Tale of Two Technologies

In early August, McAfee announced its plans to acquire Reconnex for $46M in cash, about equal to the capital invested in the company and a price that almost certainly left little or no booty for the common stockholders and certainly only a shadow of the $350M that Symantec paid for Vontu less than a year ago. That pretty much draws to a close the Reconnex story, one of the pioneers in the Data Loss Prevention arena. It's probably for the better as the data loss prevention products are more saleable to organizations when packaged within a broader product family like McAfee's. DLP/ILP is interesting technology but, it's also difficult to sell. DLP never really established its market value. Initially these systems were sold as something like a firewall -- "Buy this box and install it and bad things won't happen!" But the truth was more complicated and had to do with the complexity of language. DLP never avoided the tradeoff between precision (few false positives) and recall (not missing anything). If you wanted to configure these boxes to find everything they created a mountain of data someone had to wade through. If you cranked the configuration down to avoid these false positive it didn't find everything. So the products weren't the neat solution that the investors had wanted. This brings to seven the number of acquisitions in this space over the past two years, leaving just a few independent, possibly struggling, startups. It's not that the technology doesn't provide value; it's just that what the customer wants -- protection of information -- is much broader than any single offering provides. At about the same time that the DLP/ILP sector began, another group of companies started down the disk encryption path with a similar mission in mind -- protecting customers' data -- but with a simpler concept -- encrypt the disk so that if a laptop gets lost or is stolen, the information is unavailable. Since 1% to 2% of laptops get lost or stolen each year, disk encryption makes sense as a first order response to protecting information. Organizations spent nearly ten times as much on disk encryption products than they did on DLP/ILP technology. And the exit results reflect this. While the seven DLP companies sold for a total valuation of $784M, three disk encryption companies were sold for $1.2B during the same timeframe. Interestingly, McAfee is playing on both sides of these markets -- having acquired Onigma, Safeboot and now Reconnex.