Economic crisis hitting security budgets hard

The economy is still terrible and will likely continue to get worse in the near term, and the picture is just as ugly for enterprise security staffs. Peter Kuper, a longtime investment banker and software analyst at Morgan Stanley, said security shops can expect to see their budgets be flat at best this year and cut sharply next year for the first time in more than half a decade.

The economy is still terrible and will likely continue to get worse in the near term, and the picture is just as ugly for enterprise security staffs. Peter Kuper, a longtime investment banker and software analyst at Morgan Stanley, said security shops can expect to see their budgets be flat at best this year and cut sharply next year for the first time in more than half a decade.

In a keynote speech at the SOURCE Boston conference on Wednesday, Kuper said nearly three-quarters of IT security groups in a recent survey conducted by IANS expect their budgets to be flat in 2009 and are looking for creative ways to cut costs without having to eliminate jobs and affect their ability to protect their users. Kuper, right, who is now with HypAdvisor Consulting, said many of these shops will be looking to cut their software and hardware costs as a result of the crisis.

“You don’t want to cut head count, so you’re going to go back to the vendors and hammer them down,” he said. “It’s a self-fulfilling cycle.”

The good news here is that many vendors likely will be willing to make those concessions in order to keep the customers they have, which is far cheaper than trying to acquire new ones, Kuper said.

“Vendors will be willing to discount. Maintenance fees are their Achilles’ heel,” he said. “It used to be that 10 percent maintenance fees were the norm and then some companies went to 15 percent and we thought that was the ceiling. Now some have 20 or 25 percent.”

Kuper, who was involved in many of the IPOs that Morgan Stanley did over the years for securty vendors, said that he expects to see quite a bit more consolidation in the vendor community in the coming months and years. As vendors get a clearer picture of where they’re going to land in terms of revenue shortfalls and funding from investors, the companies that still have cash will be in a strong position to pick and choose acquisition targets from among the weaker companies.

That’s the less-than-good news for IT shops who traditionally have been able to makes some financial hay by playing competitors off one another for price cuts. But Kuper also said he expects the current economic climate also will end up driving some significant innovation, despite the difficulty many start-ups are having in securing funding.

“This is one of the best times in the world to start a company,” he said. “At the end of the day, software [companies] are getting money. This climate gives you two years to build a really cool company. People say things are really bad, and they are. But there are silver linings in this data.”

 

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