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IDC observes that both domestic and foreign investors are strongly drawn to the IT security market, making it one of the shining stars in the PRC IT industry. Investment, financing, and merger & acquisition deals frequently occurred in the IT security market in 2004 as both domestic and foreign capital showed intense interest. Major M&A deals included Juniper's takeover of Netscreen, Symantec's acquisition of Veritas, Topsec winning the second-round financing of SoftBank, and Infosec's split off from Lenovo.
Through capital operations, IT security vendors hope to benefit from attaining adequate cash flow, broader product lines, stronger brands, and greater channel capacity. As the capital market tends to endorse winners and abandon losers, out-performing vendors usually receive more attention. As a result, the trend of "the strong get stronger and the weak get weaker" will become more apparent in the PRC IT security market. Hence, IDC expects the number of players in the market will decrease further.
"We get calls from the venture capitalists or investment managers almost every week about various security topics and players, which reflects their intensive focus and strong interest in the PRC IT security market," says Jason Tang, market analyst, Cross Product & Peripherals Research, IDC China.
Mr. Tang adds, "Despite the sustained growth of the PRC IT security market, competition continues to heat up. Vendors should be even more cautious in planning their next steps to compete more effectively." He provides the following five recommendations in light of the PRC IT security market of 2004:
1. Become more customer-oriented. In developing go-to-market strategies, vendors should take into account various nuances that include user purchasing behaviors, actual IT security needs, and industry-specific features, as well as risks and investment returns evaluation associated with the market strategy.
2. Strengthen strategic cooperation with alliance partners and provide total solutions. IT security decision making in an enterprise involves many stakeholders. It not only affects the IT department but also impacts the entire company. Therefore businesses are becoming increasingly interested in security solutions. However, no IT security vendor is able to provide comprehensive security products. Cooperation thus becomes an effective strategy where it benefits several parties in the industry value chain and is a multiple-win arrangement.
3. Stabilize product prices. The PRC IT security market features fierce competition. IT security vendors often feel the pressure of price cuts. Yet price wars usually mark the beginning of a vicious cycle. Stabilizing the price while ensuring both product and service quality are up to standard will be a better way to win customer trust.
4. Penetrate the huge B2C market. Use a local security vendor, Rising, as an example. An important reason why the company grew from a workshop at Zhongguancun to a leading domestic IT security vendor is because Rising has always been focused on the consumer segment of the market. Providing IT security solutions to the vast number of consumers enables the security vendor to expand their market share quickly.
5. Take advantage of the rising demand in the education industry. The demand of IT security in the telecom and finance industries began to slow down in 2004. In contrast, IT adoption developed quickly in the education sector, thanks to the strong emphasis the PRC government put on education. This is a good opportunity for IT security vendors who were previously focused on the telecom and finance industry to expand the reach in this new education sector.
24.05.2005, IDC
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