A few months ago we wrote about a meeting we had with Tom Reilly, CEO of ArcSight — initially taking the company public which eventually led the way to this week's acquisition by HP. Tom told us a story which we've retold many times about the time he met with a company's CEO a few days after that company was in the news due to a data breach which had gone on for more than a year revealing the confidential information of thousands of customers. The CEO challenged him and asked "how would you have prevented this from happening?" His reply was "geez, there probably isn't a product around that would have prevented your data breach but if you were using our product the breach would have been identified within a few hours and not go on for more than a year." There's lots of wisdom in that response - Tom's got a great perspective — it will be interesting to see what happens post acquisition.
For years we've listened as Art Coviello, RSA's CEO, kicked off the RSA conference keynotes with his view of the industry. Whether you like him or not, it's his show so he gets to set the stage for what follows. Three years ago Art C. predicted the demise of the independents in the security business — consolidation and collapse of the many independent firms was on the horizon as the major players swept up features and functions till all we had left would be a "Snow White and the Seven Dwarfs" type of market (and you could guess who would be Snow White). While sounding dramatic at the time it was largely wrong in large part due to the fact that security is not a static problem but changes on both the user side and the attacker side. You don't have to look far for proof that the independents have done well in the past few years — ArcSight and SourceFire might be the most visible proof of this. In this year's keynote, he talked about the importance of the cloud and the need for security in order to make Cloud Computing adoption happen. And the topic of securing the Cloud was pretty much the most popular topic of the vendor keynotes. The Cloud is viewed as a security opportunity that no one wants to miss. But what does that mean? Right now Cloud security is pretty much a PowerPoint battle, with vendors crossing out the word "Server" in their old presos and putting in the words "Cloud Computing." Three years ago the business consolidation prediction for security turned out to be wrong. It may well end up that the Cloud security promoters don't yet understand how things will evolve.
Last week we met with Tom Reilly, president and CEO of ArcSight. Tom became CEO about 18 months ago when the stock price was just under $7.00 and underwater from the company's initial public offering. Over the next six weeks the stock price continued to plummet to $4.74. Since then and despite the recession Reilly has presided over a mercurial rise with the stock price surpassing $25 and the most recent quarter revenues growing to $46.1M from the prior year's $36.4M (27% increase). Although quarter to quarter sales dipped midyear 2009, quarterly revenue has grown from $32M to $46M in the past six quarters. What's more, the company has a market cap of $900M and $107M in cash putting the company as a potential buyer of adjacent products that can be sold to its customer base. As the market leader in the Security Event Management space Reilly doesn't want to be defined or limited by "security" events and instead prefers to define a broader category he calls ETRM — Enterprise Threats and Risk Monitoring. The nearest competitor seems to be EMC/RSA combining its recent acquisition of Archer (Jan 2010) with its earlier (9/06) acquisition of Network Intelligence to provide similar ETRM capability. Even though the SEM category is seeing more pressure as new log management entrants like Splunk join the fray Reilly doesn't see an expanding field as a problem as he keeps ArcSight focused on the value end of the business. With a successful 18 months behind him, a high market capitalization and a hundred million in the bank it will be interesting to watch Reilly's strategic moves as he builds out ArcSight's ETRM category. (We'll leave out the part that everyone likes Tom, one of the easiest guys to get along with in the valley and write that story for a subsequent issue.)