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FireEye's New Partnership Could Help Reshape Cybersecurity

By Nicholas Rossolillo - Updated Oct 11, 2019 at 4:49PM

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The company just inked a deal with private but fast-growing cloud security firm iboss.

The cloud has changed everything. In just a decade, it has set off a wave of business and digital transformation. The era of services sold as a subscription is here as a result. It has made remote work outside of the office -- for better or for worse -- a reality. Companies slow to make the change are getting left behind.

That has been on grand display in the cybersecurity space. Companies that just a few years ago were Wall Street darlings have been disrupted in a big way by a wave of upstarts all born in the cloud and ready to steal business from the incumbents. One of those former darlings is FireEye (MNDT 0.09%), once a triple-digit revenue gainer that's more recently fallen below the average growth rate of the industry overall. The cloud has proven to be a challenging obstacle for it, but it just teamed up with iboss -- a privately-held leader in the cloud security space. This could be a game changer for both security outfits.  

A man in the background pressing an icon with a lock on it, illustrating cybersecurity.

Image source: Getty Images.

Protecting a herd that's dispersed

The problem with the cloud is that it makes traditional cybersecurity difficult -- if not useless -- depending on who you ask. Employees working in an office, and only at the office, can be secured by throwing up a perimeter around the office's network with a hardware device or software called a firewall. But with the introduction of applications based in a data center -- either a private one operated by the company or a public one hosted by someone like Amazon or Microsoft -- employees can now work anywhere.

And when employees are working from home, a coffee shop, or while on the road, that firewall around the office building does nothing. Cybersecurity software that dwells in the cloud and is deployed across the devices themselves, wherever they may be, has thus become a must-have for many businesses. Legacy security firms that secure on-premises operations have been losing ground to an increasingly crowded cloud space. FireEye is one of them. Back in 2014, the company registered 163% year-over-year revenue growth. Since then, growth has trailed off sharply; through the first half of 2019, revenue was up just 7% year over year -- and the company still produced a loss to boot. FireEye is promoting its new cloud-based options, but it's getting lost as newcomers enter the scene.

That's why the new cloud offering FireEye and iboss are making available is so important. According to the joint press release: "The solution combines FireEye industry-leading detection with iboss natively built cloud architecture. As a result, advanced threat protection can follow users and devices wherever they go, giving organizations peace of mind regarding the security of their data."

For its part, iboss says it's the largest cloud-native security company out there with over 4,000 customers. CEO and co-founder Paul Martini told me in a recent conversation that iboss goes toe-to-toe with fellow upstart cloud security Zscaler (ZS 0.88%), which reported over 3,900 customers at the end of its 2019 fiscal year. iboss is backed by Goldman Sachs and is planning a public offering in the next year or so.

Verbal shots fired

What's in it for these two companies? FireEye needs a shot in the arm. Though it's a big player in cybersecurity with forecasted $865 million to $875 million in revenue in 2019, its operating losses are still in the tens of millions every quarter. Only putting up single-digit growth, it either needs to start aggressively cutting costs or double-down on the much faster-growing cloud security industry. Partnering with a company like iboss that's cloud-native could help FireEye accomplish both.  

As iboss is a private outfit, it's hard to judge exactly where it is today, but Martini told me that at the time of our conversation a few months ago, his firm was growing faster than Zscaler (which had revenue growth of 59% during the 2019 fiscal year). Partnering with a larger firm to spur on adoption of its security platform could help iboss keep pace with the brisk competition. In fact, that's part of the reason for iboss' success to date. It integrates with Microsost's Office 365 and Azure, and the company has a partnership with Verizon in which the telecom giant licenses iboss for one of its own security offerings.

As for the industry overall, some consolidation is needed, and a pairing of FireEye and iboss helps. According to tech researcher Gartner, businesses are looking to reduce the complexity of their security efforts, primarily by utilizing one security vendor if at all possible. That's a strategy cybersecurity leader Palo Alto Networks (PANW -0.07%) has been betting on as it has launched its own suite of cloud services and scooped up several security start-ups the last couple of years. It's turned into a war of words as competition heats up. Zscaler and Palo Alto Networks took shots at each other on their respective earnings calls recently -- Palo Alto saying it was displacing Zscaler when bidding on contracts due for renewal, and Zscaler saying it wasn't aware of being displaced and that Palo Alto sounded desperate.

And that's the current cloud security environment FireEye and iboss are teaming up to take on. Firms are starting to step on each other's toes, but cloud security is where the opportunity is right now. Going after new business as a package deal could be the right path to success.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Nicholas Rossolillo owns shares of Microsoft, Palo Alto Networks, Verizon Communications, and Zscaler, Inc. The Motley Fool owns shares of and recommends Amazon, Microsoft, Palo Alto Networks, and Zscaler, Inc. The Motley Fool has the following options: long January 2021 $85 calls on Microsoft. The Motley Fool recommends FireEye, Gartner, and Verizon Communications. The Motley Fool has a disclosure policy.

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