Cybersecurity giant "enclosure war"

Image source @ Visual China

Text | Sunday Finance, author | Bai Xue

Who is guarding cybersecurity?

In recent years, the world's giants have combined vertically and horizontally in the cloud computing market, from super-large orders to ultra-large-scale investment and mergers and acquisitions, showing a "double super phenomenon". Now, this pattern has a new change, this time to the balance to add heavyweight weights, is Google.

Recently, Google parent company Aplhbet announced a $5.4 billion acquisition of cybersecurity company Mandiant. If all goes well, the company will merge into Google's cloud computing division, making it Google's second-largest acquisition after acquiring Motorola.

This huge acquisition has splashed in the investment and financing industry, and some analysts believe that the top manufacturers such as Google will further strengthen the cloud platform capabilities and attract large enterprises with lack of security capabilities to place orders. Even in the field of cloud computing, it has caused a series of continuous reactions, making Microsoft and Amazon join the "cloud security" battle.

Investment bank analyst Ives believes the deal could have a "significant impact" on the entire cybersecurity landscape, with "Amazon and Microsoft, the backbone of cloud computing now under pressure from mergers and acquisitions, which could further expand the armaments of their cloud computing platforms."

The sense of urgency in the world of cloud security is not untraceable. Mandiant, which was acquired, is primarily a managed service that addresses security breaches, and has been valued at $5.25 billion before Google approached Mandiant. Even a month before Google's acquisition, Microsoft had discussed the acquisition with Mandiant, but it ended in failure.

Image source @Mandiant the official website

The logic behind the reason why the top manufacturers look at the same cloud security company is that cloud security can add another moat to cloud computing. For example, after the combination of Mandiant and Google Cloud, it will become a powerful chip for Google Cloud computing. Alphabet CFO Ruth Porat believes that the value of Mandiant's investment lies in being able to compete with the current "boss" and "second" in the cloud services industry, the former being Amazon AWS and the latter being Microsoft Azure. Google's big move to increase network security will put pressure on cloud computing giants and trigger large-scale mergers and acquisitions.

In this regard, we will start from the perspective of cloud security, show the cloud security market pattern and development status of traditional Chinese network security vendors and cloud computing vendors, and then explore the importance of cloud security for individuals, enterprises and even countries.

01. Why do giants bet on cloud security?

Acquiring cloud security star startups has become the norm in Silicon Valley.

Since 2018, AWS, Oracle, and VMware have all acquired a number of startups to address cloud security issues. For example, Harvest.ai acquired by AWS two years ago has now become a product for AWS anomalous behavior recognition.

Behind the giants' frequent bets on cloud security, there are two important reasons, one is that security vulnerabilities rise with the data volume index. Second, hackers have formed a black industry, and the target of attack is becoming increasingly clear.

After entering the 5G era, the global data volume has grown exponentially, and Bob Swan, CEO of Intel Corporation, once publicly stated at the Intel press conference that the global data volume has increased by 25% per year since 2015. By 2025, the global data volume is estimated to reach 175 ZB. Intuitively, 175ZB is the equivalent of storing 6.5 billion years of video content, and it's still in high definition.

In the face of huge data volumes, if large enterprises still choose hardware storage solutions, they will incur high costs. In order to reduce costs and increase efficiency, it is necessary to transfer enterprise data to the cloud to achieve digital transformation.

Microsoft CEO Satya Nadella said that customers are starting to adopt cloud solutions, and two years of digital transformation can be completed in two months. Although enterprises can promote talent and process innovation, they can also amplify and spread risks. Especially after the outbreak of the epidemic, online remote work has become one of the mainstream office methods, and there are potential hidden dangers after a large number of important and sensitive work content is put on the cloud. Bugcrowd data shows that vulnerabilities surged 50% after the outbreak of the epidemic in 2020 compared with previous years.

The cloud, which stores important data from enterprises, has become a target for hackers.

Recently, there have been hackers who have seized the vulnerabilities driven by NVIDIA graphics cards, extorted, and the giants have been caught in the loopholes, not to mention other small businesses, these small bugs can often easily trigger a crisis of trust in the market.

On the other hand, hackers gather for commercial interests to form a black industry to obtain valuable information about enterprises and extort money. Dr. Gong Fengmin, vice president of information security strategy of Didi Chuxing, said in a podcast: Black production is always one step faster than security manufacturers.

"Today's black industry will first scan the information, judge and assess the value of the information before deciding whether to invade and what kind of intrusion method to adopt." Bow Fengmin said in an interview.

Cyberattacks are also different for different hackers. Among the various types of cloud security vulnerabilities, phishing, misconfiguration, and code vulnerabilities are typical. Since the pandemic, many phishing attackers have used the COVID-19 pandemic as cyber bait to trick employees who manage corporate Saas accounts into taking out keys. According to Google's data, after the outbreak, Google has to deal with more than 10 million malicious emails related to the new crown epidemic every day.

With the popularization of industrial digitalization and online office, the center of security problems has shifted from individuals to enterprises, public institutions, and governments. For example, there are also some vulnerabilities in the early stage of online office software represented by Zoom, which makes the internal information of the enterprise may be leaked to the eavesdroppers.

Therefore, cloud security issues are not only simple code and system problems, but also problems related to the interests of enterprises and even national security. The larger database and wider coverage mean that the difficulty of cloud security processing has increased, and the restrictions of policies have increased.

When the cloud has to go up, security becomes particularly important.

In order to better protect the security of data on the cloud, many enterprises have to entrust various cloud security service providers to provide them with cloud security and other types of network security services.

As a result, the global network security market has gradually heated up, with a market size of 136.66 billion US dollars in 2020. In 2020, established cybersecurity company Palo alto and Zscaler, the world's largest Zero Trust cloud security company, maintained steady growth.

In addition, there are a number of emerging network security vendors that have made efforts to provide cloud computing security services and seized the opportunity to become unicorns. For example, last year, two Israeli companies emerged in the cloud security track, one is Wiz (2020) for cloud infrastructure, and the other is cloud security solution Orca Security (2019), Wiz and Orc from its inception to an average valuation of $1.5 billion, it took only 1-2 years to grow into unicorns.

02, turn over on the cloud

Cloud security may be a new proposition, but in terms of broader network security, this topic is no longer new.

From antivirus 360, which every Chinese home computer won't miss, to traditional cybersecurity companies expanding their cloud security business, cybersecurity has never disappeared around us, and the investment fever in this field has never disappeared. According to the data, in 2021, the investment and financing in the field of network security increased significantly, with a total of 161 investment and financing events, with an investment amount of about 15.3 billion yuan.

In the hot network security track, traditional network security vendors are relying on cloud security services to fully become popular.

Start with the 360 that the people were once familiar with. Ten years ago, with the free software 360 Security Manager for C-end users, 360 grew bigger in the PC era, and its market value soared to $10 billion in 2013. However, with the peak of PC traffic and the failure to develop new services in time to seize the mobile terminal business, 360 ushered in a lost five years, from the bleak delisting of the New York Stock Exchange, and after returning to A shares, it fell all the way to double digits, which is the darkest moment of 360.

Do games, do hardware, do finance, and when 360 tries to keep up with the pace of mobile marching, it loses its first-mover advantage. At this point, 360 realized that the network security business was a ballast stone. On April 360, 2019, it transferred the shares of Qianxin and will use the returned funds for the "great security" strategy to expand the government and enterprise security business.

Betting on government and enterprise cloud security gives 360 a chance to recover again. According to the 2021 semi-annual report released by 360, the operating income in the first half of the year reached 5.619 billion yuan, an increase of 13.03% year-on-year. Among them, the revenue of security and other businesses, mainly government and enterprise security business, was 912 million, an increase of 322% year-on-year, and the half-year revenue scale has exceeded the total amount in 2020.

It is not only 360 that smells the opportunity, but also the traditional network security vendors Anheng Information, Venustech, Zhongfu Information and other network security vendors have successively incorporated cloud security into the business scope in 2019, which has a pulling effect on the overall performance growth. Wind data shows that in 2020, the revenue growth rate of Anheng Information and Venustech New Security Business has reached 50%, and the growth rate of Zhongfu Information has exceeded 200%.

Taking Anheng Information as an example, this network security company was founded in 2007, and its business direction has been application security and data security until 2015, When Anheng Information saw the prospect of network security, launched Tianchi Cloud and Anheng Cloud to cut into the cloud security business, and connected to public and private clouds with a multi-cloud management platform.

In order to continue the continuous contribution of cloud security to the company's business, the chairman of Anheng Information has said that more than 20% of the annual revenue will be invested in research and development every year. According to the total operating income from January to December 2021, it was 1.82 billion yuan, an increase of 37.68% over the same period of the previous year.

360, Anheng Information, the reason why these traditional security vendors can eat the dividends of cloud security, is nothing more than three points: multi-cloud environment, policy pressure, and the diversified needs of customers.

More than 92% of the world's enterprises are already deploying their operations in multi-cloud environments. In this part of the enterprise, more than 43% of enterprises are mixed public cloud + private cloud model, which is a complex situation. IDC has conducted a survey where more than one-third of organizations have purchased more than 30 cloud services from 16 different vendors.

The security needs of an enterprise are fragmented.

This means that companies need to choose multi-domain security products. Although there are only a few cloud computing vendors such as Alibaba Cloud in terms of technical aspects, from the perspective of security product scope, cloud computing vendors only provide general and standard network security solutions and sell them in package with cloud computing services. However, manufacturers with network security backgrounds can often provide enterprises with a larger scope of security services, from single-point security products represented by border security and Xinchuang to new security services with data security, cloud security, and zero trust.

Security is a land that is not destined to be occupied by giants. Xiao Li, vice president of Alibaba and general manager of Alibaba Cloud Intelligent Security, also said in an interview, "Because security is not vertical, on the contrary, it involves all areas of the Internet and the business world, which can be described as security everywhere." These areas are so broad that it's impossible for a giant to say, "My product is the best in all areas."

However, the market is not without variables. A document released by the Tianjin State-owned Assets Supervision and Administration Commission last year required state-owned enterprises to stop using third-party cloud services and migrate to the "state-owned assets cloud" unified platform, excluding the efforts of private enterprises and causing market attention.

03. Hold the cloud security chips

If you put cloud security into a more macro perspective, you will find that cloud computing service providers technology giants and traditional network security vendors are in two different roles.

For traditional security vendors, betting on cloud security is to expand the profit point, but for cloud computing vendors with cloud computing capabilities and infrastructure, data security in the cloud computing environment is not a single point, but a systematic construction project. Cloud security of cloud computing vendors is not only a new business, but also a chip to expand cloud computing.

According to the "China Public Cloud Service Market (First Half of 2021)" tracked by IDC, the top three vendors in the IaaS+PaaS market in China's public cloud market are Alibaba Cloud, Tencent Cloud, and HUAWEI CLOUD, respectively, and the latter two account for similar proportions and are in a scorching situation. In such a situation, the three vendors put a part of the bet on the growth point that cloud security capabilities bring to cloud computing.

First of all, the competition between cloud computing leaders and cloud security capabilities is most directly reflected in the demand for security talents. According to data released by the Ministry of Education, the total size of college graduates in the class of 2022 is expected to exceed 10 million, reaching a new high. At the same time, the Internet has repeatedly broken the news of layoffs and internal blockades of recruitment positions in large factories. In this environment, cloud computing vendors are still increasing the recruitment needs related to cloud security business.

Since January this year, Huawei has released 12 network security-related positions on the official website of social recruitment, Tencent has released 18 recruitment needs related to cloud security business, and Alibaba has the strongest demand for talents in the field of cloud security, releasing a total of 34 cloud security positions on its official website, covering R&D experts, engineers, product operations, and so on.

Secondly, from the timeline, the cloud computing head manufacturers are in a fast-paced process of cloud security development. Alibaba Cloud, Tencent Cloud, and HUAWEI CLOUD all began to engage in cloud security business around 2010.

Starting with Alibaba, in 2009, Xiao Li, Alibaba's first security engineer, began to form and be responsible for the Alibaba Cloud security team and designed the Alibaba Cloud security architecture. He publicly stated to 36kr 4 years ago that the cloud security business is contributing higher profits to Alibaba Cloud. Xiao Li revealed that Alibaba Cloud has achieved an increase of more than 100% in the past nine quarters, of which the growth of cloud security business customers is 300%.

How far is Alibaba Cloud security progressing? Last year, Xiao Li gave a case about DingTalk at the Cloud Valley Cybersecurity Summit Forum: During the epidemic at home, DingTalk needed emergency expansion, and with the help of Alibaba Cloud security, the security deployment of 20,000 hosts was completed in 1 hour. But if it is put into the offline operation, it will take at least a month.

If the steady development of Alibaba Cloud security benefits from the broad stage of Alibaba Cloud, then Tencent Cloud's security capabilities come from historical accumulation.

Tencent has been involved in the security field for a long time. In 2009, Tencent combined with the instant messaging business to enter the security sector, launched QQ Security Manager, and competed with 360 Security Guard for the PC security market. A mountain is difficult to tolerate two tigers, and then the famous 3Q war broke out. Although the war ended with the intervention of the Ministry of Industry and Information Technology, from that time on, Tencent realized the importance of the security business to the group's core profitable projects.

Therefore, in the third organizational structure adjustment of Tencent in 2018, Tencent Security and Tencent Cloud, which originally served the To C application, merged with Tencent Cloud in the CSIG department and upgraded to cloud security, so that the Tencent cloud security team and Tencent security formed a synergy. According to Tencent Cloud community data, Tencent Cloud's security capabilities are currently moving closer to the cloud-native security system.

Compared with other leading vendors, HUAWEI CLOUD Security emphasizes the concept of "cloud security responsibility sharing" and has developed a data security responsibility sharing model. On this basis, it provides full-stack security protection from the chip to the cloud.

The three major manufacturers have their own characteristics in cloud security capabilities, Alibaba Cloud security escorted data security in the double eleven period, Tencent Cloud rushed towards the government and enterprise cloud security business, and HUAWEI CLOUD showed restraint and respect for data. But similarly, the three companies have never been less invested in cybersecurity companies.

In 2018, Tencent exclusively invested 100 million yuan in Arsay Technology, an intelligent security pilot, and in 2021, it successively invested in two cloud security companies, Hanging Mirror Security and Qingteng Cloud Security, holding 13.33% and 10.22% of the shares respectively.

For example, Alibaba is actually the second largest shareholder of Anheng Information mentioned above, and Huawei is the most cautious of the three, and in more than a decade of investment and mergers and acquisitions, only one Israeli database security company, HexaTier, has been acquired.

Keeping up with the pace of investment and opening up the cloud security layout, the three leading cloud computing vendors have been laying out cloud security for ten years, but because Tencent Cloud and HUAWEI CLOUD have not yet achieved profitability, the investment of manufacturers in cloud security can only be regarded as continuous, and they have not yet entered the battle for cloud security.

However, as enterprises' data security requirements gradually increase, it can be judged that the cloud security market will inevitably usher in a fierce midfield showdown.

04. Conclusion

From a corporate perspective, the battle for cloud security is about profitable growth and broadening the moat of cloud computing. At a macro level, cloud security is about national competitiveness.

In fact, in today's tense international environment, innovation and upgrading in the field of cloud security will become a protective shield for Chinese enterprises to enter the world stage.

The information warfare and network security warfare in the Russian-Ukrainian conflict vividly revealed this point, and a number of international Internet service operators led by US companies announced that they had launched a "disconnection operation" against Russia, including the Cogent communication trunk line cutting off contact with Russian suppliers, and SectIGo stopping issuing SSL certificates to Russia.

This fully shows that autonomous control has never been so urgent.

Perhaps we can sigh today the foresight of Ali's "going to IOE" many years ago, the exploration of this move of private enterprises, at first just to control costs, did not expect to gradually become a domestic alternative, and the next era, the market of cloud computing, it is more necessary for us to control independently and maintain the world leading position of cloud computing.

And this requires China to mobilize the country's top intelligence to work hard to tackle key problems and break through technical barriers, which also requires maintaining strategic determination, abandoning ownership bias, eclectic and degrading talents, and fully mobilizing intelligence centers such as Tencent Ali Huawei.