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KEY NOTE : IT Security: February 2005

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This report covers: IT security products, IT security services, new ways of operating, political influence, modern software is easier to attack, rise in cost of security breaches,estimated direct costs of security breaches,

EXECUTIVE SUMMARY

Expenditure on IT security products and services was worth an estimated £1.44bn in 2004, with sales having increased by 29.5% over 2003. If companies' internal spending on IT security staff is included, the figure rises to £2.11bn, which is equivalent to around 2.9% of all IT budgets. The two main sectors covered by this report are IT security products, which includes hardware and software, and IT security services, which includes consultancy, systems integration, training and outsourcing. In 2004, the market split was approximately 60:40 between products and services.

Spending on IT security (both internal and external) is taking a growing share of IT budgets, although many organisations continue to underinvest in this vital area. A large proportion of UK businesses still regard security as an overhead rather than an investment. IT security's increasing share of total IT spending is due to the constant rise in the number, sophistication and variety of threats faced by organisations and the resulting growth in the number of breaches suffered. At the same time, the cost of each breach suffered is rising, with around 70% of breach costs relating to business lost due to computer downtime, and this element of cost tends to rise with economic activity. Key Note estimates that, in 2003, 19.7 million breaches were suffered by UK organisations, at a total cost of £38.42bn.

Changing business practices, such as outsourcing, globalisation, teleworking and e-business, which have led to the development of distributed corporate structures and greater networking of computers within and between organisations, are making modern IT systems more vulnerable to attacks.

Given the growing sophistication of attacks, many organisations are adopting a `layered security' approach, which combines solutions such as desktop anti-virus, server and gateway anti-virus, content filtering, and proactive techniques such as behaviour analysis and heuristics. Moreover, to reduce the points of vulnerability in a system, organisations increasingly want to buy integrated platforms/appliances, rather than individual, standalone products. Security appliances are taking an increasing share of the market, causing hardware-based products to grow at the expense of software products.

Increasingly, security is being integrated into the computer network at the planning and operation stage. The importance of networking means that the modern secure network must allow access but in a controlled manner, so growing importance is being placed on identity and access management solutions. As the use of wireless and remote networking grows, so securing mobile and wireless devices and systems is becoming more important.

Spending on IT security products and services is forecast to show strong growth over the forecast period (2005 to 2009) with the main growth areas being: products and services that have a strong return on investment and make security more manageable; wireless and application security solutions; security audits and penetration testing; role-based access-control solutions; biometric technology; products and services that enforce corporate policy, comply with privacy regulations and limit legal liability; content management software; outsourcing; and security appliances.

TABLE OF CONTENTS

Executive Summary

1. Market Definition

REPORT COVERAGE

MARKET SECTORS

IT Security Products

Table 1: The Main Security Products and their Functions, 2004

IT Security Services

MARKET TRENDS

The Communications Society

Table 2: The Changing Use of Communications Technology (% of UK businesses), 2002 and 2004

The Rise of the Resilient Virtual Organisation

Access Control a Growing Issue

Protecting Existing IT Investments and Digital Assets

Table 3: The Proportion of UK Businesses That Would Suffer Significant Business Disruption if Information was Corrupted or not Available (%), 2002 and 2004

Political Influence

The Prevalence of Security Breaches

Table 4: The Main Causes of Premeditated and Malicious Security Breaches (%), 2000-2004

Table 5: The Causes of the Worst Security Incidents Suffered by UK Businesses in the last 12 months (%), 2004

The Rising Cost of Security Breaches

Table 6: Estimated Breakdown of the Cost of a Security Breach (%), 2003/2004

Table 7: Estimated Cost of Security Breaches in the UK Arising from Premeditated or Malicious Intent (000, %, £bn and £), 1998-2004

ECONOMIC TRENDS

Population

Table 8: UK Resident Population Estimates by Sex (000), Mid-Years 1999-2003

Gross Domestic Product

Table 9: UK Gross Domestic Product at Current and Annual Prices (£m), 1999-2003

Inflation

Table 10: UK Rate of Inflation (%), 1999-2003

Unemployment

Table 11: Actual Number of Unemployed Persons in the UK (million), 1999-2003

Household Disposable Income

Table 12: Average Annual UK Household Disposable Income Per Capita (£), 1999-2003

MARKET POSITION

Table 13: The Share of UK IT Budgets Taken by Spending on Security Breach Prevention (%), 2000-2004

Table 14: The Proportion of UK IT Budgets Spent on Information Security in the Past Year (%), 2002 and 2004

Overseas

2. Market Size

THE TOTAL MARKET

Table 15: Estimated UK Expenditure on IT Security Products and Services (£m at final selling prices), 2000-2004

BY MARKET SECTOR

IT Security Products

Table 16: Estimated UK Expenditure on IT Security Products (£m at final selling prices and %), 2000-2004

Table 17: Estimated UK Expenditure on IT Security Products by Type (£m at final selling prices and %), 2002-2004

Market Shares

IT Security Services

Table 18: Estimated UK Expenditure on IT Security Services (£m at final selling prices and %), 2000-2004

Table 19: Estimated UK Expenditure on IT Security Services by Type (£m at final selling prices and %), 2002-2004

Market Shares

3. Industry Background

RECENT HISTORY

NUMBER OF COMPANIES

DISTRIBUTION

HOW ROBUST IS THE MARKET?

LEGISLATION

Data Protection Act 1998

Regulation of Investigatory Powers Act

Lawful Business Regulations

Electronic Signatures Directive/Electronic Communications Act 2000

Directive 2002/58/EC of the European Parliament

Cybercrime Treaty

Codes of Practice

BS7799 — British Standard on Information Security Management

ISO17799 — Information Security Code of Practice

KEY TRADE ASSOCIATIONS

Communications-Electronics Security Group

e.centreUK

European Forum for Electronic Business

European Information, Communications and Consumer Electronics Technology Industry Association

Intellect

Internet Services Providers' Association

4. Competitor Analysis

THE MARKETPLACE

MARKET LEADERS

Accenture

Company structure