Eat or be eaten in cybersecurity

As the cybersecurity sector is gradually becoming more professional, competition from major players will also increase. IT providers who are unable to carve out their own market with a specific niche risk being overwhelmed by a new wave of consolidations.

From acceleration to deceleration

In recent years, the Dutch IT services sector has already made significant strides toward consolidation. During the COVID-19 pandemic, the demand for digital products and services increased, causing the sector to grow rapidly and leading to more long-term contracts being signed. There was also a greater demand for IT providers as one-stop-shops, as companies didn’t want to sign separate contracts with different vendors for each service. Additionally, relatively low financing costs and high multiples played a major role in the rise of mergers and acquisitions.

Consolidation is driven by increasing competition from large international players like Microsoft, Amazon, and new niche players. Consolidation offers economies of scale, cost savings, a broader portfolio, greater market share, and improved customer service. As a result, IT companies will need to differentiate themselves through quality, service, innovation, and price in order to survive and grow.

Moreover, rapid technological development requires continuous investments in knowledge, skills, infrastructure, and software. IT companies must keep up with trends like cloud computing, artificial intelligence, cybersecurity, big data, and the Internet of Things. Consolidation helps pool expertise, increase innovation capacity, spread risks, and enhance flexibility.

Consolidation in the IT sector ▶️ High demand for digital services during the pandemic ▶️ More long-term contracts ▶️ Greater demand for one-stop-shops ▶️ Low financing costs ▶️ Increasing competition from large international players and new niche players ▶️ Opportunities for innovation, flexibility, and risk diversification.

Over the past year, M&A activity in the sector has slowed somewhat, partly due to higher financing costs. Labor shortages are also hindering greater growth. While consolidations may not increase at the same pace, this doesn’t mean that M&A activity has come to a complete halt.

Internationally, the market also seems to be undergoing significant changes. Consider the recent acquisition of Splunk by Cisco and IBM QRadar by Palo Alto, two SIEM (Security Information Event Management) companies with a major influence in the cybersecurity sector.

The shift from on-premise infrastructure to cloud security, the new legal obligations from NIS2, and the growing awareness among companies about their cyber resilience all seem to be playing a role in changing the market for IT providers. What does this mean for all the small, specialized players in the market?

The market is changing ▶️ Shift from on-premise infrastructure to cloud security ▶️ New cybersecurity laws ▶️ Greater awareness among companies of the importance of cybersecurity ▶️ Increased demand for specialized solutions

Challenges in an immature market

The digital world is becoming increasingly important, and companies are adapting accordingly. However, because so much has changed so quickly in recent years, companies have had to continuously adjust. This has resulted in the Dutch cybersecurity market still being immature.

This also applies to customers: they often have limited knowledge about the products or services offered. This leads to uncertainty and hesitation when purchasing new or unfamiliar solutions. Due to the many developments, they sometimes struggle to see the forest for the trees, which can result in ‘solution uncertainty’: delaying decisions due to an overwhelming array of digital solutions. This, in turn, impacts the security level of companies, as customers continue to rely on their current solutions even if they are no longer suitable.

In the book Security Innovation Stories, we delve deeper into the concept of ‘solution uncertainty’, exploring its causes, what the industry needs to be aware of, and its consequences.

The immature cybersecurity market in the Netherlands is also characterized by a lack of established standards or benchmarks, making it difficult for customers to compare and assess the quality or effectiveness of different products or services. Additionally, constant changes and the development of new technologies can lead to uncertainty among buyers, which can hinder innovation. Furthermore, the multitude of solutions limits integration possibilities and can result in high costs for switching providers.

Today’s challenges ▶️ Solution uncertainty ▶️ Lack of standards ▶️ Constant changes and developments ▶️ The variety of solutions.

Collaboration & Innovation

The current challenges do not completely halt the professionalization of the sector. A sign of the sector’s growing maturity is the rise of collaborations and industry organizations. For example, organizations like Cyberveilig Nederland play a role in promoting cooperation among companies, while initiatives such as the National Cyber Security Centre (NCSC) and the Digital Trust Center (DTC) are examples of how the government is working to enhance companies’ cybersecurity capabilities and foster collaboration between the public and private sectors.

Additionally, innovation remains a driving force, with many companies investing in advanced technologies such as AI and machine learning to develop new security solutions.

Create Your Own Market

How do you stay afloat in a market with intense competition, rapid changes, continuous new regulations, and many large companies with deep pockets?

Choose your niche, dare to decide which customers you want to serve and which you don’t. Define your point of view on the market and its users. Additionally, carefully consider your services: how does your company differentiate itself from the rest? Make this distinction highly visible.

The competition is fierce, so you need to ensure that you are specific and distinctive enough—otherwise, you risk being overshadowed by the major players. By choosing a clear focus and defining your unique value proposition, you create a strong market position and build a loyal customer base that values your specific expertise.