Cybersecurity has been a hot topic as of late due to heightened Russian aggression. The source of these attacks can easily be hidden, yet the damage can be quite noticeable -- take the Colonial Pipeline cyberattack, for example. Because of the current environment, businesses are taking steps to bulk up their cybersecurity offerings, allowing those selling the services to thrive.
Among the companies selling the products are tech giants like Alphabet (GOOG -0.96%) (GOOGL -1.10%) and Microsoft (MSFT 0.67%). These businesses are among the best in the world and will seize every opportunity to expand their reach. One area they clearly see potential in is cybersecurity, as shown in the chart.
Spending nearly $2.4 billion in 2021 is impressive, but Alphabet decided to completely blow that total out of the water in a single stroke. Earlier in March, Alphabet announced it was acquiring Mandiant (MNDT) (formerly known as FireEye) for $5.4 billion. Alphabet wasn't alone in the acquisition process, as Microsoft was rumored to be pursuing Mandiant earlier in February. According to Alphabet CFO Ruth Porat, the acquisition was done to compete against security products offered by Amazon's Amazon Web Services and Microsoft's Azure.
With two of the biggest companies attempting to buy Mandiant, it's clear the race for cybersecurity dominance is heating up. Besides the need for protection, what makes cybersecurity so lucrative?
Cybersecurity is a vital service for every company
Businesses are typically advised to spend 10% to 15% of their IT budget on cybersecurity. The protection is needed for the company as well as its customers, as no one wants to do business with anyone with a bad track record of security breaches. As more commerce moves online, the need for top-notch cybersecurity solutions becomes even more necessary. Additionally, during tough economic times, most businesses won't cut their security budget, as it is seen as a must-have.
A new catalyst for increased cybersecurity attacks is the work-from-home trend brought about by the COVID-19 pandemic. It's easier for businesses to monitor activity when everyone is at the office, but when everyone is away, it becomes more difficult to spot an intrusion. These attacks are also more costly -- IBM found the average breach cost $1.1 million more when remote work was a factor.
Mentioning cost, the average data breach set companies back $4.2 million during 2021, up 10% from 2020. The largest contributor is lost business, which makes up 38% of the cost of a data breach. However, AI security and automation reduce data breach costs by up to 80%.
The large tech companies recognize this and are attempting to seize as much market share as possible as businesses recognize the benefits of having a solid cybersecurity solution. After a meeting in August 2021 with President Biden, Alphabet and Microsoft committed $10 billion and $20 billion, respectively, over five years to increase cybersecurity tools and train professionals.
With $30 billion pledged by these two companies over five years, the Statista chart will need to significantly expand its y-axis.
How investors can profit
It's clear cybersecurity is seeing a spending boom, but how can investors get in on this trend? Companies like Alphabet and Microsoft are safe bets, as they have other business segments besides cybersecurity that are also generating revenue.
Companies like CrowdStrike (CRWD 1.29%) and Okta (OKTA 0.06%) are two pure plays in the cybersecurity space that have massive potential. While they don't grab as many headlines as the bigger tech players, they are among the top players in the industry and should be considered when investing in this space.
Cybersecurity spending will only increase from the big tech companies, as the need for protection is growing throughout every industry. Investors should take notice and get some exposure to cybersecurity businesses in some fashion.