#Cybersecurity: next Big Thing or next Big Hype?

Remember the (year-two-thousand) Y2K “issue” of 1999? A big scam in retrospect. Big techos like Accenture were laughing all the way to the bank after the smoke cleared. Basically the “bug” that needed to be fixed, according to tech consultants, involved billions of lines in installed computer code worldwide that stored year data in only two characters. So 1968 was stored as “68” in older systems at the time. The consultants asserted that if nothing was done before these systems tick over into the new century after 11:59pm the 31st December 1999, the end the world as we know it would be upon us!

So to avoid panic on the streets and nuclear missiles mysteriously launching left and right, we needed to pay firms like Accenture millions to avoid global catastrophe. It was the sales pitch of the century — literally.

So now we may be in the midst of the next ‘big’ thing brewing in the spreadsheets of the tech industry’s strategic sales forecasts. According to Fortune magazine, cybersecurity is the next must-have preventive maintenance measure.

But is it the next Y2K-scale windfall for the tech consulting industry? According to the report, investors may need to hold their horses a bit…

Investors have been too enthusiastic, and as a result, the shares of cybersecurity companies are overpriced. Overinvestment has been rampant in both the public and private markets. In the public market, the correction is already underway. FireEye FEYE -0.81% , the current poster-child of public cybersecurity pure plays is currently valued at $5.2 billion, down from $13 billion in March, with only $207 million in annual revenues. Imperva IMPV 1.41% is now worth $573 million, down from $1.7 billion in March, with $141 million in annual sales. Both companies have yet to turn a profit.

In the private market, venture capital firms invested a record of $1.4 billion in 239 cybersecurity companies in 2013, according to CB Insights. The median deal size and average pre-money valuation for these transactions increased significantly. When investors buy assets priced much higher than intrinsic values and are overly optimistic about financial metrics influenced by hype, one can suspect that one is witnessing an asset bubble.

Noting the seemingly all-too-familiar irrational exuberance of the market, the report speculates things could go south in one of two ways – “quick and dramatic, or gradual and tame…”

benign0

benign0 is the Webmaster of GetRealPhilippines.com.