Security Weathering Economic Storm

As the global economic situation continues to worsen, companies are looking for ways to tighten their belts. So far, however, cutting computer security does not appear to be one of them.

That's not to say computer security is recession-proof. It isn't. During the past couple of months, computer security companies have rode the market to the bottom while world stock markets have experienced record declines. Industry leaders such as McAfee, whose stock has dropped from more than $40 in September to about $26 today, and Symantec, whose stock has fallen from $22 to $14 in the same period, are hurting. Nor has the IT industry been immune to the effects of the downturn. In a report published last month, Forrester Research said that 43 percent of organizations have already cut their overall IT budgets as a reaction to the economic slowdown, while 24 percent have put discretionary spending on hold. Seventy percent of respondents said they will likely negotiate lower rates with suppliers and vendors, and 16 percent said they have already cut their IT service spending.

But in a world market where all the news is bad, the security industry seems to be faring better than most. In fact, research firm Ernst & Young said in a report earlier this month that the economic downturn is unlikely to affect investment in information security. Only 5 percent of respondents said they intend to reduce annual IT security spending, while 50 percent plan to increase investment in this area as a percentage of total expenditure.

"The economic climate has been challenging for a number of months, so it was a pleasant surprise that security seems to be important enough," said Sheila Upton, director of technology and security risk services at Ernst & Young.

A straw poll conducted by network performance management vendor NetQoS at the Interop conference last month in New York seems to support Ernst & Young's findings. About half of those polled indicated spending on network performance management and security would increase in the coming year, while 15 percent anticipate a decrease in spending on network management disciplines. More than half (54 percent) said overall IT infrastructure and management software budgets will remain the same next year.

What's buoying the security market in an ocean of financial losses? Experts point to two drivers: the continuing need for regulatory compliance, and the real fear that computer crime may increase in a down economy.

Given the advanced nature of security-related compliance projects, you'd think spending in that arena would be on the decline. Most public companies have already been audited for Sarbanes-Oxley compliance, while those that handle credit cards have already begun, if not completed, their Payment Card Industry Data Security Standard compliance initiatives.

But spending continues, according to a new independent study sponsored by CA and published last week. In the study, which surveyed some 575 enterprises worldwide, nearly 45 percent of respondents reported an increase in the time and monetary resources required to ensure compliance, with 13 regulations and industry standards found in countries around the world.

In North America, 41 percent of organizations reported the introduction of new regulations as a reason for increasing compliance expenses. In Asia Pacific, where J-SOX was recently enacted, this number was significantly higher at 55 percent, the report states. Europe and Central/South America reported 40 percent and 29 percent, respectively.

Changes to existing regulations also were reported as a cost-raising factor by 49 percent of North American and Central/South American organizations, 39 percent of Asia Pacific businesses, and 34 percent of European organizations, CA says.

The study also showed that most of the respondents rely on manual processes to achieve compliance, although manual processes and a lack of centralized control are "a recipe for spiraling costs," the report says. More than two-thirds of the respondents said they maintain information about the status of their IT compliance controls in multiple spreadsheets, and often within different organizational units.

"This survey verifies what we regularly hear from customers -- that compliance remains a big challenge for them in both direct cost and impact to business processes, and that the issue grows with every regulatory change or addition," said Lina Liberti, vice president for CA Security Management.

But compliance is not the only driver behind increased security spending. A growing flame of malware and security breaches is being fanned by fear that poor economic conditions may spur a new round of cybercrime. PandaLabs, Panda Security's malware analysis and detection laboratory, last week issued a security alert that claims to reveal a direct correlation between the recent stock market volatility and the growth of new threats.

"When we began looking into the specific effects cyber-criminals had on our economy during times of duress, we found a startling connection: The criminal economy is closely interrelated with our own economy," said Ryan Sherstobitoff, chief corporate evangelist for Panda Security. Some experts pooh-poohed the PandaLabs report, but most agree that the downturn will have an impact on cybercrime trends. (See related story, Economic Crisis May Be Boon For Cybercriminals, Experts Say.)

Whether it's compliance, concern of cybercrime, or fear of brand-damaging security breaches, however, it seems that the IT security market is remaining mostly intact, if not actually growing. Less than three months ago, three new security startups -- NovaShield, PureWire, and Zscaler -- entered the market, suggesting that many venture capitalists are still quite interested in the space.

"We'd certainly caution people in times of economic uncertainty that there is usually an increase in crime," Ernst & Young's Upton said. "It's not the time to be cutting security."

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