remote tools are in. Startups providing an innovative solution are likely to be gobbled up by companies that can provide a broad solution to cash-strapped companies. An era of fruitful stability in cybersecurity is being replaced by a newly energized hustle to serve a workforce exploded by a pandemic.

Just three weeks ago the historic RSA security conference presented traditional security products on its show floor in San Francisco, just like always. "If you walked around the floor of RSA, there were still lots of people selling boxes," says Cloudflare CEO Matthew Prince.

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Less than a month later remote workers' needs are being met by Prince's firm, as well as tools like Microsoft Teams, Google Hangouts and Docs - and the cybersecurity industry is struggling to keep pace.

The cybersecurity industry has boomed over the past decade with an explosion of small companies bringing innovation in the areas of mobile security, browser security, and artificial intelligence to fight vulnerabilities. But American businesses now face an urgent need for cloud-based tools to protect a suddenly remote workforce. And cybersecurity budgets will be strapped. So many of those little companies won't survive, and big cloud-based companies will gather up innovation to provide businesses with a big-box solution they can afford.

"A lot of the security industry really is stuck in a previous world, and the events of the last few weeks show the solutions people need are very different," Prince says.

Data released Thursday by DataTribe, a Washington, D.C.-area startup incubator focusing on cybersecurity, shows investment in cybersecurity startups is down, with 43 deals in the first two months of this year, compared to 103 and 91 in 2018 and 2019, respectively, for early stage investments.

"Our belief is that [cybersecurity] will be less affected than other sectors in tech," says John Funge, chief product officer at DataTribe. "But early stage companies will have to work really hard to justify funding, keep accurate timelines, and manage their cash."

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Funge looks for any startups that address data security, cloud security, and remote-working needs, such as DataTribe's investment into Attila Security, which provides remote security to executives.

Among large companies, Funge sees promise for companies that have a broad suite of services and products, such as FireEye, and endpoint firms that protect each employee's devices, such as CrowdStrike.

Another analyst also says the legion of little security firms will shrink in a hurry.

"You can expect to see a wave of acquisitions," says Jonathan Penn, a Silicon Valley cybersecurity market analyst. "Little companies are facing a cash crunch, and VCs will be picking winners and losers in their portfolio."

Companies that serve remote workforces, software-as-a-service (SaaS, or cloud) applications, data security, network security, and training and awareness will all do well, Penn says.

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"If I'm a [chief information security officer], my workforce is now working from home and I have to re-evaluate my needs."

Analysts say that quantum shift benefits companies like Zscaler, the Silicon Valley cloud-based security company; Cisco, the giant tech company that provides cloud-computing and user-authentication services; and Palo Alto Networks, a maker of cloud-based firewalls and other security products.

Cloudflare's Prince says the virus may be a seminal event in how companies work and protect their work. "I don't know if this has accelerated things one year or by five years, but things are different."

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